Investors in Li Ka-shing companies now face the big unknown of second generation leadership

Conglomerates built by charismatic tycoons often don’t fare so well under second generation leadership who’ve been groomed for the role but lack street smarts

PUBLISHED : Wednesday, 21 March, 2018, 11:13am
UPDATED : Wednesday, 21 March, 2018, 10:25pm

One thing is certain about Li Ka-shing’s retirement from the Cheung Kong groups’ two leading companies, namely, despite announcing that he is stepping down Li will continue to be the most important person in the room when any major decision is made.

Indeed this is the major reason why the share prices of the two companies only dropped modestly after last week’s announcement. Investors simply assumed that there would be little change.

Yet, officially, Li will have no title other than that of “senior adviser” but titles mean very little in Asian tycoon-run businesses because whether they are public or private they are operated in a highly centralised fashion either by the founder or his sons or, in extreme cases, by the son-in-law. Female succession is a distinct rarity.

In titular terms Li Ka-shing’s eldest son Victor takes over from him. There was never a scintilla of doubt that this would be the case as his selection was made from a shortlist with just one name on it. Nevertheless this leaves him theoretically in charge of one of Hong Kong’s biggest companies, with literally thousands of shareholders and partners

Even were it the case that Victor Li was the only person truly qualified for this job, he would have a hard job persuading anyone that this was so because he has never been tested against any sort of competition. That includes competition from his younger brother Richard who was once, incorrectly, rumoured to be in the frame before being dispatched with a great deal of cash to start his own businesses.

Moreover Victor Li will be surrounded by the small coterie of senior executives who have been with Li senior for decades. One of the old man’s distinct abilities has been to cultivate enormous loyalty among those around him, this ensured that the most senior echelon of management rarely changed.

This is both a good and a bad thing because while continuity and stability are valuable assets for a company, new blood and new ideas are required to prevent corporate atrophy.

However advancing atrophy is pretty much the fate of these great Asian tycoon- led conglomerates that were forged by relentlessly hard working and streetwise entrepreneurs who built these companies around their personalities. However they had no plan for continuity beyond clinging on to staff that have served them loyally and are retained to keep a wary watch over their sons who typically undergo a very long apprentice in the family business but rarely get their hands dirty and discover on accession that they cannot possibly escape from the patriarch’s shadow.

The final chapter has hardly been written on the fate of these great family companies, although Joe Studwell produced an impressive interim report with his book Asian Godfathers: Money and Power in Hong Kong and Southeast Asia. Studwell questions many of the assumptions about how this amazingly small group of people achieved such prominence and he is ruthless in demolishing the eugenic myth, which maintains that only their offspring can continue this work. However he was unable to produce conclusive evidence of how things panned out once the sons took over.

This is because most of these companies have barely emerged into the second generation although evidence from other parts of the world, notably the United States, suggests that it is as early as the second generation where the problems emerge. It is therefore not surprising that American companies, which seemed destined to go down the route of family dynasties, have largely abandoned this way of doing things. There are some significant exceptions, such as the Ford Motor Company, which now has a Ford family member back in the driving seat, but these are exceptions that do not prove the rule.

There is a middle way here, one adopted by the Swire family of the conglomerate bearing their name. It involves a careful mixing of family control with a large dose of outsiders, mainly those who have come up through the ranks. A sixth generation Swire was recently named as chairman of Swire Pacific – that’s not bad going for long levity.

This middle way may yet prove to be attractive to the great Asian tycoon conglomerates but there is little evidence of this attraction right now. Instead the problems are coming to a head for these companies because a great many of them were established some half a century ago and are now entering their second generation.

Investors flocked to invest in their shares not because they wanted to invest in companies controlled by smart business school alumni but because they were looking for a piece of the action created by these charismatic tycoons.

The question is: do investors have sufficient reason to be equally keen on their sons?

Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster