Asia has a record number of billionaires on the new Forbes Billionaires List out yesterday, a sign of great prosperity. Yet many pillars of the Asian business landscape are now in their twilight years. Among them, Asia’s richest man, Li Ka-shing, is 86.
What are the risks involved when great wealth and power pass from one generation to the next? To learn more, I exchanged this week with Ann Cooley, a Hong Kong-based family mediator who has worked with elite families. How can interested outsiders spot signs of trouble? How can elite families try to avoid damaging fallout from excessive chauvinism and greed? Excerpts follow.
Q. What are some of the red flags that tip high risks of serious disputes in family companies in Hong Kong or in Asia?
A. It is very difficult to find early signals of disputes in family -related companies. The family tradition of Sunday dim sum, birthdays and Chinese holidays are honored by almost all the family members even when there are serious disputes. They are especially good at not showing their emotions or discussing family matters with people outside of the family. They like to keep their business and family affairs private.
(Yet) one of the most obvious hints is when the non-family board members or financial controller resigns, or takes early retirement. Families are not comfortable bringing in strangers or foreigners to help them decide on major decisions for the future of their family business. They would prefer to keep the board with familiar faces.
A. When a founder of the business passes away, the traditional Chinese values and charismatic leadership are often replaced by aggressive and opportunistic behavior by other family members. Here are some examples:
-- Yung Kee: As noted in the press, the patriarch and founder (of this prominent food business) expressed his wish that his family would continue to jointly manage the family business and work together to promote and develop the Yung Kee business. The family began fighting when the patriarch died. Six years after his death in 2004, the eldest son sued the family company, alleging that his younger brother had forced him out of the management and sent vindictive letters to their mother. The disputes also arose over whether to use the roast goose recipes from their father or expand the business with technology and systems.
-- Nan Fung: It was noted in the press that in 2004 the founder of this real estate business made arrangements to leave his estate to his two daughters, Angela and Vivian, with the caveat that each would transfer HK$1.5 billion, or about $200 million, to the mother. In this case the daughter, Vivian, took control of Nan Fung after her father was diagnosed with Alzheimer’s disease in 2009. The mother ended up suing her daughter, Vivian, over properties which she claimed were worth substantially more than HK$1.5 billion. There was a bitter court battle.
-- Nina Wong: It’s also been noted in the press that the richest woman in Asia had legal fights with her father-in-law for many years. In 2002, her father-in-law charged Nina with forging her husband’s will. In 2005, Nina took over her late husband’s entire estate after winning her case in the Hong Kong Court of Final Appeal. However, when Nina died in 2007, another dispute erupted over two wills. One gave her entire estate to the China Chem Charitable Foundation and the other will gave her entire estate to Tony Chan, her lover and Feng Shui master. The court ruled in favor of the charity and claimed Tony Chan’s will was forged. Tony Chan has applied to appeal the court’s decision.
--Kwok family: Also noted in the press, Sun Hung Kai is one of the largest property developers in the world and the family owns 42% of the company. When the father died in 1990, he left the business to his three sons. The eldest son Walter became chairman of the company. However, in 2008, there was a boardroom battle and he was replaced by the matriarch, his 79-year-old mother. A settlement was eventually achieved after a lengthy court battle and family negotiations. In 2014, the family and business was also involved in one of the biggest, most publicized corruption cases in Hong Kong which included an international cast of 34 barristers and teams of solicitors. Ultimately the court sentenced Thomas Kwok to jail for five years. His brother Raymond Kwok is now running the company. Walter is developing his own business interest.
Q. You're a mediator. How does mediation fit into Chinese culture?
A. Family business mediation has been used in China for centuries to resolve family disputes. It was very common in ancient and modern China to appoint an elder statesman or respected family member to help settle the disputes. Historically, the Chinese have followed the instructions given Confucius and by Mao Zedong. Mao advocated that the disputes among the people be resolved whenever possible by discussion, persuasion and education. By settling a dispute through mutual concessions, it permits the parties to save face and to keep the dirty linen from being displayed to the public. Confucius emphasized the importance of loyalty and duty to the family and individuals to avoid conflicts and maintain harmony.
In Hong Kong, it has been noted in the press, respected elders such as Tung Chee Hwa have assisted several families in resolving disputes that could have continued in courtroom battles for years. Many family businesses today use a neutral, specially trained mediator to help with family and business disagreements. Mediation is about the future and not blaming the past. Mediation is private and confidential and protects the family and business from adverse gossip which can adversely affect share prices, family relationships, employees, customers and suppliers.
