Approaches to Succession in
East Asian Business Organizations
Theodora Ting Chau
By concentrating on the approaches to succession in Japanese and overseas Chinese family businesses, this article attempts to come to terms
with the question of why Japanese firms enjoy corporate longevity while
overseas Chinese firms do not. Succession in the overseas Chinese family
(coparcenary) is different from succession in Japanese families (primogeniture) at every relevant point, and these differences have important consequences for overseas Chinese family business. The article also discusses
economic, historical, and social functions of the two inheritance systems.
It is bound to strike us that the Japanese ie belongs to a different
world of structure from that of the Chinese chia, even though the
two terms are written with the same ideograph. . . . The ie is a
corporate group: it never (in principle) dies. But the chia is in a
perpetual state of dissolution, for when the partition of family
takes place, none of the resulting units retains the precise
identity of the unit from which it springs.
Maurice Freedman, Family and Kinship in Chinese Society
Most Americans see East Asian culture as monolithic and are impressed
with its high level of twentieth-century industrial success. There are some
aspects of business organization that are distinctly East Asian in character.
In particular, across cultures East Asian management has utilized the traditional values of family (ie in Japanese and chia in Chinese) and has translated them into business settings. Familism, a prevalent feature of East
Asian firms, incorporates (1) the familial hierarchical status, authority pattern, and obligatory relationships as models of organizational roles and (2)
family-like harmony, unity, loyalty, and emotional commitment as means to
bond employees to enterprises (Chau, 1985). Although the specific industries may vary, the dominant position of family-controlled firms is an
important common characteristic of the four newly industrialized countries
(NICs)—Korea, Taiwan, Singapore, Hong Kong—and of Japan.
F A M I L Y B U S I N E S S R E V I E W , vol. IV, n o . 2 , S u m m e r 1 9 9 1
© J o s s e y - B a s s Inc.,
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Chau
• In Korea, the four largest chaebols (financial cliques)—Samsung, Hyundai, Lucky-Goldstar, and Daewoo—generated a combined U.S. $96.8 billion
in sales for the year 1988. These giant business conglomerates, with products ranging from autos, shipbuilding, aerospace, electronics, and semiconductors to construction, are mostly family owned and operated.
• In Taiwan, giants such as Formosa Plastics, the world's largest producer of polyvinyl chloride, and Evergreen Corporation, the biggest container shipping company in the world, are family controlled.
• In Hong Kong, well-known family groups (Kardoorie, Y. K. Pao, Li
Ka-Shing, and so on), as well as OCBC Bank's Lee family in Singapore,
control a large network of diverse blue-chip firms in the two island-cities.
Li's Cheung Kong Holdings, for instance, holds an estimated 12 percent of
the total market capitalization in Hong Kong.
• In Japan, by contrast, there are virtually no family-owned businesses
among the auto, electronic, chemical, steel, or other firms that constitute
the core of Japanese manufacturing industries. Family businesses tend to
concentrate instead in real state (for example, Kokudo Keikaku, Tongensha,
Heiwa, Marugen), construction (for example, Kajima and Ohbayashi-gumi),
retail (Yaohan), food processing (Yamasaki Baking and Ezaki Glico), and
the like. However, in some large firms (such as Suntory, Toyota, Ajinomoto,
and Bridgestone Tires), the family continues to exercise strong leadership
several generations beyond the founder.
While familism can explain some common patterns across the East Asian
societies, it cannot explain the variations within and between these societies
(Clegg and Redding, 1990). For instance, despite the similarity in appearance of business networks (keiretsu in Japan, chaebol in Korea, and kuan-hsi
chi-ye in Taiwan), there seems to be a relative absence of vertical integration
among the overseas Chinese giants (Hamilton, Zeile, and Kim, 1990). There
is an indication that interpersonal trust is more institutionalized in Japanese
firms; for example, employees do not have a strong sense of indebtedness to
their recruiters. In the overseas Chinese firms, obligations and dependence
are much more tied to personal bonds (Redding and Whitley, 1990). Furthermore, the source of enterprise dynamism in Chinese firms, in complete contrast to the Japanese case, lies not in the strength of group solidarity but
rather in the constant ability to renew. That is, firms are constantly breaking
up and continuously being reborn as entrepreneurial entities (Tarn, 1990).
