Is the Chinese succession model doomed to fail?
PROFESSOR Joseph P.H. Fan, researcher and educator of family business governance at The Chinese University of Hong Kong wrote in his book —
market value of 250
that the listed family Singapore declined by almost 60
years before to the year the family patriarch handed over the business to his successor. In other words, if an investor bought shares valued at
the value of their shares would be reduced to an average of $40 three years after the succession. Hong Kong companies dropped the most, losing some 80 percent on average with Taiwan and Singapore family owned companies falling about 40 percent and 20 percent respectively.
Why is this happening amongst overseas Chinese family enterprises? The reason behind the shocking succession decline is twofold. According to Fan, intangible assets such as values, skills and networks, although commonly found among the first
to be passed on to the next generation. Second, Chinese families also face various family, industrial and institutional obstacles such as family brain drain, regulatory changes and political uncertainty, which can destroy or ruin the families and their businesses.
History of family conflict
Presented with these numbers, there is something brewing amongs over-
next generation Chinese businessmen become increasingly exposed to Western values, the gap between them and the older generation has
transition to the next generation.
One of the major causes why there are internal family disputes is the fading of traditional Chinese culture and values within family businesses. “The Chinese practice of bequeathing all the family wealth to the eldest son is diminishing,” says Fan. “This tradition, although perceived by some as ‘unfair,” has helped preserve family wealth and
generation of Chinese family mem-
Western culture and education are adopting different family values such as equality and democracy. Succession planning is, therefore, less straightforward and more complex with greater potential for family disputes.”
Another cause of many business failures are attributed to next generation successors themselves. Even if they share the same values and passion with that of their parent founders, they may not be seasoned business professionals. It is therefore important for senior business leaders to build a strong management team and put in place a model of corporate governance that can effectively measure next generation leadership performance. Having
- ing governance early is no longer an option. They are non-negotiable “best practices” tools that can ensure business continuity.
In conclusion, the pervasive nature of family business disputes is increasing at an alarming rate with poor succession planning as the root cause of the problem. Hence, the impact of poorly managed succession and fam-
the family business and investors. It is time for overseas Chinese business leaders to heed Fan’s advice to take their companies public.
Succession failure by default
- nese rulers were obsessed in building dynasties for thousands of years and building empires to further their commercial interests was part of their culture. There is no better arena for observing a culture in action than family owned businesses. Cultures tend to reveal themselves in situations where much is at stake, because it is here that their resources are most needed and business practices are shaped by deeply-held cultural attitudes toward work, power, trust and wealth.
Does this volatile mix of culture, old values, wealth, power and western values weigh in heavily on the succession decline of most overseas Chinese businesses? Absolutely!
Is separation an inevitable reality that should prompt business leaders to put in place an exit mechanism for heirs who do not share the same vision? Yes!
Some think the best path to future success is to ditch leadership by family members — and instead bring in the professionals. But are these the right way forward — and what lessons can we learn from the family approach to business?
To be continued...