Tag Archives: generational transition

Ensuring 100 Years of Unity and Growth Part 1

What comprises natural conflict?

I’ll start with the most pressing issues that are regularly amplified in my governance engagements in Asia.

Generational transition and the ensuing conflict between generations can cause irreversible damage to relationships. All too often the senior-generation leaders believe they have done a great deal in generating wealth for the next generation only to falter in the end game because the “passing of the torch” was never planned well. There is no success without succession!

Family members between generations have different values and varying degrees of personal and business goals.When these goals are not articulated in a proper forum or is not aligned with the overarching values of the family, this can transform into unnecessary stress and open the flood gates for more conflict situations.

Personalities are totally different. When ignored, set aside or worse, a bad behavior is rewarded by the business leader; this can naturally lead to intense rivalries. The result can cause severe harm not just to the business but in relationships all the way to the succeeding generations.

Family member expectations related to employment, entitlement, perks, promotions, ownership vary. These expectations must be addressed immediately. If the business leader continues to set this aside, it will negatively impact family and business harmony and challenge the long-term survival of the business.

No employment entry and exit rules. Expect regular fireworks when any family member crosses over from the family to the business without clarity. Who gets to work? Who gets what position? Promotion? Titles? Perks? In-law employment? Treatment of family member, as an employee or as an owner? When the business leader ignores these issues and does not initiate a formal employment process, your natural tendency to employ family members by virtue of bloodline can turn into a nightmare.

These are natural conflicts in family owning businesses. Every family business comprises a mixture of individuals who are more likely to hold different opinions on a particular matter. For some families, disagreements can either be strategic or tactical which is acceptable in the ordinary course of preparing your plans for the future.

But in really difficult cases, some of the conflicts I have resolved come from deep-seated resentment and anger dating back from years of indifference and neglect.

When these issues continue to be ignored or not managed, expect tension to build up causing many business failures and untold misery.

On the bright side, I have identified Asia’s oldest family-owned businesses that have breached 100 years. What are the “secrets” to their longevity? What made them overcome crisis after crisis? What made them accomplished so much?

In the Philippines, I can only count a handful of family owned businesses that are still operating today.  The most enduring of them all is the family behind the 184 year old Ayala Group of Companies. The group was founded in 1834 and is presently under the care of the 8th generation stewards, Jaime and Fernando Zobel de Ayala.

Out of a family of seven, they were both handpicked to co-lead the conglomerate. With a target EBITDA of more than US$1B this year, they must be doing something worth emulating.

Presently, three 9th generation family members are occupying positions in different industries to prepare them for future leadership. But just like ordinary employees, these young descendants have to go through the rigors of occupying entry level positions to gain the experience and think like professionals with accountability so they can earn the respect of their non-family co-employees.

To be continued…


Succession gone wrong: HK’s roast goose restaurant (Part 1)

A FAILURE in succession can shut down a family business almost overnight. Read on about the rise and fall of the famous Hong Kong Yung Kee Restaurant.

In Hong Kong, family business disputes in court rapidly increased in recent years because of poor succession planning by the founders. According to Prof. Joseph Fan of CUHK, nearly a third of the members of the Forbes Hong Kong Rich List are 70 years old or beyond, and the succession of new leaders has to be settled sooner than later.

As the Chinese founder gets old, he or she has to pass on the business to the heirs. And yet, many Chinese founders ended up following their family tradition as they do not want to see their own business empire falling apart as a result of partition. It is quite common that Chinese founders would want their offspring to stay together and lead the businesses they have founded.

However, this is often “wishful thinking as next generation family members often want to sell the business and move on” (Fan 2012a). Some Chinese founders in the olden days even passed away without making a will. Of course, this leads to court feuds among family members and the infighting will be even more complicated and severe if the founder has several wives or concubines, which was quite common in old Hong Kong.

One classic example that I had the opportunity to research is that of Yung Kee Restaurant, a Chinese restaurant located on Wellington St. in Central Island, Hong Kong, famous for its roast goose, not only among locals but foreign tourists as well, who take boxes of goose on their flights home to share with family and friends, giving rise to the nickname “Flying Roast Goose”. Founded in 1942 by former street food vendor Kam Shui Fai, the Yung Kee Restaurant is acknowledged as Hong Kong’s roast goose institution.

It is said that Yung Kee’s goose is much meatier and more succulent than a roast duck. The goose skin is crispy, almost crackling – oily, but not greasy. Thus, it was named by Fortune Magazine one of the world’s top 15 restaurants in 1968.

The Kam family feud is worth serious reflection for family businesses in Asia, especially those contemplating the transition from first to second generation. This case can be held up as an example that Asian family-owned businesses should invest time in addressing the family business succession planning with very story focus on family governance, ownership governance and corporate governance. All three are inextricably linked and short cutting the process can compromise succession planning.

Such is the case of the heirs of Hong Kong’s famous Yung Kee roast goose restaurant, which has finally been given permission to liquidate because of sibling rivalry.

Following founder Kam Shui Fai’s death in 2004, the restaurant was left in the hands of Kinsen and Ronald, his two sons. But Kinsen soon complained to the court that he was blocked from running the business despite holding 45 per cent of the shares, with Ronald holding 55 per cent. Days before the court ruling, however, he died, leading his family to accuse his younger brother Ronald of being behind his death. The incident has since caused the contentious dispute to erupt in bitterness.

At the Hong Kong’s Court of Final Appeal last December 16, Ronald Kam made a last ditch effort to Chief Justice Geoffrey Ma to rescind the winding up order for the restaurant. However, this was rejected by Chief Justice Ma, citing a lack of jurisdiction and the late stage of the case.

Reports say the late Kinsen’s family, who applied for the court liquidation order, demanded HK$1.3 billion or US$168 million for their 45 percent stake. But Ronald, who currently runs Yung Kee, was only willing to pay HK$1.1 billion in cash and almost HK$100 million worth of assets.

A liquidator will take over the holding company to find buyers for its assets, including the restaurant and the building it occupies in Hong Kong’s Central district.

Yet this does not mean that Yung Kee will shut its doors immediately. Lawyers say the liquidation process will likely take months if not years, and as a subsidiary of the holding company, the restaurant can keep running in the meantime.

However, if the restaurant and building are eventually sold off separately, the establishment might have to find a new home. One of Yung Kee’s most defining features, the only charcoal-fired oven on Hong Kong island, would finally end up closing shop. It is sad to note that the Yung Kee empire and an institution in Hong Kong will soon close it doors because of a sibling squabble in the next generation. How unfortunate, senseless and unnecessary!

In Part 2 of this column, I will lay down some strategies on how to prepare for a successful generational transition in the family business.