SHANGHAI, July 1, 2012 /PRNewswire-Asia/ – While the family business model has become widespread in many countries across the globe, including China, there is still insufficient understanding, in this Asian country, about family businesses and family wealth. Today’s 1st Annual Family Business & Family Wealth Forum, hosted by the China Europe International Business School (CEIBS) and Tsinghua Kaifeng Family Heritage Centre, addressed this knowledge gap by bringing together representatives of outstanding family businesses from China (the Mainland, Taiwan, and Hong Kong), Europe, America, Japan, and South Korea. Joined by business school professors dedicated to family business research, they offered attendees valuable insight and solutions for the management and healthy development of China‘s family businesses.
Almost a third of global Fortune 500 Enterprises are family-owned businesses, including powerhouses such as Ford, BMW, DuPont, Panasonic and Chia Tai Group. In addition, 80% of small and medium-sized enterprises in the USA are family-owned. These statistics show that running a family business is not, as it is sometimes portrayed, to be taken as a sign of unprofessionalism but is rather a sign of an entrepreneurial venture that is built to last. Family businesses are often brimming with enthusiasm and have an enduring corporate culture. In China, however, conflicts and political movements have often halted the growth of family businesses, dealing a heavy blow to family wealth. The country’s latest generation of family enterprises were mostly founded three decades ago, around the same time China began its reform and opening-up. As their founders have reached – or are nearing – retirement age, these family businesses are now transitioning leadership to the next generation. These were among the issues that framed the backdrop for today’s forum. Attended by more than 300 guests, including the Chinese and international media, the day-long event explored the theme “Family Businesses in China and the World”.
Stressing the succession challenges that many of China‘s family-owned enterprises will have to face in the next two to three decades, CEIBS Executive President Professor Zhu Xiaoming explained that CEIBS had taken the initiative to host today’s forum in an effort to spur discussion on the issue. “How can your successor succeed, we want to help you explore that topic,” he said as he delivered the Welcome Address that got the event underway. As Vice President and Co-Dean Professor Prof. Zhang Weijiong explained in his comments as moderator, entrepreneurship is vitally linked to family-owned businesses which, in turn, play a role in economic growth. CEIBS, with its focus on entrepreneurship and innovation, was uniquely positioned to host today’s event, he added.
The Opening Session, which explored the theme “Family Businesses in China and the World” featured four keynote speeches by:
- Mr. Desmond Shum, the Chairman of Tsinghua Kaifeng Family Heritage Centre,
- Dr. Josep Tapies, IESE Professor of Financial Management and General Management; Holder of the Chair of Family-Owned Business,
- Dr. Pedro Nueno CEIBS President and Chengwei Ventures Chair Professor of Entrepreneurship,
- and Prof. Wong Siu-lun Former Director of the Centre of Asian Studies, University of Hong Kong.
The moderator was Dr. Xiao Zhixing, CEIBS Associate Professor of Management.
In exploring the topic of “Nurturing Exceptional Family Heritage”, Mr. Desmond Shum shared his personal opinions about family business and wealth and offered useful guidelines on how to ensure a sustainable enterprise. Research has shown, he told the audience, that of the 60 wealthiest companies in the US in the 1920s, only a third lasted until the third generation. China and many other countries also faced the same challenge, he added. “The process of demise is painful,” Shum warned the audience which included business leaders and their potential successors. “So as an entrepreneur you need to think about your legacy and the positive lessons you can pass on to the next generation.”
- Parents who run their own businesses must prepare their children to handle wealth. “Money can be a double-edged sword. It can be a burden for children who are not prepared,” he said.
- Focus on the ‘family’ component of the family business. “The order of priority should be family (prepare your children to take over), wealth creation, and then running the business,” he advised. “You need to focus on the family itself; everything else is secondary. Your children are your most valuable asset and you have to begin grooming them for leadership from early.”
- When large families run a business together, lines of communication sometimes get blurred so there is a need to have a trusted advisor who can bridge the gap. “This is not a consultant that’s invited in, it’s a person you have developed and nurtured, someone you trust,” Shum said. “This is someone that you groom, someone who is trusted by the entire family. It takes 10 to 20 years to groom such a person.”
In his presentation, Shum also spoke about the need to have a global platform for the exchange of ideas and experiences in exploring the best practices for ensuring that family-owned businesses survive and thrive. “I’m not talking about simply the size of a company or how much wealth it’s accumulated. For example if a family enterprise has existed for a thousand years, it may not be the wealthiest but it must surely be the most successful company,” he said. “Family businesses are the core of our society. If we can foster the healthy development of that core, this would benefit the entire society.”
The day’s second keynote speaker, Dr. Josep Tapies, drew extensively on his more than three decades of experience and research in exploring the topic of “Great Family Businesses in the World”. Dr. Tapies made the point that more than 65% of global companies are family businesses, making them the “backbone of the global economy”. These companies, he added, tend to be rooted in the communities where they began, a factor that plays a significant role in the creation of social wealth; and they place great emphasis on the issue of legacy. He then used data to refute the widely-held belief that small size and short life span are unique traits to family businesses. “All businesses are generally small and medium sized; 92% of European companies have a turnover of less than 2 million euro and employ less than 10 people. So it’s only natural that family businesses are small – because everything else is,” he said. “[As for the issue of longevity], businesses that are not run by families don’t last either. Businesses are born to die; so don’t believe the myth that it’s only family businesses that don’t last.” His cited data that shows that of 2,254 companies studied, 14% of non-family-run Spanish companies did not make it past the third generation, adding that the figures were similar for the US; while some Italian family business made it to the 26th generation and other Spanish companies that are family-run made it to the 16th.
