A recent podcast episode examines the challenges faced by Asian tycoons such as Cheng Yu Tung, Ambanis, Riadys, Robert Kuok as they transition from the founder generation (1st gen) to their children or grandchildren.
Here are my notes from the episode. Take note that there could be inaccuracies as I paraphrased liberally.
A critical time
Many of the companies today are already or will soon hand over to the next generation and this is a critical juncture as they try to avoid the 'shirtsleeves to shirtsleeves' phenomenon.
A notable quirk is that many of these firms are often in foundational industries such as real estate and commodities. Many of these companies are passing into the third generation.
However, with the founding tycoons passing into old age, it has become increasingly challenging for them to intervene in the business and oversee the third generation. Moreover, the third generation may not be interested in running the business and may consider splitting or selling it. In some cases, family disputes may arise, posing a potential threat to the company's stability.
The founding tycoons possessed political skills that were crucial and helped them navigate the business landscape, but it remains uncertain whether the third generation has the same acumen or skills.
Advantages of the 3rd generation
The third generation of successors often possess advantages that can help take the family business to the next level. For instance, they are typically well-educated, having received degrees from top-tier universities in the West.
Many of the companies today are already or will soon hand over to the next generation and this is a critical juncture as they try to avoid the 'shirtsleeves to shirtsleeves' phenomenon.
A notable quirk is that many of these firms are often in foundational industries such as real estate and commodities. Many of these companies are passing into the third generation.
However, with the founding tycoons passing into old age, it has become increasingly challenging for them to intervene in the business and oversee the third generation. Moreover, the third generation may not be interested in running the business and may consider splitting or selling it. In some cases, family disputes may arise, posing a potential threat to the company's stability.
The founding tycoons possessed political skills that were crucial and helped them navigate the business landscape, but it remains uncertain whether the third generation has the same acumen or skills.
Advantages of the 3rd generation
The third generation of successors often possess advantages that can help take the family business to the next level. For instance, they are typically well-educated, having received degrees from top-tier universities in the West.
Because they are not required to immediately take on leadership roles in the business, they have the opportunity to gain valuable work experience and develop new skills outside of the company.
This can be particularly advantageous when the business is locally-based and looking to expand internationally, as the third generation may have a more global perspective and understanding of different cultures and business practices.
Furthermore, when the business seeks to expand into more modern industries, such as tech and venture capital, or modernize its company structure, the third generation can provide fresh perspectives and innovative ideas that help drive the company forward.
Interview with Joe Studwell, author of Asian Godfathers
- In the 16th century, original Chinese and Indian immigrants gained favor from local political leaders.
Furthermore, when the business seeks to expand into more modern industries, such as tech and venture capital, or modernize its company structure, the third generation can provide fresh perspectives and innovative ideas that help drive the company forward.
Interview with Joe Studwell, author of Asian Godfathers
- In the 16th century, original Chinese and Indian immigrants gained favor from local political leaders.
- In the 19th century, Asian tycoons gained access to sources of capital like banks, which accelerated their growth. Notably, many of these sources of capital (such as banks) used to be held by European or colonial companies.
- Tycoons are adept at turning on an axis as they need to represent their own cultural group, stay on the good side of local political and colonial powers.
- This produces interesting people, such as tycoons who present themselves as Chinese but struggle with the language, or Robert Kuok who speaks multiple Chinese dialects, learned Japanese during the war, and Malay.
- It's hard to displace this group because they are entrenched and while they may lose control via equity dilution in a crisis, they can re-exert control in other ways.
- Political change is one way new businessmen can be favored and catapulted to the top.
- Challenges for kids who inherit include being given little power while the patriarch is alive, which may lead them to leave the business even if inheriting the wealth is a considerable prize.
Interview wth Kevin Au Associate Professor at Chinese University of Hong Kong
- 1st gen grew up locally in China or Asia, while the 3rd gen studied overseas and are more liberal.
- The 3rd gen heirs may be told they can do whatever they want but are pulled back into the family business when circumstances change
- They usually return in high level roles, but some use their family resources to build new career paths.
- The transfer of power from 1st to 2nd gen is paradoxically hard. They may want to transfer power to the 2nd gen, they also want to protect their legacy (and hence retain control). This is exacerbated by the high regard society holds of the founders, where they are often viewed as titans of industry
- The transfer from 2nd to 3rd gen is different because the 3rd gen may come from different branches and need to be attracted back to learn how to run the business.
- The 2nd gen is usually closer and grew up together, while the 3rd gen may be more distant from each other.
- Succession/handover can fail due to conflicts within family members or incoming successors' inability to manage/run the business successfully..
Succession and handovers are very tricky to manage, even for corporates such as Disney (Bob Eiger returning) or Starbucks (Howard Schultz returning). More so for family businesses where the successor family member has to be both willing and capable. Also there are challenges when more than 1 children are both willing and capable.
- Tycoons are adept at turning on an axis as they need to represent their own cultural group, stay on the good side of local political and colonial powers.
- This produces interesting people, such as tycoons who present themselves as Chinese but struggle with the language, or Robert Kuok who speaks multiple Chinese dialects, learned Japanese during the war, and Malay.
- It's hard to displace this group because they are entrenched and while they may lose control via equity dilution in a crisis, they can re-exert control in other ways.
- Political change is one way new businessmen can be favored and catapulted to the top.
- Challenges for kids who inherit include being given little power while the patriarch is alive, which may lead them to leave the business even if inheriting the wealth is a considerable prize.
Interview wth Kevin Au Associate Professor at Chinese University of Hong Kong
- 1st gen grew up locally in China or Asia, while the 3rd gen studied overseas and are more liberal.
- The 3rd gen heirs may be told they can do whatever they want but are pulled back into the family business when circumstances change
- They usually return in high level roles, but some use their family resources to build new career paths.
- The transfer of power from 1st to 2nd gen is paradoxically hard. They may want to transfer power to the 2nd gen, they also want to protect their legacy (and hence retain control). This is exacerbated by the high regard society holds of the founders, where they are often viewed as titans of industry
- The transfer from 2nd to 3rd gen is different because the 3rd gen may come from different branches and need to be attracted back to learn how to run the business.
- The 2nd gen is usually closer and grew up together, while the 3rd gen may be more distant from each other.
- Succession/handover can fail due to conflicts within family members or incoming successors' inability to manage/run the business successfully..
Succession and handovers are very tricky to manage, even for corporates such as Disney (Bob Eiger returning) or Starbucks (Howard Schultz returning). More so for family businesses where the successor family member has to be both willing and capable. Also there are challenges when more than 1 children are both willing and capable.
Comments
Post a Comment