New | Family-owned businesses outperform others, says Credit Suisse report
Credit Suisse study finds family-owned firms outperform in terms of share prices and sales growth
Stable management and long-term strategies have allowed family-owned businesses to outperform other companies over the past decade, but a study by Credit Suisse said succession planning is going to be a key challenge for these outfits going forward.
Billionaire tycoon Li Ka-shing's CK Hutchison Holdings, the Kwok brothers' Sun Hung Kai Properties and Lee Shau-kee's Henderson Land Development are some of the Hong Kong blue chips that were covered in a Credit Suisse report on the world's largest 920 family-owned listed companies in 35 countries, with a market capitalisation of at least US$1 billion.
"Family-owned businesses tend to take a longer-term view in running their business than other companies. They would be willing to invest in projects that may not be able to bring an immediate benefit but long-term gains for those companies," said Bernard Fung Chi-chung, the head of family office services and philanthropy advisory in Asia-Pacific for Credit Suisse.
The share prices of Hong Kong and mainland Chinese blue chips and other giant family-owned businesses had outperformed the MSCI All-Countries World Index at a rate of about 47 per cent over a nine-year period to the end of April this year, the Credit Suisse study showed.
The 920 family-owned businesses posted average annual sales growth of 10 per cent since 1995 to this year, compared with 7.3 per cent for firms on the MSCI index. The US has the largest number of family-owned businesses, followed by mainland China. Hong Kong is ranked fifth.
"Many family-owned businesses show they have a stable management for many years and they can make business decisions quickly in times of crisis or new business opportunities, and thus are likely to run their business well," Fung said.
In addition, the Asian family businesses like to leverage bank borrowings to finance expansion as they know their business well. But Fung said succession planning was needed to sustain those advantages.
Of the 920 companies, about 50 per cent are transitioning from the founders to the second generation, 22 per cent are into the third generation and only 10 per cent have touched the fourth generation.
"This shows the challenges of how family businesses transfer their wealth. There are many families in Asia that are not well prepared for succession planning," Fung said.
The Credit Suisse report showed only 27 per cent of firms had prepared succession plans.
Fung said Credit Suisse had created mentorship programmes to help wealthy families train younger scions to become future leaders of the family business.
There are many families in Asia that are not well prepared for succession planning
Christopher Cheung Wah-fung, a lawmaker for the financial services sector, said Hong Kong investors had shown a preference to invest in well-managed family enterprises.
"Many Hong Kong family-owned enterprises have a very stable management and they concentrate on doing what they know best. They tend to be more conservative and not take risks. This is why investors like to bet their money on these stocks," Cheung said.
But many of these Hong Kong family enterprises are now at the stage where they are passing the reins to the second or third generation.
Li Ka-shing is 87 and in 2012 announced a succession plan that allows his eldest son, Victor Li Tzar-kuoi, to take the helm of the family property group, which was restructured as CK Hutchison and Cheung Kong Property Holdings.
The elder Li said he would provide full financial support for his younger son Richard Li Tzar-kai to develop other businesses that would not conflict with his flagship companies so there would be a clean split of wealth between the two brothers.
New World Development, another local family-owned conglomerate with interests in property, hotels, infrastructure and department stores, took a different tack by having members of different generations to join the top management.
The group's board includes two grandchildren of 90-year-old retired founder Cheng Yu-tung: Adrian Cheng Chi-kong and his sister Sonia Cheng Chi-man. The pair worked with their father Henry Cheng Kar-shun, who is now the group's chairman and Cheng Yu-tung's elder son.
"I do not think there is 'one size fits all'. Each family will have their own way to pass on the business to the next generations and [will] want to let the business continue to grow after the founders retire," Cheung said.
He said investors would not mind if the top management in a company belonged to the same family.
"As long as the families are capable and can work with other executives to run the business well and deliver good profits for investors, their share price will do well," he said.
"Usually, family members would appreciate the business founded by their father or grandfather and they would work very hard to keep the business going even during tough times. They do not take high risks as they do not want the family business to be wound up while under their care. Such a management style is what many local retail investors like."