Dr. Tapies then touched upon challenges for family enterprises and offered suggestions on how to overcome them. The challenges: maintaining a profitable and sustainable business; retaining the company’s family-owned status; and maintaining family unity. His advice: manage the company like a business and manage your family like a family – have the right governance structures for both; clarify individuals’ roles; balance business size with family growth – e.g. a small business with many family members wanting to play a role is just as challenging as a large business with many family members involved; and carefully manage the different stages of the enterprise to prevent unpleasant surprises – e.g. it will take time to plan and implement a succession strategy. Among the most common mistakes that family-owned businesses make, Dr. Tapies added, are:
- assuming that skills are genetic. “Do a real analysis to see if your son or daughter can manage the business,” he urged.
- blurring the lines between family ties and business relations
- forgetting market rules on issues such as wages and return on capital
- delaying the succession process. “There will always be a reason to delay,” he said.
- believing they are immune to all the issues raised above. “Lack of humility is the most significant risk in running a business, in general, and in family-owned business,” Dr. Tapies warned in closing.
“Entrepreneurship is transforming opportunities into businesses and this is not an easy task,” said CEIBS President Pedro Nueno as he began his keynote speech on “Entrepreneurial Management in Family Owned Businesses”. Opportunities are sometimes difficult to spot and cease becoming opportunities once everyone else is aware of them, he added, so quick action was imperative and the next step, once the business is launched, is to create a sustainable source of wealth. Throughout his speech, Prof. Nueno drew examples from well-known names such as Estee Lauder (whose now famous cosmetics line began as a sidebar research project upstairs the hardware store that was its main business at the time); Rolls Royce, and Kodak (whose company head spoke to him about digital film 30 years ago but never managed to transform its ideas into concrete actions and later paid the price). A company, Prof. Nueno stressed, needs the skill to see and take advantage of opportunities if it wants to survive. He also spoke of the importance of diversification, saying that though some financial analysts believe that family businesses should focus on their core business, diversification was being explored by many (such as Metro which runs a supermarket chain and is also in the pharmaceutical and real estate industries) and it could provide a measure of protection.
“Chinese Perspectives on Wealth” was the theme explored by Prof. Wong Siu-lun. His comprehensive speech covered a comparison of the Chinese (mainland and Hong Kong) and western perspectives of both national and family wealth. He touched on the western concept of wealth within the context of pre-19th Century Christianity (wealth is negative and gets in the way of worshipping God; Max Weber‘s 20th Century view that wealth from honest and hard work is not a hindrance to salvation; and the evolution of wealth – eventually becoming a key to status and power.
He contrasted this with the mainland Chinese perspective of wealth: traditionally it was never seen as negative, merely an insecure and unprotected asset; it had to be gained through scholarly efforts (being a wealthy merchant was not enough); and would lead to status and power. There were major changes, however, with the end of China‘s Dynasty era, especially with Deng Xiaoping at the helm. In comparison, Chinese in Hong Kong always believed in the honest pursuit of wealth and felt secure in their acquisitions. Prof. Wong explained that this was because: 1) early Hong Kong was largely comprised of merchants who realised that wealth creation was the best method to acquiring status and power (the colonial elite were mainly British and they sought alliances with wealthy community leaders; there was no system in place to progress merely through passing a national exam – as was the case on the mainland; and there was security in ownership of the wealth created.
The rest of the day’s event consisted of three closed-door sessions that explored the broad themes of “From Generation to Generation”; “Family Wealth”; and “New Generation”. During Session 1, there was a presentation on “Sustainability in Family Business” by Mr. Fred Tsao who is President of the Family Business Network Asia and also the Founder and Senior Chairman of IMC Group. This was followed by a panel discussion which saw input from:
- Mr. Mao Lixiang, the Chairman of Ningbo FOTILE Kitchen Ware Co., Ltd. and President of the Family Business Succession School
- Mr. Mao Zhongqun, CEO of Ningbo FOTILE Kitchen Ware Co., Ltd.
- Mr. Xu Lixun, President of Huamao Group
- and Ms. Liu Mingming, President &CEO of Voith Paper Asia.
The moderator was Dr. Jean Lee, Michelin Chair Professor in Leadership and HR Professor of Management at CEIBS, as well as the Director of CEIBS Leadership Behavioural Laboratory.
The session provided interaction between the founders and next-generation members of family businesses who jointly explored how to ensure sustainability of their enterprises.
Session 2 began with comments from Dr. Joseph P.H. Fan Professor of School of Accountancy and Department of Finance, Chinese University of Hong Kong, who also serves as Academic Director of the Tsinghua Kaifeng Family Heritage Centre. He set the stage for the panel discussion that followed. Panellists were:
- Dr. Oliver Rui, CEIBS Professor of Finance and Accounting
- Mr. Wang Junhao, President of Juyao Group
- Dr. Ritchie Bent, Group Head of Human Resources at Jardine Matheson Limited
- and Ms. Cynthia Muller, Managing Director, Private Wealth Management Group at Morgan Stanley.
CEIBS Vice President & Dean Prof. John A. Quelch was the moderator for the Day’s Third Session which saw input from:
- Dr. Ramakrishna Velamuri, CEIBS Professor of Entrepreneurship, Academic Director (Global EMBA Programme) and Chair of the Department of Management
- Mr. Yan Kan, Vice President of Tasly Group
- Mr. John Tsai Vice Board Chairman of King’s Town Bank
- and Mr. Justin Leong Ming Loong, Head of Strategic Investment & Corporate Affairs at Genting Berhad Group.
The forum ended with an address by CEIBS President & Chengwei Ventures Chair Professor of Entrepreneurship, Dr. Pedro Nueno.
SOURCE China Europe International Business School