Warren Buffett, the 'Sage of Omaha', recently announced succession plans were in place for control of his company, Berkshire Hathaway. Buffett's attention to this matter and his repeated assurances that his children will neither inherit the bulk of his wealth nor control of his company stand in marked contrast to the nepotism and lack of succession planning in most Hong Kong companies.
Management studies are unanimous in the view that succession planning is a key responsibility of corporate managers, and is best achieved by nurturing talent within the company. Indeed, academic studies have found that internal promotion tends to produce better results than recruiting top management from outside.
Buffett has made it clear that his succession planning revolves around the two aims of preserving the company's successful legacy and continuing its distinctive style of leadership and investment growth. Buffett believes these objectives are easier to achieve by focusing on individuals who are intimately familiar with the way the company is run.
This logic is often employed to justify the dynastic inheritance, which characterises succession in Chinese-run companies across Asia. However, the choice of candidates is very often narrowed to just one person - the founder's eldest son.
Does this matter? Joseph Fan, a professor of finance at Chinese University, tried to answer this question in a study of 250 companies controlled by ethnic Chinese families in Hong Kong, Taiwan and Singapore.
His stark finding was that successions in listed companies tended to be followed by major declines in the share price of these corporations. Indeed, these drops occur even before the successions take place under the cloud that they are about to.
If these companies were private, the families that own them should be entitled to choose whomever they want to continue the business. However, with public ownership comes public responsibility.