A new generation of family firm.
748 words
10 March 2007
Financial Times
Page 12
(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 for embezzlement.

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 its index.

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 franchise."

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 traditional belief."


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