Not long ago, the CFO of an Asian public company arrived at work to hear some startling news: the firm had just made a major acquisition. The deal hadn’t been arranged by the finance executive or his staff — they learned about it only that morning. It was not an impulsive purchase by the CEO. Nor was it approved by the board of directors. Instead, the deal was negotiated and signed by someone who doesn’t work for the company and whose name appears nowhere in its public filings.
The target company was an odd choice. It was a weak business far beyond the company’s area of expertise, on a par with a toy maker deciding to buy a management consulting firm. Not surprisingly, the acquisition hasn’t been a stunning success. It is losing money and has proved hard to manage. At another company such a turn of events — a major corporate decision taken without the involvement of top managers and without board approval — might have triggered a management revolt, if not a shareholder lawsuit.
But not here. The buyer was the company’s major shareholder, a patriarch whose relatives and friends continue to occupy many of the company’s important managerial roles. And far from being an anomaly, the acquisition is just one example of how decisions get made at the company, according to its finance executive. “No one will ever challenge the patriarch,” he says.
Welcome to the life of an outsider at an Asian family firm. Big family companies are by no means unique to Asia, but they appear to be more common — a study in the mid-1990s found that at two-thirds of the companies listed in Hong Kong, families owned at least 20% of the shares. As family businesses have become public companies over the years, many have been slow to abandon old forms of management. Minority shareholders complain of opaque financials, suspicious related-party transactions, and an autocratic management style. “The average listed company run by a family in Asia is still run along traditional lines, with family members on the board and insider traditions in management,” says Jamie Allen, secretary-general of the Asian Corporate Governance Association.
Now, under pressure to improve governance and profits, many of these companies are looking beyond the family for professional managers, and for CFOs in particular. There can be many rewards: the pay is often good, managers tend to plan for the long term, and a CFO who wins the family’s trust can count on a job that may last a decade or more.
But beware: conversations with current and former managers suggest that life in a family business can be very different from what a CFO might have experienced elsewhere. As one of them says: “You have to go in with your eyes open.”
Many of Asia’s large family businesses have colourful histories. Consider the Formosa Group, Taiwan’s largest company. It started in the 1930s when, as a teenager, YC Wang opened a rice shop with a $200 loan from his father. He expanded into rice milling, lumber and, eventually, power production and plastics, becoming one of the world’s largest producers of PVC. The Wang family still controls the enterprise.