The explanations of such disparities between the overseas Chinese and Japanese business enterprises center on noneconomic factors, the most important of which are the different approaches to inheritance and succession.
Comparative Analysis of Succession Models
This paper focuses on one core differentiator among East Asian business
firms: succession through coparcenary versus primogeniture. It is on this
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Succession in East Asian Business Organizations
163
concept of succession and the treatment of inheritance that the Chinese
and the Japanese traditions differ almost entirely (see Table 1).
Coparcenary is defined in Webster's Third New International Dictionary
as (1) partnership in inheritance: joint heirship and (2) joint ownership.
Coparcenary, known asfeng chia in Chinese (feng: to divide, chia: family),
requires the equal division of family assets among all male descendants.
Under such a system, each legitimate son by birthright is entitled to a
share of the father's property and other economic resources. The division
of the family estate, normally taking place after the death of the father,
permits a son's family to become an independent economic unit and also
assures a son's autonomy in governing his own family. In actuality, the
inheritance is rarely divided absolutely equally among all male heirs. The
eldest son will usually get a larger share to cover the expense incurred in
ceremonial rituals. But the power of eldest brother over younger ones is
more nominal than actual.
In contrast, the primogeniture observed in Japan entitles only the eldest
son the sole right of succession as head of the ie. The eldest son inherits
the bulk of the estate. His household is thereafter known as honke (main
family), and the households of the other brothers are known as bunke
(branch family). Such a restrictive system allows only one main family
household in each generation. An important principle of ie succession is
that, should the heir be considered incompetent to uphold or enhance the
honor of the house, it is possible for the eldest son to be replaced by
another son, son-in-law, or even nonkin member of the house. Once a
Table 1. A Comparison of Coparcenary and Primogeniture
Approach to Succession
Characteristics of Succession
Coparcenary
Primogeniture
Authority
Patrimonial
Patrimonial
Trust relation
Limited to family
member only
Personal bond
Expandable to nonkin
members
Institutionalized (hanto
system)
Inheritance system
Equal division among
male heirs
Succession by one male
heir
Societal (elite and elite
formation)
Meritocracy
Aristocracy
Economic consequences
Dysfunctional
Downward mobility
Lack of corporate
longevity
Functional
Capital formation
Corporate longevity
3
In-laws may be included in contemporary overseas Chinese societies.
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Chau
former head retires, voluntarily or otherwise, he loses all his authority and
becomes a dependent of the new head.
Japanese primogeniture is more similar to European succession models
than it is to those of China. However, the Japanese model avoids many of
the problems of Western primogeniture by (1) using adoption (yoshi) and
(2) permitting substitution by the most suitable heir. In terms of authority,
the Japanese patriarch is said to be stronger and more absolute than his
Chinese counterparts, perhaps not only because he controls his lineage's
common property, but also because he has been chosen for his pragmatic
ability (Pelzel, 1970). The relation between the succeeding and nonsucceeding brothers tends to be hierarchical, and the succeeding son enjoys
undivided authority as the family head.
History suggests that both contemporary overseas Chinese and Japanese
societies have held firm to these two models. One representative national
sample of Japanese farm households, for example, revealed that over the
three generations prior to 1948, the main household of the eldest sons had
in fact succeeded the father in about 75 percent of all the estates (Raper,
1950, cited in Pelzel, 1970). The hierarchical distinction between succeeding and nonsucceeding brothers in inheritance and residence patterns
remains strong even today. Under postwar Japanese rules, only the late
Emperor Hirohito and his siblings keep their official status as the Imperial
Household. With Hirohito's death, the new Emperor Akihito and his immediate family have become the new main household, drawing an annual
imperial stipend of about U.S. $1.9 million. The rest of the seventeen
members of the branch imperial family have to share another U.S. $1.9
million (Weisman, 1990).
