BY ENRIQUE SORIANO
I AM back from a very brief lecture tour in the US. A little more than a week stay in San Francisco and LA where I delivered 4 talks in 7 days. Counting the many exchanges with colleagues at the University of San Francisco (USF), I finally delivered a lecture last week related to Asian Business Strategy and Growth as well as the Impact of Trading Blocs like Asean and APEC.
Many thanks to those who attended my lecture most notably the Department Chairs, faculty members and the multi-racial business students comprising several classes belonging to USF’s School of Management.
ATENEO AND USF ARE JESUIT CATHOLIC UNIVERSITIES
USF is a top tier Jesuit Catholic university and the school’s main campus is located on a 22 ha setting between the Golden Gate Bridge and Golden Gate Park. The hilly campus has a breathtaking view of downtown San Francisco. Belonging to the same order as Ateneo de Manila University, its Jesuit Catholic identity is rooted in the vision and work of St. Ignatius of Loyola, the founder of the Jesuit order.
Prof. Danny, a colleague at the Ateneo Graduate School of Business and a Senior Family Business Advisor for Chinese Families at W+B Strategic Advisory Group is an MBA alumnus of USF.
ASIAN FAMILY BUSINESS
I immensely enjoyed the interaction with students and I counted more than half of the participants were of Asian origin. Most of the questions were about their desire to know more about the dramatic changes in Asia and validates their beliefs that there is indeed a plethora of business opportunities growing outside the US.
My lecture was an obvious eye opener and talks are under way to organize an even bigger event. If this major activity materializes, it will be a collaboration with the Chinese Business Studies Initiative of the University. That is another article in itself but briefly, the USF China Business Studies Initiative provides a platform for collaboration with the influential China business community, and creates bridges between Chinese business leaders, public policy makers, and academics. It will be an honor to be part of that initiative in the near future.
Why? I get to understand why the present crop of Chinese Leaders are deliberately asserting and re-introducing history and Confucian values to overseas based Chinese. That concerted effort supported with funds from prominent Chinese businesses has gained considerable influence in practically all areas, including business leaders, academe and the political spectrum of a given community. Depending on how you look at it, my first-hand knowledge mentoring family businesses is a good starting point. I have noticed next generation Chinese family members’ waning interest in embracing Chinese values and practices.
CHINESE INFLUENCE HAS WANED IN FAMILY ENTERPRISES
For thousands of years Chinese rulers have wanted to build dynasties. And in Asia, family businesses remain a tradition. But something new is happening in Chinese family firms.
As the younger generation of Chinese businessmen is exposed to Western values, the gap between them and the older generation becomes a source of conflict in the planning of family businesses, particularly with the issue of succession.
Incidences of family court business disputes are increasing at an alarming rate with poor succession planning as the root cause of the problem. The impact of poorly managed succession and family infighting can be significant both for the family business and investors.
Some think the best path to future success is to ditch leadership by family members – and instead bring in the professionals.
But is this the right way forward – and what lessons can we learn from the family approach to business?
Professor Joseph P.H. Fan, researcher and educator of family business governance at The Chinese University of Hong Kong wrote in his book “Critical Generations – Out of the Succession Dilemma of Chinese Family Businesses” that the market value of 250 listed family firms in Hong Kong, Taiwan and Singapore declined by almost 60% on average starting from five years before to the year the family patriarch handed over the business to his successor.
In other words, if an investor bought shares valued at $100 five years before the succession, the value of their shares would be reduced to an average of $40 three years after the succession. Hong Kong companies dropped the most, losing some 80% on average with Taiwan and Singapore family owned companies falling about 40% and 20% respectively. Hence, if greater China entrepreneurs take Professor Fan’s advice, there should be a lot more public companies. He wrote that a stock market listing is a good way to distribute ownership to family members.
CHINESE VALUES ARE DIFFICULT TO PASS ON
According to Prof. Fan, the reason behind the shocking succession decline is twofold. First, intangible assets such as values, skills and networks, although commonly found among the first generation entrepreneurs, are difficult to be passed on to the next generation. Second, Chinese families also face various family, industrial, and institutional obstacles such as family brain drain, regulatory changes, and political uncertainty, which can destroy or ruin the families and their businesses./PN
