A delicate matter of succession

PUBLISHED : Sunday, 10 May, 2009, 12:00am
UPDATED : Sunday, 10 May, 2009, 12:00am

'So dad, who gets to run the family business when you are dead?'

Now, that is an unlikely starter to a dinner-table conversation in any culture, anywhere in the world. But broaching the topics of inheritance and succession, even in much subtler forms, is especially difficult in ethnic Chinese business families for myriad historical and social reasons.

'Many Chinese patriarchs rose to power and wealth in a hostile environment. They have survived revolutions, confiscations, nationalisations and repeated migrations to communities that were often unwelcoming and envious of their success,' write succession consultants Ivan Lansberg and Kelin Gersick in a study commissioned by HSBC Private Bank.

'These experiences have taught Chinese patriarchs to tightly control information about their wealth and business operations.'

Control is a generic trait of people who create huge enterprises out of nothing as they have enough reason to believe that they know best. Besides, Chinese family enterprises often have a vertical family structure that discourages cross-generational dialogue and block any frank discussion on succession.

The study cites a family where the father, in keeping with the tradition of fenjia (household division), plans to split his empire for his three children into three independent branches. But the children have other ideas. They understand the importance of scale to succeed in a globalised economy and do not want the family wealth carved up.

But the problem is telling the father that. While their western education would make it a logical course of action, raising the issue with the father would violate family decorum.

Mr Lansberg, who was recently in Hong Kong along with Dr Gersick to meet members of some business families, recalled an incident that exemplifies the aura of authority that fathers exude in some Chinese business families: 'We are meeting these very talented and well-educated children of a Chinese entrepreneur, and we are having a very animated debate when the father walks into the room. No one says another word.'

Chinese family relationships down the ages have been strictly hierarchical, where fathers are expected to take decisions and children find their place in the family hierarchy as obedient sons and daughters.

But a more collaborative approach may work better, and so can treating succession as a matter of strategic human resource planning.

'The west has moved to a best-fit model in which everybody contributes their maximum according to the system's needs. We ask families to reflect on what their values and long-term goals are, and then find a solution under which everybody finds himself or herself in a position that best fits his or her level of energy and ambition as well as the company's needs,' Mr Lansberg said.

A few years ago, the consultants encountered a Chinese businessman who told them he had four children and he needed to pick a leader.

'In such cases, we tell them it is much more complicated than that. We tell them picking is not their problem, preparing is,' Dr Gersick said.

The duo created a two-year programme in which each of the children switched jobs in the company and worked in all departments. The consultants then sought an honest appraisal from the key supervisors and the children themselves.

In the end, a solution emerged that was obvious to everybody, including the children, as everybody understood who was good at what, and the family did not have to pick anybody.

When Dr Gersick and Mr Lansberg started out 30 years ago, the families that would seek them out would typically be those in trouble: the owner had died suddenly, or a succession war had broken out among siblings, or other such crises.

'That has changed. Families now realise governance design is key to continuity. Families that come to us now understand that preparing for a generational transition is a decade-long process rather than an emergency response,' Dr Gersick said.

These days it is more about creating a governance architecture for the enterprise in a way that sustains a family-wide collaboration - utilising the human capital of the entire family in the service of creating wealth - and prepares it for succession.

But the key to tackling succession is recognising its importance.

'Pretending the issue will go away or sort itself out won't help anybody,' Mr Lansberg said.