‘Auntie Politics’ in the Board Room
How do “faultlines” play themselves out in the
boardrooms of Chinese family businesses?
Mediation expert Norris Yang shares his sharp
observations and insights.
Norris Yang, Executive Director of Hong Kong-based
mediation and arbitration consultancy ADR International
Limited and Chairman of the Communications and
Publicity Committee of the Hong Kong Mediation
Accreditation Association Limited, has given advice and
mediation services to many family businesses. Most of
these companies—based in Hong Kong with operations in
mainland China—do not have professional managers, or
“outsiders,” sitting on their board of directors. The exception is the large-scale or listed
companies, in which case the lack of outsider managers would be a recipe for a lackluster
business performance, says Yang.
Typically, these Chinese family businesses operate under a patriarchal or matriarchal system,
in which family bond is what glues the staff members together, according to Yang. “If these
companies are run by Chaozhouese (潮州人), Wenzhouese (温州人) or Fujianese (福建人)
and not too big in size, things still have a way of working out. Families from other regions
may be less cohesive and more conflicts may arise among extended family members, most
likely when the spouses, children, in-laws or aunties and uncles are involved,” says Yang.
When a second- or third-generation member is brought into the board of directors or Top
Management Team (TMT), there is a tendency for further conflicts to arise. Based on his
observations, Yang says the younger members of the family businesses often have a need to
prove themselves in the eyes of the old-timers. “Often, the only way to prove their abilities is
to take risks,” he explains. “And you’re going to see a much higher level of risk-taking
behavior than if you were to hire an outside manager, as the money isn’t hard-earned but
inherited instead.”
Alternately, says Yang, some would-be successors would go the route of performing external
duties that exhibit “filial piety” (reverence for the elder generation, considered a moral
virtue in the Chinese tradition) to the business owners with the goal of obtaining more
power or more shares within the company—or both.
According to Yang, one of the common strategies these so-called successors of the family
businesses employ to prove themselves is to “deep-freeze” the old-timers and install new
systems and “best practices,” some of which—such as Six Sigma (a measure of quality that
strives for near perfection)—are a result of the knowledge they have acquired in their
overseas studies and may not necessarily be applicable in a small-scale family-run operation.
“This may actually sacrifice the efficiency of the business as the existing business culture may
be reluctant to accept such drastic changes or to sustain them,” Yang points out.
Adding to the tangled web of family relationships within these companies is the introduction
of an outside manager in the top management structure, thus creating the so-called
“faultline,” as mentioned in our feature article.
When Outsiders Come into the Picture
There is good evidence that outside professional managers contribute positively to family
businesses. For example, tycoon Li Ka-Shing’s Cheung Kong Limited achieved excellent
performance and good public relations when outside professionals were hired to manage
the company—this was before Li’s sons were brought into the helm.
However, the presence of outsiders in the TMT of a family business—or a strong
faultline—may not necessarily lead to positive company performance in a straightforward
way. There may be complications.
“Most outside professional managers hired to work in a family business would rather not
criticize those family members in high positions, especially the younger generation members
who have returned home from their overseas studies, newly minted with flashy Ivy League
MBA degrees. In such a case, these professional managers either feel inferior or do not want
to rock the boat,” explains Yang. He believes this phenomenon is especially true in the
context of the Chinese culture, which can still be dominated by hierarchical thinking.
As a result, some outside managers may act in a way that would not risk their own career
success within such companies. “The more successful non-family professional managers
working for a micro-managing chairman are those who have graduated from Theater Lane,”
says Yang—joking with the euphemism that refers to the shoe-shiners who work in Theater
Lane in the Central District of Hong Kong. “Shoe-shiners” is a local slang that is equivalent to
the American of “brown-nosers.”
The inefficiency resulting from such dynamics is one reason why it is at times difficult for
some family fortunes to flow to the third generation—fulfilling a well-known Chinese
prophetic saying (富不過三代), laments Yang. As the younger generation, who has never
experienced poverty, no longer shares the same motivation as their parents or grandparents
to succeed with their own hard work, says Yang, many of them are either doing a lackluster
job in managing their family business or simply don’t want to carry on running it.
“My view is that the elder generation in a family business must learn to let go,” says Yang.
“Sadly, many Chinese people are not willing to do so. They would rather let a relative run
their business when they are too old to do so, than to hire outside professional managers.”
Are Insiders Necessarily More Trustworthy?
The reason why the elder generation of Chinese family businesses are not willing to “let go”
boils down to the concept of the “trusted inner circle” (自己人), or guanxi (关系), as it is
much easier to defer to the “Confucian moral teachings” and “family fidelity” than to the
trust for “outsiders,” according to Yang. But he questions whether family members should
automatically be granted the status of a “trusted party.”
“Participation of family members does not automatically exempt the business from
experiencing outright frauds or incompetence,” observes Yang. “In fact, if you hire someone
you don’t totally trust, it creates a heightened sense of alertness and puts you on your toes.
As a result, you wouldn’t be cheated on so easily. The English word for ‘crisis’ translates into
weiji (危機) in Chinese, a compound word made up of the words ‘danger’ and ‘opportunity.’
All crises have an element of ‘danger.’ Yet there is also an ‘opportunity’ to change or adapt to
the future. It is therefore a positive thing.”
Another advantage of hiring outside professionals is that one can leverage on their
experience, skills and business network, which may not necessarily be present within the
family, says Yang. One example is marketing strategies and skills for the Internet Age, which is
generally lacking among the elder family members of Chinese businesses.
Yang cites Li & Fung as an excellent example of a Chinese family business that has leveraged
the talent and skills of numerous professional senior executives from outside the family. Its
success suggests that having a clear “faultline” in the top management structure does help
improve a company’s performance.
Whether the top management team is run by outsiders or family members, Yang believes
that the most important thing is to establish clear-cut power boundaries. What does that
mean? Yang gives the following example: If the son of the business owner returns from his
overseas studies and joins the company, draw the line to show which areas of the business
he should and should not touch.
“It is best to place him at the lowest rung of the company structure and allow him to work
his way up to the highest position so that he will learn the ropes of how to run a business
with hands-on experience—much the same way as Eric Hilton, the son of Conrad Hilton,
founder of his namesake hotel chain, learned the hotel business by starting to work in the
mailroom and then as a bell boy,” he says. “The other employees only knew him then as ‘Eric’
and even years later, his previous buddies would be his eyes and ears on the frontline, giving
him valuable insights into his own hotels and the competitors.”
By Louisa Wah Hansen
Source: China Business Knowledge@CUHK
http://www.bschool.cuhk.edu.hk/faculty/cbk/post.aspx?id=D49A11F5B524
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