For the overseas Chinese, there is a comparable outward display that
the tradition of coparcenary is alive and well perpetuated. An illustrative
case involves Sir Y. K. Pao, the shipping tycoon (net worth U.S. $1.5 billion)
from Hong Kong. Pao has no son but four daughters. His massive holdings
include one of the world's largest fleets of container ships, the Omni Hotel
chain in the United States, department stores, and a wide range of financial
concerns. "I thought it would be better to let each one manage something
separately," said Pao in an interview (Montagu-Pollock, 1989, p. 36). He
appears to be dividing his empire into four parts. At his death, his welleducated, experienced sons-in-law will take over the empire they are
already instrumental in running ("Billionaires . . . ," 1990).
Pao's case is by no means unprecedented, for "coparcener" in modern
Chinese societies often means females as well as males. This is in itself
indicative that culture is not static. On the other hand, the traditional East
Asian business community is still not accustomed to female CEOs. Furthermore, a daughter's allotment maybe eventually be given to the son-in-law
when she marries. Pao's succession plan is an example of a common form
where (1) estates are passed on to all legitimate heirs in more or less equal
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Succession in East Asian Business
Organizations
165
degree; (2) corporate leadership almost invariably passes on to male members of the family, including the in-laws (Wong, 1985); and (3) investment
decisions tend to favor diversification over vertical integration, so that
estates are nonentangled and readily divided among heirs (Hamilton, Zeile,
and Kim, 1990).
Inclusion of Nonrelatives in Succession
According to Redding (1990), there is a cardinal rule within the overseas
Chinese family business: never trust anyone from outside the family circle.
This contrasts dramatically with the case of Japan, where salaried managers
exercise strong control in making decisions and governing the firm's longterm strategy. The great power of the salaried managers in Japan has often
been praised as professionalism (Sharpe, 1986) or, as in Chandler's model,
the emergence of managerial capitalism (Chandler and Daems, 1980). What
is the source of the high level of trust between Japanese owners and their
salaried managers?
First of all, the salaried managers in Japan are not outsiders; they are
members of the firm qua ie. As Abegglen and Stalk (1985) observe, "the
board of directors of the Japanese company consists almost entirely of
inside board members, that is, of the senior management of the company.
They achieve board member status as they move up in the executive ranks;
they are career employees" (p. 185). Inclusion of salaried managers into
boards of directors in Japan is directly related to the banto system, which,
both in ideology and in practice, has been the Japanese managerial tradition ever since the Tokugawa period (eighteenth century). In merchant
families, the employment of apprentices was widespread and strictly institutionalized. A young boy, upon recommendation, was introduced into the
ie (commercial house) to learn a craft or trade as an apprentice (deshi).
After satisfactory completion of training and upon coming of age at eighteen, the deshi would be promoted to the position of tedai (journeyman).
Ultimately, the best and the brightest could be appointed banto (manager,
chief clerk). A banto could become the head of the ie if he (1) was adopted
as the heir or (2) gained the status of a bona fide family member by
marrying a daughter or a niece of the family. Alternatively, a banto might be
given a capital sum with which he would establish a branch family.
Many scholars have recognized that the banto system represented a vehicle for the rise of salaried managers in Japan (Morikawa, 1989). During the
late nineteenth century and at the beginning of the twentieth century, there
was a shortage of technical personnel in Japan. Experienced managers who
had acquired know-how at industrial sites or universities abroad were quite
mobile. Some family firms, such as Mitsubishi, were most determined to
recruit and retain university-trained talent. They sought to instill in them a
sense of belonging, identification, and loyalty to the firm as one ie.
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166
Chau
Only when substantial numbers of internally trained salaried managers
emerged were they asked to join the board of directors in Japanese firms
in a significant way (see Table 2). The present-day Japanese firms (like
their predecessors in the eighteenth century) integrate their modern hantos
through firm-specific training. This education is not only about functional
expertise but is also a process of moral socialization into the community of
the firm (Deutschmann, 1984). In other words, the trust between Japanese
owners and their key employees becomes institutionalized through a variety
of channels, including lifelong employment, a seniority system, extensive
company welfare, company songs, and company mottos. Banto is a practice
that has taken the Japanese centuries to evolve; one would not expect it of
businesses as young as those in the East Asian NICs.
