Mon, Jan 09, 2017 - Page 6 News List

EDITORIAL: Succession and business empires

TransAsia Airways Corp dissolved its operations in November last year, but the airline and its former employees still have not agreed on severance packages. The issue has not only left the more than 1,700 former employees frustrated just three weeks before the Lunar New Year holiday, but also raised the question of whether corporate dissolution is the best exit strategy in a case like this.

The issue has ignited discussion about exit strategies for family businesses, particularly about their method and timing. Well-developed exit strategies can have a big impact on the value of a business and inevitably have implications for employees, investors and society as a whole. Apparently, TransAsia — one of the three main businesses of the Lin (林) family empire — did not think through the consequences.

There are some common exit strategies for family businesses, such as selling to management, selling to a third party (including financial investors or competitors), or gradually winding down the business before a formal end. Nonetheless, an abrupt dissolution of business is barely better than doing nothing before it dies. The TransAsia case has broad repercussions and shows how poor succession planning contributes to the failure of family businesses, as the saying goes: Wealth does not pass three generations.

Are family businesses prepared to put a succession plan in place? According to a recent survey conducted by PricewaterhouseCoopers Taiwan (PwC Taiwan), they are not. Most Taiwanese family businesses are not adequately prepared for succession — only 9 percent of owners have a formal, written succession plan, compared with 10 percent in China, Hong Kong and Singapore, and lower than the global average of 15 percent. Regarding the separation of ownership and management, 29 percent of Taiwanese family businesses have plans to keep management out of the hands of family members, while 58 percent want management and ownership to remain in the family, higher than the global average of 39 percent, the survey showed.

Most family business leaders expect next-generation family members, rather than professional managers, to take over their business. According to PwC Taiwan, only 11 percent of Taiwanese owners will leave the family business by thinking outside the box, compared with 28 percent in China, 23 percent in Hong Kong and 20 percent in Singapore.

Family businesses are the backbone of the economy, with about 74 percent of publicly listed companies being family-controlled, from small businesses to major corporations, according to a report issued by the Taiwan Institute of Directors in April last year. However, an elderly owner, rivalry between siblings or other family members, as well as rapid changes in the business and the economic environment, have made succession planning an urgent concern for top leaders.

There have been conflicts among Grape King Bio Ltd’s Tseng (曾) family members, struggles between Evergreen Group’s Chang (張) family heirs and infighting between siblings of Taisun Enterprise Co’s Chan (詹) family last year.

For family businesses to be stable and long-lasting, they must step up efforts to create sound succession plans, as well as address the issue of separating ownership and management in corporate governance.

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