How to grow the family business across generations

May 04, 2015 17:50
Many Hong Kong tycoons such as (from left) CK Hutchison's Li Ka-shing, Wharf's Peter Woo and Henderson's Lee Shau-kee  have chosen their successor for the family business. Photo: HKEJ

Many successful family businesses have gradually lost their shine when passed on to the next generation, while some eventually died.

Some quarters believe the family business model only works in the start-up period, but may not work so well in the long run.

In Greater China, most family businesses were established in the second half of the 20th century. Many of these businesses would struggle with the succession issue in next five to 10 years.

It’s the same issue that confronted family-owned businesses in the United States and Europe in the past.

We’ve seen a couple of lawsuits and scandals that dogged family wealth in the region in recent years. In some families, the younger generation either has shown little interest in the business or little capability to take over the helm.

“Wealth never survives three generations” is often used to describe the fate of most Chinese family businesses.

However, I do not agree with this dictum. It has no statistical or logical support. And research has failed to find out what factors have gone out of control for the next generation to keep the family wealth and the reasons why.

Of course, there are success stories and miserable failures. There are various reasons for a family to lose its wealth, such as different values between the older and younger generations. The end of a family business may not necessarily be linked to the capability and performance of the successor. And it might not be a bad thing to close the business, or eventually lose the wealth.

If the next generation has better plans and decides to sell or close the business, they could pursue other dreams. It’s just another option for them.

Most of the past studies have been focusing on visible factors such as the wealth or equity succession, but fail to shed light on the passing of invisible assets such as family values, vision, family relationships, legacy, business wisdom and family network with government officials.

The old generation has to teach by personal example as well as verbal instruction, and hone the successor as a leader who will carry on the family values and legacy.

Here are the seven most important rules for family business owners:

1) Draft family succession plans as soon as possible so as to reduce internal conflicts.

2) Cultivate the next generation carefully, and pass on the family values and entrepreneurship.

3) Let the future successor start their own business or work in other organizations to gain experience before joining the family business from the middle level.

4) Choose the most talented successor, no matter if he or she is a family member or not.

5) Cement family relationships and involve all family members.

6) Balance the family, business and personal values and willingness.

7) Strike a balance among senses, emotions and cultural factors.

The combination of visible and invisible assets is the only way to keep the family business in the long run. The most important thing is to forge the rally power among family members, and encourage good communication across different generations. Cooperation and participation are key.

The interaction should not be limited to family business, but should also be extended to new areas like charity.

Every family is unique despite all the good governance and succession systems. There is no fixed model that can be use by each family to find its successor. They have to find their own solution that suits their specific situations.

This article appeared in the Hong Kong Economic Journal on May 4. 

Translation by Julie Zhu

[Chinese version中文版]

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Principal of Hang Seng Management College