E c o n o m i c C o n s e q u e n c e s of the Two Succession Systems
Primogeniture assists capital accumulation, while coparcenary generally leads
to fragmentation of economic resources. After two or three generations, the
diluted inheritance becomes inadequate to insulate the families from calamity, except in those family units that have been able to build up more wealth.
The rise and decline of family fortunes have repeated themselves so
often and with such regularity that it has led most of the Chinese to believe
that a gentleman's (that is, a feudal lord's) grace becomes extinct in three
generations. In his book, Ladder of Success in Imperial China, Ho (1962)
presented research on a list of 35,706 mandarins (holders of academic
degrees from imperial civil examinations) during the Ming and Qing periods (1371-1904). With the exception of elementary degree holders, most
of these mandarins automatically became government officials and hence
members of the ruling class. In imperial China, education and wealth were
the chief determinants of social status. Ho's analysis demonstrated a consistent pattern of downward mobility, even among the most successful and
prominent families (see Table 3), and he concluded that coparcenary, probably more than any other factor, had contributed to the inevitable decline
of the mandarin families.
Longevity of Firms
In Japan, some business enterprises have been in existence for one or two
hundred years. This pattern is conspicuously absent among overseas Chinese business firms. Of the four original Japanese zaibatsu families, Mitsui
and Sumitomo were merchant houses dating from the Edo era (seventeenth
to eighteenth century), and Mitsubishi and Yasuda were founded by former
samurai-bureaucrats as post-Meiji (1886) creations. Scores of other firms
(for example, both the Mitsukoshi and Isetan department stores) have also
existed for many years and, in some cases, for centuries.
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Succession in East Asian Business Organizations
169
The history of China is very different. There were co-hong (a name specially applied to combined merchant companies connected with foreign
trade) in China during much of the eighteenth and nineteenth centuries. In
1782, thirteen merchant companies were given the exclusive rights to all
trade with foreign ships entering China through the coastal city of Canton.
Howqua Hong, the best known of these merchants, estimated the company's
wealth in 1834 at U.S. $26 million (Couling, 1917). Unfortunately, despite
their staggering wealth, none of these merchant families has maintained the
fortunes of their firms to this day (Eberhard, 1962; Ho, 1962).
Further data come from contemporary Hong Kong. More than half of
the stock market capitalization in Hong Kong is controlled by ten family
groups, seven of them overseas Chinese. Without exception, all of the
overseas Chinese groups are first generation, established during the past
three decades of economic boom. On the other hand, the three nonChinese groups (the Swire, Keswick, and Kadoorie Groups) have been in
Hong Kong since the nineteenth century and are much older in lineage.
Some well-known families in Hong Kong (such as the Kwok family, the
owner of Hong Kong's largest chain of stores, and Fung Ping-Fang Co., a
diversified trading and service company) were for over fifty years ranked
shoulder to shoulder with the British groups in Hong Kong's business
world. By 1989, all of these premier family-owned empires had begun to
buckle under heavy debts, and none is currently among the ten leaders.
The short life span of the overseas Chinese family businesses when
compared to the Japanese firms may be due partially but significantly to
the system of coparcenary. Many noted scholars (Hsu, 1984; Yoshihara,
1990) also have argued that the built-in divisiveness of coparcenary is
damaging. Worse still, the blurring of the line of authority among sons after
a founder-patriarch's death makes it difficult for anyone in subsequent
generations to guide family fortunes autocratically from the top. "Even
when a family remained highly cohesive, the dissipation of the leadership
role into perhaps four or five separate hands tended also to dissipate the
central purpose and replace it with new directions for effort. Thus potential
dynasties are constantly dissolving" (Redding, 1990, p. 134).
Historical Settings of Two Approaches to Succession
The Imperial Institution and Feudalism in Japan. One institution that
sets the Japanese apart from other societies is its imperial monarchy. The
Chrysanthemum Throne, symbol of the Japanese imperial household, is the
world's longest serving monarchical dynasty. The current Emperor Akihito is
the 125th tenno of Japan, a direct descendant of Jimmu tenno, the first
emperor. As a whole, East Asians since antiquity have accepted the Confucian concept of the primacy of a unified political system (Reischauer, 1978).
