A new generation of family firm.
By LOUISE LUCAS
10 March 2007Financial Times
(c) 2007 The Financial Times Limited. All rights reserved
All happy families are the same, to paraphrase Leo Tolstoy. But even unhappy ones are not bad for business.
A "family index" produced by Credit Suisse shows that companies in
which the founding family has a stake of 10 per cent or more are good
for shareholders' wealth. According to analysts at the Swiss bank,
European stocks with a significant family influence have outperformed
their respective sectors by an average 8 per cent a year over the past
decade. The US experience is similar.
Small wonder that several US companies, including the retailer Gap,
are going back to their family roots, five decades or so after the
model was nudged aside in favour of public ownership.
Asia, of course, never gave up on family businesses. Mainland
entities aside, family-owned companies dominate Hong Kong's Hang Seng
Index. South Korea's corporate dynasties are flourishing, even after
those pesky scandals. The Lee family has tightened its grip on the
Samsung group by elevating the son of chairman Lee Kun-hee. And Chung
Mong-koo "retains full operational control and decision-making
authority for long-term strategic issues affecting Hyundai Motor", the
carmaker says - in spite of being handed a three-year prison sentence
Dynasties proliferate across south-east Asia: the Malaysian Kuoks,
whose interests span hotels and media; Indonesia's Salims in noodles;
and the same country's Bakries in mining and telecoms. Taiwan has the
Wangs, of Formosa Plastics fame, and the Koos, its oldest business
dynasty, now in a spot of bother over the antics of heir apparent
Jeffrey Koo junior.
Even Singapore, whose corporate landscape is partly in government hands, has family empires.
Does that mean Asian investors have more chance of outperforming
benchmarks? Sadly, Credit Suisse has not developed an Asian version of
Korea's Samsung Electronics underperformed its benchmark in two of
the past four years, while Hutchison lagged every year. In Singapore,
state-controlled DBS outperformed its family- owned banking peers.
Others Asian dynasties move in lockstep with their peers - a
reflection of the fact that many are rooted in cyclical industries such
as property development.
But there are plenty of stars in the family- controlled universe. Henry Yeung
Wai-Cheung, an associate professor at the National University of
Singapore who has researched Asian family businesses, sees grounds for
optimism. Corporate governance and transparency - once conspicuous by
their absence - have improved, he says, along with greater
globalisation of operations.
Younger generations are moving family businesses into different
areas. "This new phenomenon is leading to a new kind of family firm,
more driven by emerging operations, especially in technology," he says.
"That's a good development - extracting more from the existing
And what of the unhappy families? The spat in India between
Reliance's Ambani brothers, who engaged in a power struggle when their
father died, briefly sent Reliance shares tumbling. But it did
shareholders a favour in the long run - the subsequent division of the
company unlocked value and pushed both brothers into expansion mode.
Stanley Ho, the Macao casino kingpin, disowned his sister over a row
about dividend payments and shareholdings in his gambling empire. But
his dynasty continues to produce fabulous returns for shareholders. His
son Lawrence's casino joint venture with the son of Australian media
magnate Kerry Packer recently listed on Nasdaq and shareholders saw
gains of up to 32 per cent on day one.
Perhaps the most startling family rift was last year's bid by Li
Ka-shing, the Hong Kong billionaire, to help bankroll an acquisition of
his son's telecoms business. Mr Li's proposal, ultimately rejected by
shareholders, probably owed more to repairing political relations than
sparing his son's blushes. Richard Li's plans to sell PCCW's telecom
assets to private equity firms were scuppered by Beijing. But it set
back the cause of family businesses.
A pity, since it was Mr Li who wrote the epitaph for keeping wealth
in the family, in a speech last September entitled "My third son" -
which is how he refers to his charitable foundation.
Mr Li said: "In Asia, our traditional values encourage and even
demand that wealth and means pass through lineage as an imperative
duty. I urge and hope to persuade you, especially all of us in Asia,
that if we are in a position to do so, that we transcend this