All in the Family

Au, Kevin Yuk-fai（區玉輝）

How do Chinese companies run by several generations of family members ensure a smooth succession? Center for Entrepreneurship explores the topic

By China Business Knowledge @ CUHK

How is it like to work in a business involving several generations of the same family? How do founders of such businesses ensure successful career developments of their offspring and a smooth succession? Case studies conducted by CUHK Center for Entrepreneurship highlight the intricate dynamics in transgenerational family businesses in a Hong Kong-Chinese context.

In the Chinese culture, entrepreneurship and family businesses are almost synonymous. Many companies start out as mom-and-pop or father-and-son shops and gradually grow into a larger scale. Some of them manage to expand rapidly and even become public companies over the course of one or two generations. While family ties are the common thread among these companies, individual family dynamics within each firm, such as interactions between two generations, show that family businesses face a totally different set of challenges than non-family-run businesses in their day-to-day and long-term operations.

At the Center for Entrepreneurship (CfE) of the Chinese University of Hong Kong Business School, Associate director Prof. Kevin Au and his team have been studying the relationship between family businesses and entrepreneurship.

“A lot of the entrepreneurship spirit arises from family so it is about how we can best preserve, continue and educate the second generation to expand an already existing business to become a leader in the industry and other sectors in society,” says Prof. Au.

Au and his colleague, Prof. Florence Ho and a management consultant who has worked with many family businesses, have met with a number of first- and second-generation family members to gather insights into their family businesses. What follows are mini case studies that reveal some of the lessons learned by family members of four medium-sized businesses in different industries.

A Keen Candidate

Mr. Kwon started a family business in the retail industry in the 1970s and was keen to pass the business on to his son, Lucas, who was fairly inexperienced but very interested in becoming involved with the family business. To enable Lucas to get a feel for the family business before managing it on his own, Mr. Kwon created a specific business project for him. It was Mr. Kwon’s hope that success achieved through the project would provide Lucas with the confidence and experience to venture into the retail industry. Mentors were also enlisted during the project to offer extra assistance to Lucas.

Lucas took up the challenge with enthusiasm; however, it was an unsuccessful endeavor and he was unable to complete the project. One of the major reasons was the choice of the mentors. Mr. Kwon had chosen the mentors without first understanding Lucas’ career development needs. Although the mentors were overseas professionals who knew the family business well, they lacked operational experience within the industry. As a result, the mentors were unable to provide appropriate advice for Lucas and in the end, they could not be fully trusted by Mr. Kwon either. Even though Lucas was committed to the project, the mentors’ inexperience hindered his execution of the project.

Despite this setback, Lucas currently still remains on track to take over the family business and has attempted to launch new business ventures that leverage on his family’s resources. He now realizes that he needs to further his studies and knowledge of the retail industry to be more successful in the future. In hindsight, Mr. Kwon realizes that he never fully planned the mentorship from Lucas’ perspective. For mentorship to be successful, both the mentor and protégé need to be able to work together. In this case, the mentor was not the right “fit” for Lucas. Mr. Kwon could have communicated more thoroughly with Lucas in order to better understand his son’s needs and, in turn, Lucas would have obtained a more accurate understanding of his father’s expectations of him. In addition, the family learned that it is essential for mentors to be carefully selected, not only based on technical know-how, but also on their ability to educate, coach, and support the protégé. In essence, these are two different skill-sets and a mentor that possesses outstanding technical expertise may not have a talent for coaching.

An Uncertain Candidate

Rodney Tsang was uncertain about whether he should join the family business. His father, Dr. Tsang, is a successful entrepreneur who had launched a new technology service in mainland China in the 1990s. In this case, there was an added psychological dimension which affected Rodney’s decisions. Dr. Tsang has always had a competitive nature and his son has followed his lead. They are both competitive individuals and have been in a subtle contest often trying to prove that they are better than each other in various aspects of life. In reality, Rodney truly admires his father and simply wants to identify with him; therefore, he feels he should mimic his competitive character as well. This relationship dynamic has created an emotional need within Rodney that compelled him to study at an elite U.S. university. Influenced by his peers, he decided to choose finance for his future career as it was considered a more lucrative and high-profile profession. Since he is currently achieving success with this career choice, Rodney is hesitant in joining his father’s business although he probably feels some obligation to do so due to family loyalty and identification with his father.

Reflecting on this case, the management consultant commented on the psychological barrier among potential family successors known as the “prince” syndrome. In these types of cases, certain family members tend to harbor anxieties of others viewing them as privileged and taking advantage of the family’s wealth. As a result, these individuals constantly strive to prove their abilities or simply choose to disassociate themselves from the family business to avoid ridicule from relatives, colleagues and friends. This syndrome can potentially obstruct individual family members from achieving a successful career in a family business.

What can be learned from this case is that these individuals need to understand and become aware of their issues. It is only then that they may realize that their apprehensions and concerns are unwarranted and could be a hindrance to their success in the family business. Once they exhibit signs that they wish to change, then providing coaching and support is vital in helping them regain perspective.

An Obligated Candidate

Justin Yung was trained as an engineer and had little knowledge of luxury retailing when he was required to take the helm of the family enterprise due to the sudden passing away of his father. He was the eldest son of a large family and only in his early 20s when he was presented with such a daunting responsibility. Justin was expected to manage and operate the company to ensure that his family members would continue to be provided for and that the family legacy would carry on. The selling of the business was not a viable option.

Justin set about his role with the wisdom and savvy of a person possessing experience beyond his years. He first worked with a long-term partner of the company and quickly learned and absorbed every aspect of the organization, fast-tracking his entry into the business. He then made a large impact by advertising. In those days, during the mid-1970s, advertising was new and revolutionary in the industry, and he soon became known as a pioneer who deployed very innovative and ingenious marketing tactics. This allowed him to gain legitimacy and credibility within the industry and he eventually took full control of the family business. Furthermore, Justin became renowned in the industry as an individual with vision. As he expanded the business, he lured sought-after peers into the management team, creating further value and successes for the company. He was also able to persuade other family members to come back and work for the family firm. The family members could see prospect in the company since Justin had already established a solid foundation and platform on which to grow the business.

Since his tumultuous entry into the family business decades ago, he is now planning his retirement and grooming successors for the business. He hopes that his succession plans will be managed with greater care compared with his own experience. Reflecting on his life, he feels fortunate and satisfied that fate and family obligation determined his choice of career rather than requiring him to make a decision on his own.

This case shows that being obligated to take over a family firm may be a highly beneficial and advantageous situation. For a talented youngster, it eliminates all other options, which in turn minimizes uncertainty and potential confusion about what career choices to make in life. It also shows that in order to expand a family business successfully and entice other family members to join, it is critical to first build a strong foundation upon which they feel they have the potential to develop and thrive by being in the family business.

Note: The names of the individuals in this article have been changed to protect their privacy.