However, the imperial systems of Japan and China, though both representing
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Chau
170
the authority of the state, possess very different characters. The Chinese
emperor is a secular ruler, while the Japanese tenno has the dual functions
of a monarch of state and a chief priest of Shinto with divine status.
Shinto is a wholly indigenous Japanese religion. Its association with the
cult of the imperial ancestors has contributed to the myth that all Japanese
are descended from the Sun Goddess. Such historical lineages, in a fictitious genealogical sense, have been used in Japan to bond the rulers and
subjects. For the populace, a tenno's source of legitimacy is continuity, the
unbroken and uninterrupted succession of imperial tradition. A change of
dynasty is unthinkable because it would be a serious blow to the collective
consciousness.
In Japan, the land and the people belonged to tenno, the emperor, and
primogeniture was practiced and strictly enforced to perpetuate the hereditary authority of the imperial household. However, by the twelfth century,
military landlords (branches of imperial families) fought each other, parcelled out land, and established their own vassalage. In 1192, a warlord,
Minamoto Yoritomo, was granted the title of shogun (general), representing
central authority, by the Emperor Go-Toba, and the period of Japanese
feudalism thus officially began. It should be noted that although the power
of the imperial court was diminished from then onward until the mid
nineteenth century, the fundamental nature of the imperial institution—its
divine status and its principle of heredity—was never challenged. The
unique political order was one of decentralized unification (Lehmann,
1982; Reischauer, 1978). A shogun was in actuality autonomous—he had
exclusive rights of landownership and taxation over his domain. But in
theory, the legitimacy of the shogunate as a permanent and hereditary
ruling office was invested by the imperial court.
Primogeniture of feudal lords represented stable authority structures
capable of guaranteeing the right to own land (Murakami, 1984). Under
Japanese feudalism, farmers could not own land but had the right of cultivation. From the sixteenth century on, the basic unit of taxation was the
village (mura), and the responsibility for payment of taxes was not a household (ie), but a collective matter. As Reischauer states: "In Japan, loyalty to
[feudal] lord was more central to the whole system . . . and the suprafamily groups early became established as more fundamental than the family itself. . . . This made easier the transition into modern times to loyalty
to the nation and to other nonkinship groupings" (1978, p. 57).
Ancestor Worship and Land Ownership in China. Chinese history has
always been dominated by a strong secular state, and China possessed no
important religion prior to the advent of Buddhism. Unlike the Japanese who
can trace their ancestry to a common source, the Chinese society is segmented into agnatic communities, each with its distinct point of origin
(Freedman, 1970). Ancestor worship, a ritualistic behavior toward the spirits
of the dead for the purpose of protection and blessing, becomes a de facto
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Succession in East Asian Business Organizations
171
religion (Beckwith, 1909). Family continuity through genetic relationships
becomes the ultimate expression of one's existence and fulfillment. (The
belief that men's souls survive death is the contribution of Buddhism, introduced to China about 61 A.D.) Primogeniture exists in China, but only for
ritual purposes. It is the duty of the eldest son to worship and preserve the
ancestral tablets of his father's family. In this way the family carries on across
generations. This practice survives to this day, despite the official abolition
of the rule of primogeniture in China from 127 B.C. onward (Ho, 1962).
Coparcenary in imperial China represented a political ideology, reinforced by a cumbersome land taxation policy and designed to uphold
private land ownership. Throughout Chinese history, the concentration of
land ownership in the hands of a few had always been a recurrent problem
(Chu, 1957). When unification occurred, the first emperor (Shih HuangTi) of the Chin Dynasty (200 B.C.) initiated a massive land redistribution
program and established an extremely complex land holding and tax system. (The imperial bureaucracy that took form at this period and survived
for more than 2,000 years was responsible for its administration.) The
original taxation format was based on a percentage of estimated annual
yield. By the time of the Tang Dynasty (624 A.D.), land taxes were elaborated
into three categories: agricultural products, textile products, and labor (calculated in terms of the number of adult males per household). A progressive
rate of surcharge would be levied on the basic land tax (di) and head tax
(ding) quotas, so the higher the head count per parcel of land, the higher
the taxes. The private land ownership system and the endless variations of
the land and head taxes remained intact until Mao's communist regime
took over China in 1949. The system of equal distribution resulting from
coparcenary therefore (1) permitted the tax burden to be equally borne
among all offspring and (2) reduced the number of adult males in each
household, which yielded a lower tax rate. Coparcenary encouraged distribution of the land among those in need and at the same time resulted in a
limitation on the amount of land that any family could hold. Ultimately, it
was a deliberate policy of the bureaucratic elite to prevent an alternative
source of political legitimacy from emerging.
