China economy

Chinese family businesses are increasingly looking beyond their kin for managers

“More and more family members are willing to take a back seat in the family business”

PUBLISHED : Monday, 13 November, 2017, 6:55pm
UPDATED : Monday, 13 November, 2017, 6:55pm

An increasing number of wealthy Chinese family businesses are turning to professional managers for succession planning in contrast with tradition, which dictates that such enterprises continue to be run by close family members, according to a wealth management consultant.

“The reality is that lightening doesn’t tend to strike twice in the same place,” said Dr Keith Whitaker, president of Wise Counsel Research, a consultancy focused on wealth management. He added that less than 3 per cent of family businesses transition to a third generation.

“Families may have a very ambitious, very powerful matriarch or patriarch who creates wealth, but their children may have very different interests.

“There is now more openness to hiring non-family members,” he said.

Wang Jianlin, the founder and chairman of real estate and entertainment conglomerate Dalian Wanda Group, and China’s second-richest man, recently said he was likely to pick a professional manager to take over the running of the family business.

“Perhaps young people have their own quests and priorities. Probably it will be better to hand over to professional managers and have us sit on the board and see them run the company,” said Wang.

His son, Wang Sicong, studied overseas before returning to China to start his own business, Prometheus Capital, with 500 million yuan (US$75.3 million) in funding from him.

The descendants of China’s billionaire entrepreneurs are increasingly choosing to forge their own paths, thanks in large part to being educated overseas, according to Cynthia Lee, managing director at JP Morgan Private Bank in Asia.

“The rising generation is going away for school [in the West], and then coming back with different ideas,” said Lee. “They are realising they can have their own dream.

“Just because you are born into this family doesn’t mean you have to do the same thing. Most of them will remain owners, but they may not be active and will be shareholders instead.

“More and more family members are willing to take a back seat in the family business and are more receptive to the idea of hiring an external chief executive to run the company.”

Three million enterprises will face succession challenges in the next five to 10 years, according to the Chinese Academy of Social Sciences.