From India’s Ambani empire to the Li (李) dynasty of Hong Kong, family firms are a pillar of Asian economies, but rising globalization and generational shifts are throwing up new challenges.
Breaking cherished traditions to hire non-relatives to key management posts as companies diversify and compete in a fast-changing global market is one such hurdle, analysts say.
The need for greater transparency and accountability, especially for non-listed family companies, is a major factor, while careful planning on leadership succession can prevent potentially ruinous feuds.
Photo: Bloomberg
Joseph Fan (范博宏) from the Chinese University of Hong Kong singles out family succession as an “extremely challenging issue” being addressed as many Asian firms make the transition from elderly founders to their offspring.
“If family disputes lead to decisions that damage the businesses, this could cause broader damage to these [regional] economies,” he said on the International Finance Corp’s Web site, the World Bank’s private sector arm.
Experts say more than 70 percent of Asian firms are family-owned, defined by Credit Suisse as those where a family or individual in the clan controls at least 20 percent of cash-flow rights.
A Credit Suisse study last year showed that family enterprises made up half the listed companies and 32 percent of total market capitalization in 10 Asian economies covered in the research.
They are also major employers, accounting for 57 percent and 32 percent of staff at listed companies in South Asia and North Asia respectively.
That makes their survival crucial to the region’s emerging economies.
However, with such fortunes at stake, family feuds are inevitable.
India’s richest man, Mukesh Ambani, became locked in a bitter dispute with his brother, Anil, over their father’s vast Reliance empire when patriarch Dhirubhai Ambani died in 2002, leaving no will.
An acrimonious five-year scrap over the assets forced their mother to intervene and carve the empire into two, although recently there have been rumors of a personal and business rapprochement between the brothers.
Last year, the family of Macau casino tycoon Stanley Ho (何鴻燊) was embroiled in a bizarre row over the future of his multibillion dollar empire, with the 90-year-old accusing relatives of forcing him to relinquish power.
Ho’s sprawling clan comprises at least 17 children born to four women who he refers to as his wives.
The saga has seen Ho — a one-time playboy considered the father of Macau’s casino scene — publicly battling two branches of his family over SJM Holdings (澳門博彩控), the centerpiece of a fortune worth at least US$3.1 billion.
Asia’s richest are dominated by family money, often starting with a company founded by an entrepreneurial patriarch.
Hong Kong’s Li Ka-shing (李嘉誠) is Asia’s richest man with his flagship Cheung Kong Holdings (長江實業) and his billionaire son, Richard, is head of PCCW (電訊盈科), Hong Kong’s largest telecoms company.
South Korea’s Samsung, whose founder Lee Byung-chull started off in the 1930s selling fish and produce to China, and LG Group, which is another family-controlled conglomerate, have become household names globally.
However, many of Asia’s lesser known small and medium-sized enterprises are also run by families.
Deb Loveridge, Asia Pacific managing director at human resource services firm Randstad, said that as family businesses become more sophisticated, hiring qualified non-kin to key posts has become essential.
Loveridge said research showed that a primary challenge for companies across Asia — be they family owned or not — is finding talented leaders to take the business to the next stage of growth.
Non-family firms can draw from the depth of their global operations, but family firms have a much more limited pool to choose from.
“Family companies will do well to acquire new talent,” Loveridge said. “The question for them though is opportunities they can provide five and 10 years on in order to retain those people and develop them so can they see the longer term career path.”
“How does a person achieve that career path if within a family structure key positions are held by family members?” Loveridge said.
Some Asian family firms are already breaking with tradition.
India’s Tata group last year named a successor to its veteran chairman and business icon, Ratan Tata, by appointing a non-family member at the helm for the first time in the conglomerate’s 143-year history.
However, many are not so nimble and choose to stick with family members, even if they possess few management skills.
Fan said his research found that five years after a company founder hands over leadership to the next generation, the firm “declined in value by an average 60 percent.”
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