Societal F u n c t i o n s of the Two Approaches to Succession
To the extent that coparcenary fits well with the Chinese imperial bureaucracy, primogeniture is also perfectly compatible with the Japanese feudal
order (see Figure 1). In Japanese society during the period before World
War II, there were attempts to create a national unity based on archaic
religious (or racial) symbols. Primogeniture provided the superiors (imperial
court, feudal lords, and the like) divine and unlimited authority. Throughout Japanese history, there are examples of the single designated leader of
any societal unit committing inferiors to absolute obedience and loyalty.
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172
Chau
Figure 1. Historical Settings of the Two Approaches to Succession
IDEOLOGY
Political Unity
perpetuate—•
• perpetuate-
The Ancien Regime
Centralized
Monarchy
in China
Decentralized
Unification
in Japan
> f
t
Approaches to Succession
PRIMOGENITURE
COPARCENARY
f
r
Political Utility
1. Private land ownership
(redistribution of land
to prevent alternative
source of political
legitimacy from
emerging)
1. Symbol of authority
(imperial court)
2. Legitimacy to rule
(power to invest
others—shoguns,
feudal lords—to rule)
2. Meritocracy of elite—
the imperial bureaucracy
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Succession in East Asian Business Organizations
173
In China, we witness a similar attempt to maintain political unity but by
very different paths. Japan was an aristocracy; China, on the other hand,
remained a meritocracy and permitted social mobility (Lehmann, 1982). The
legitimacy to rule was not ascriptive or divine but derived from moral supremacy and virtuous conduct. The partition of family assets through coparcenary,
combined with recruitment to bureaucracy through examination, was a Confucian institution designed to place authority in the hands of those best qualified to exercise it. The traditional political order in China (an all-powerful
bureaucracy headed by the emperor) was therefore characterized by a good
deal of permanence but also by stagnation.
Of course, Japan and the East Asian NICs have undergone a tremendous
transformation in the past four decades. Institutions and values ill-adapted
to modernization (brutal militarism of Japan, low regard for merchants and
commerce among the Chinese, and the like) were swept away by internal
and external forces. Other vestiges of the past, such as the role of women in
business, nevertheless persisted. The impact of modernization and industrialization processes is clearly very powerful, but these processes have yet
to render the ancient approaches to succession obsolete. On the contrary,
some of the habits and institutions have greatly enhanced the agility and
adaptability of East Asian businesses. The cooperative stance shared by
management and employees that had distinguished East Asian industrial
relations, for instance, clung most tenaciously to traditional reciprocal obligations between paternal benevolence (superiors) and obedience (subordinates). Similarly, the coordination of large networks of firms (keiretsu,
chaebols, and so on) is made possible through the interpersonal trust of key
individuals. In short, the soundness of such orientation to familism in East
Asian firms has apparently been proven by its success in world market terms.
As we shall see in two illustrative cases, solidarity and authority, rooted in
ie-ism and chia-ism, conserve order and marshal energy for the attainment
of well-defined economic goals. However, once such unifying force is lacking
(via subdivision of family assets), one sees stoic inertia, fragmentation, and
disintegration.
Comparison of the Two Approaches to Succession
The Case of Kian Gwan. Kian Gwan (Source of Prosperity) was the first
overseas Chinese business empire that shared some of the attributes of
Japanese zaibatsu—scale, scope, and influence. Yet it remained distinctively
Chinese. It was founded by Oei Tjie Sien as N. V. Handel Maatschappij
Kian Gwan in the Dutch Indies (now Indonesia) in March 1863. After
emigrating from Southern China, Oei Tjie Sien started trading Chinese
commodities and exporting sugar and tobacco in Java. It was Oei Tiong
Ham (1866-1924), his son, who was responsible for turning the successful family-based limited company into a behemoth commodity-financial-
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Chau
trading combine, known also as OTHC (Oei Tiong Ham Concern). In
1890, Oei Tiong Ham closed out his main rivals (European and Japanese
cartels) and cornered the world market in sugar trading. Ever since he has
been known as Raja Gula, the sugar king (Godley, 1981).
