Watch out! Baby on board
If there was ever a trace of doubt as to the vital role of company leaders, it was laid to rest a couple of weeks ago with the major hand-wringing created when Steve Jobs resigned as CEO of Apple. The reverse side of the coin was seen with the impressive rise in the price of Bank of America shares purely on the basis that Warren Buffett had invested US$5 billion in the company.
Investors were understandably focused on the personalities of these two formidable business leaders and made their investment decisions on the basis of what they, not the companies per se, were doing.
All this has profound significance for Hong Kong, where, with very few exceptions, the biggest local companies are run with rods of iron by the people who founded them. Although the shine on the aura that surrounds the tycoon class is coming off, it is still possible to reel off the names of the small clutch of people who really matter in Hong Kong business and to acknowledge that they are somehow far more important than their companies.
It can be said with confidence, for example, that the Cheung Kong group would not account for much were it not for Li Ka-shing; that Li Shau-kee's Henderson group would hardly be the force in the property market it is without its founder; and that Hong Kong's entertainment world would not be so dominated by a single conglomerate were it not for the Shaw brothers.
There is, then, understandable fascination over the lives and business activities of these tycoons, who not only dominate their companies, but also control them by virtue of owning far larger stakes in these corporations than is typical elsewhere in the industrialised world. Think, for example, how little of the Ford Motor Company is owned by the Ford family (although the family still exerts considerable influence over the firm with its control of a special class of shares that are rich in voting rights).
History has dictated that most of Hong Kong's biggest companies are still in their first generation. Those in the second generation have already demonstrated that, in general, they are doing worse than they were under the leadership of the founders. A good example of this is the Hang Lung group, now run by Ronnie Chan Chi-chung, son of the founder. Under his leadership, the company has shrunk from being one of the first-division property companies into a midfield position among the second division.
The key here is that succession in Hong Kong nearly always means passing leadership on to a family member, seemingly regardless of ability. This is in marked contrast with the succession at Apple, which is firmly in the hands of professional managers, led by Tim Cook. Investors still fear that the new leadership will not have Jobs' talent, but they would be even more scared if the person chosen to run the company was given this role by virtue of having the name Jobs.
Buffett, meanwhile, has made it crystal clear that the succession at his company, Berkshire Hathaway, will not involve family members, and he spends much of his time attempting to build a professional management team that will preserve his legacy.
An interesting compromise between family succession and outside professional management is offered by the Swire Group, whose holding company, located in London, remains largely in the hands of Swire family members, while the operating companies tend to be run by outsiders and are given considerable autonomy. Moreover, the holding company itself is a mixture of family and non-family directors.
It is unfair to claim that family members are inherently incapable of mirroring or even surpassing the efforts of their fathers, but the chances of success are narrowed by the usual practice of cutting out female members and because, in a universe of professional managers, family relationships should not be the main criteria for succession.
Many of Hong Kong's largest firms remain under the leadership of elderly founders. Most have already installed their sons as leaders-in-waiting, and it is becoming evident this talent pool is underwhelming. It is curious that few analyses of Hong Kong's biggest companies focus on the succession issue, but it looms large and may well provide a basis for a radical review of the outlook for these corporations.