Q. What are some of the main sources of conflict that you have helped to mediate?
A. The main sources of conflict I’ve helped to mediate have centered around division of assets when family members want to separate or need to separate from the business. This could be due to new leadership in the company, the death of the patriarch, or divorce or marriage. My greatest success has been when families have recognized the need to resolve these issues before a family member is driven to take legal action. The instances where I have not succeeded were because greed, resentment and anger were more important to the parties then a harmonious settlement. It’s not just about the money but also respect and honor and wanting to work together towards a prosperous future rather than focusing on a destructive journey.
Timing is important. Mediation is most effective before family cases go to the court. Once the family enters into the court room arena the conflict can continue for many years without an amicable solution. Damage control is even more difficult as the emotions become more volatile. The longer the delay, the more difficult it becomes for the mediator to facilitate a harmonious solution. Family counselors may also be needed to keep emotions balanced in difficult situations. Family business mediation may be the key to the harmony and future of the family business and the family relationships.
Q. Many of Hong Kong's leading businesses families are now advancing toward a third-stage transition in their business. What are some of the notable risks as third-generation transitions plays out?
A. Family businesses have all the problems of any business plus special problems and opportunities created by the family’s involvement. The third generation has new energy, ideas and vision that it is just starting to be noticed. Change is destabilizing and very uncomfortable for the other family members. The founders can be stubborn and find it difficult to consider new ideas.
The more forward-looking families are taking important steps to plan for the long-term future of the business and the family. This includes making an in-depth assessment of the family relationships and individual goals along with planning for the next generation management transition. It’s important for the family business to embrace change and reward family members equally according to performance and responsibility. It’s also important for other family members to accept the other members as part of the team.
Sibling rivalry is rampant (in) family businesses and chauvinism (can) prevail. It is vital that the matriarch is also included in the plans for the business succession. In the Chinese family, the wife will probably outlive her husband by another 10 years and she acts as the chief emotional officer for the business and the family. You do not want to upset the matriarch of the business. She is an important bridge to bringing harmony when there could be disputes or issues with the family. (Often, too) the third generation deserves praise and a raise.
Q. Why does the third generation deserve a raise? Are they poorly paid?
A. From my experience, many families are not up to date on current salary and incentives for their children and relatives working in the business. Most continue to tell the stories of how they managed to survive on a very small income for a long period of time while they were developing the business. They feel they do not want to spoil the next generation and damage their motivation to succeed. The founders still consider them their children or grandchildren.
They will frequently pay them low salaries, but at the same time provide them with housing, car, benefits and a very small percentage of the ownership of the assets. This picture starts to change when more outside experienced managers are brought into the business. They are surprised at the salaries they are expected to pay. The third generation welcomes this news and usually also benefits with an increase in their salaries and benefits. Unless the third-generation is motivated and rewarded they will not stay with the business. They will use their skills to set up on their own or find someone else who values their ideas and experience.
Today, it is even more important that companies are flexible and make plans for the future. Yale University estimates the average lifespan of an S&P 500 company has decreased from 67 years in the 1920s to only 15 years today. The third generation can bring magic to the family business with their new technological skills, international experience, and collaborative practices.
Q. Can you think of third-generation leaders are that making a positive difference?
A. This is too early to say precisely who. I have been very impressed with some of these third-generation leaders but they have not yet taken control of the business. They are hard-working, passionate, collaborative, and have lots of ideas which are being implemented. I think we need another 3 to 5 years before we will see this group making a big difference community and the world
Q: Could you name a founder that has obviously stayed around too long?
A: Most entrepreneurs are frightened to be separated from the business. They are afraid of losing control and respect and their time is running short. However, As long as they are healthy, mentally alert, age should be of no consequence. They usually have more than 50 years working experience and can still contribute to the business. However, they may not have the energy or the interest to run the company and face shareholders.
Q. How do you size up the transition that has been engineered between Li Ka-shing and his son Victor and Richard to date? This one will have a big impact because Mr. Li’s wealth is so enormous.
A. My experience has been that the most successful family businesses have insisted that the children work outside the business for several years before they come back to work within the business. In some cases the children have joined the family business and do not feel appreciated or rewarded for their efforts. These young entrepreneurs generally go off to set up their own business or to partner with other friends.
Mr. Li Ka-shing has engineered a very successful path for his two sons. In the Chinese tradition he has trained his eldest son, Victor to be the successor of the businesses and given his younger son, Richard support, skills and money to create his own enterprises. Both have been very successful and supported by their father. Mr. Li is also fortunate that he is a passionate golfer, likes using his brain, and is a man of vision. He has reinvested his profits to build his international empire. He has attracted and kept key executives and dazzled his shareholders with his latest strategies. His greatest strength was his vision to create for Hong Kong some of the largest, well-respected, international companies in the world.
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