Oei Tiong Ham was a pioneer in applying modern production methods
to large-scale sugar plantations. Later he expanded his export of agricultural
and forestry products to include rubber, coffee, clover, rice, tapioca, pepper,
and whatever other government monopolies were up for lease. To coordinate the finances of this expanding concern, he established a bank, called
N. V. Bankvereniging Oei Tiong Ham. After the acquisition of the HEM
steamship company of Singapore in 1910, Kian Gwan became a diversified,
sprawling empire with twenty branches on five continents.
The Asian press called Oei Tiong Ham the richest man between Shanghai and Australia, one who had played politics on a grand scale. He supported the revolutionaries in China to dethrone the Qing Dynasty,
befriended Japanese royalty, and once simultaneously had crown princes
of Denmark and Greece as his houseguests (Garth, 1973). Oei was remarkably cosmopolitan, with poise and sophistication acquired in his frequent
contact with the Western world. However, in terms of the family's future
succession, he was a traditional Chinese.
Oei Tiong Ham had twenty-six children, thirteen sons and thirteen
daughters, from eight wives. Adhering to Chinese custom, he assessed his
sons with the aid of horoscopes to decide who should become his heirs
and carry Kian Gwan through future generations. Of the nine children
designated as heirs, four (the eldest named Oei Tjong Hauw) were by one
wife, one (Oei Tjong Swan) was by another wife, and four were by a third
wife (the youngest, Oei Tjong Tjay, was born three weeks after his death).
The heirs were to receive equal shares of the company at Oei Tiong
Ham's death. In order to avoid having his will contested, Oei Tiong Ham
had moved to Singapore when his will was written. After his death in
1924, his oldest two sons, Oei Tjong Hauw and Oei Tjong Swan, continued
running Kian Gwan on behalf of their co-owner siblings. The dispersal of
ownership made strategic decision making difficult. After World War I, the
overproduction of sugar resulted in the Chadbourne Agreement in 1931.
This was followed by the establishment of the International Sugar Convention, by which various sugar-producing countries were allocated export
quotas. Unsure of the future, Oei Tjong Swan decided to leave the OTHC
in 1931 and sold his share to his other brothers. A daring businessman,
Tjong Hauw helped OTHC to ride out the depression and pushed the
heterogeneous giant to further expansion and modernization.
After the death of Tjong Hauw in January 1951, the entire concern was
on the verge of breaking up. Consensus among Kian Gwan's board of managing directors, representing so many equal owners, was hard to come by,
and the power of the new chief executive was greatly curtailed. Tjong Tjay,
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Succession in East Asian Business Organizations
175
the youngest brother, together with Oei Ing Swie, eldest son of Tjong Hauw
as president-director, eventually led the concern through its dangerous third
generation until its confiscation by the Sukarno Government in 1961. The
empires that Oei Tjie Sien and Oei Tiong Ham built in the fields of production, distribution, trading, finance, shipping, insurance, and plantations
were suddenly all gone. Today Kian Gwan still operates in Amsterdam, Bangkok, Singapore, and Hong Kong (assets outside of Indonesia had escaped
the government's expropriation). But these remains of Kian Gwan—one of
the first, most diverse, and biggest business empires of overseas Chinese—
have in fact become autonomous entities (Panglaykim and Palmer, 1970;
Yoshihara, 1990).
The Case of Mitsubishi. The history of Mitsubishi Goshi offers a Japanese parallel to Kian Gwan in its meteoric rise to an immensely large,
diversified empire. Mitsubishi was originally a shipping firm with businesses ranging from whaling to currency management. The founder of
Mitsubishi, Iwasaki Yataro (1834-1885), put his fleet at the disposal of the
Meiji government for military use in 1874. This gained him significant
governmental assistance and protection. Yataro than spearheaded Mitsubishi's tremendous growth by cofounding Nippon Yusen Kaisah (NYK), one
of the world's largest shipping firms, and by expanding to banking and
other industries (coal, iron and steel, shipbuilding, marine, and insurance).
