In Asian Godfathers (Profile Books, 2007), Joe Studwell argues that many of these businesses have a common trait. Through their founders’ connections, they obtained a concession or licence that allowed them to build monopolies or oligopolies. That’s been true in businesses as diverse as gaming (Stanley Ho), sugar and flour importing (Robert Kuok) and ports (Li Ka-Shing and the Kadoories). For tycoons with the right connections, it is like “being handed a money-printing machine,” as David Webb, a Hong Kong-based investor activist, describes it.
With such an unassailable position, the families never felt much pressure to open themselves to outsiders, even when they’ve taken their companies public. The result, says Low Chee Keong, a law professor at the Chinese University of Hong Kong, can be that governance reforms are a matter of form over substance. “There’s reluctance on the part of the patriarchs to give up control on a day-to-day basis,” he says. “Even when a company has a non-executive chairman, it can be abundantly clear that nothing in the company happens without his say-so.”
That’s not necessarily a bad thing, argues Henry Yeung, an economic geographer at the National University of Singapore who studies family enterprises. He points out that even when these companies diversify, they often still need the political connections that helped the founders launch their operations in the first place. And it’s usually the patriarch who knows the ropes, not his sons and daughters returning from Wharton, and certainly not the professional managers hired from outside the family. Sustaining the business may require the patriarch’s guiding hand.
Still, these businesses are changing. For reasons ranging from rising competition and pressure from lenders, to the influence of younger family members with MBAs, family businesses are updating at least some of their practices. And one of the first steps these companies take is to swap family for professional managers. “Family firms are realising that they can’t survive with only family members running the business,” says David Hui, who runs Korn Ferry’s Asian financial services recruiting business. A 2005 study by McKinsey and the University of London provides some support for this view: the researchers found that European family firms run by outside managers performed 20% better than those run by the patriarch’s eldest son.
For some finance professionals, the development has created promising opportunities. This is the case for KF Tan, CFO of Eu Yan Sang, a Singapore-based producer of traditional Chinese medicines and a clinic services health-care company. Founded in 1879, the firm is now run by Richard Eu, a fourth-generation family member. Before the 1990s, Eu Yan Sang was very much a traditional family business, with relatives throughout management. The company had two listings — in Hong Kong and Singapore — run by different parts of the family. In the early 1990s, Richard Eu and a few cousins arranged a management buyout, reuniting the company and vowing to modernise its management. The family agreed that no more than two of its members would be managers at any time. Eu has said publicly that his successor doesn’t need to come from within the family.