As indicated in Figure 2, after Yataro's death, the Mitsubishi combines were
controlled by two Iwasaki families, with common responsibility vested
alternatively by custom in the eldest son of one family, then another
(Yamamura, 1964, 1967). The structure of Mitsubishi included separate
joint stock companies under the control of Goshi Kaisha, a limited partnership, owned by the Iwasaki families.
Unlike the Oei family, who insisted that only an 'Oei' could be a successor, Iwasaki's Mitsubishi actively sought to recruit university graduates into
top management positions and into the family by eventually marrying them
to the founder's daughters and nieces. Kato Takkaki, an England-educated
law student who married Yataro's daughter, was at one time an NYK executive
and later a prime minister of Japan. Kagami Kenkichi, who married a niece
of Yataro, was principally an insurance specialist trained in London. He
helped build Tokio Marine and Fire Insurance company and was president
of NYK from 1929 to 1935. Shoda Heigoro, the general manager (kanji) of
Mitsubishi from 1894 to 1910, was also a salaried manager who happened
to marry the niece of the founder (Morikawa, 1989).
Of course, zaibatsu were dissolved, and family ownership was removed
after World War II. But the prestige and power of Mitsubishi enabled member firms to recruit the most capable salaried managers. In due course,
Mitsubishi also earned its employees' unfaltering loyalty. Today, Mitsubishi
is the largest industrial-banking-trading group in Japan with combined
sales of U.S. $175 billion in 1989. The twenty-eight core member firms are
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Succession in East Asian Business Organizations
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bound together by cross-shareholding, interlocking directors, reciprocal
transactions, and, above all, group loyalty and historical ties.
Future Research Agenda
Japanese and overseas Chinese business enterprises demonstrate marked
similarities, as well as particularly noteworthy differences. These differences
reflect core issues of cultural history, economics, and concepts of family.
Our understanding of the succession practices in family businesses of East
Asian societies is embryonic, as is our general understanding of crossnational comparisons. Further research on succession systems in East Asia
should include empirical data, both longitudinal and cross-sectional, to
validate some of the assumptions and observations outlined in this paper.
Ideally, it should also include case studies to contrast and compare the
evolution of well-known companies of comparable size and technology in
both societies. Moreover, if it is to achieve its real purpose, it must study
certain historical turning points (for instance, the purge of zaibatsu families), as well as these succession approaches in the full context of their
institutional background (social, legal, political, and economic). Finally, in
order to be most fruitful, companies from other East and Southeast Asian
countries (Korea, Philippines, Thailand, Malaysia, and Indonesia) should
be included.
Conclusion
I have argued in this paper that primogeniture in Japan greatly facilitated
corporate longevity, whereas the equal inheritance system among male
heirs (coparcenary) caused downward mobility and negatively affected
the survival rates of overseas Chinese family businesses. Given the geographical and cultural proximity between China and Japan, why did the
Chinese adopt coparcenary while the Japanese embraced primogeniture?
To answer this question, I explained and related various connections
between succession approaches and socio-cultural-political traditions and
institutions.
The ultimate purpose of the paper is to illustrate that the real barriers
between East Asia and the United States are not economic or trade, but are
attitudinal and cultural. The economic behavior of Japan and other East
Asian countries can best be understood through the increasingly available
insights on the concepts and institutions of family. As Lehmann asserts:
"At the end of the day it is simply unconvincing to explain Japan's economic performance simply by taking into consideration economic factors. . . . The driving spiritual force of Japan's success from the late Meiji
period onwards has been, and remains, that strong sense of ie solidarity
and loyalty" (1982, p. 220).
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Chau
178
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Theodora Ting Chau, Ph.D., is professor of organizational psychology at the California
School of Professional Psychology, Los Angeles. She has previously taught at the National
University of Singapore and the Chinese University of Hong Kong.
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