Future of Asian Dynasties

Jul 9, 2013 | Ideas, Ideas for Strategy, News & Updates, Sri Lanka

The aftermath of World War II saw many devastated Asian economies slowly but steadily rebuilding themselves.  That same period marked the rise of many family dynasties. Some states in Asia even gave preferential concessions to local entrepreneurs in order to ensure the continued participation of local businesses as they opened up their markets. This uncertain period, filled with moments of chaos created opportunities for local entrepreneurs to build up their empires through hard work and creativity to thrive in tough times.
From the Ambanis, Tatas, Mittals of India to the Chaebols of Korea with the likes of Samsung, Hyundai, to Sri Lanka’s Dharmadasa Mudalali of Nawaloka fame, Sheikh Hasanally Esufally of HEMAS, a string of successful entrepreneurs have built large dynasties which now shape the world.

Some of Asia’s biggest brands that are family-led

  • Cheung Kong Holdings (HK)
  • Hon Hai Precision Industries/Foxconn (Taiwan)
  • Reliance Industries (India)
  • Samsung Electronics (South Korea)
  • Sun Hung Kai Properties (Hong Kong)
  • Tata Group (India)

What are the characteristics of a family-led enterprise?
Asian dynasties are known to be very close-knit with extended members close to the founder, who has the final say in all corporate decisions.  He knows the business well and has seen it from its inception to its current form of expansion.  Over time, these organizations expand in size and complexity with different family members embedded into the structure of the organisation.
Many founders come from a ‘rags to riches’ background while the second generation is usually more sophisticated due to Western education and are reform-orientated.  As a result, this may increase the possibilities for conflicts when two different schools of thought begin to clash with each other. However in this age, some Asian dynasties like Kuok Group and others have proven that they can adapt and are extremely well-run.
Whenever family-owned conglomerates cannot overcome personal discord, they get torn apart by conflicts ranging from clashes of ownerships, to sharing of assets, etc. One would recall the very public clash of the Ambani Brothers which dragged on for years in the courtrooms. Few family dynasties have been able to successfully transform in a professional way to scale globally. The successful ones tend to evolve into publicly-owned organization with the extended families retaining ownership of shares instead of management control while less successful ones tend to remain as private companies with leadership at the top while retaining a modern corporate culture, norms and values.

What are the virtues that enabled some dynasties to succeed?

1) The power of family brands: Many Asian cultures are used to dealing with family-owned enterprises who have been around for years. The organisation and outsiders look up to the managing director to lead and deliver on promises as the family has done for generations. This ensures trust as the long track record of the family is a powerful and stabilising brand in a world of rapid change. In the case of India, the Tata brand is even more trusted than the brand of the government. Whenever the Tata name is used, it means trust and quality. This is also why family-owned enterprises are in so many businesses because people trust the brand name.

2) Family values ensure commitment: Religion and family-ties often play a major role in Asian families.  The respect for parents and support for siblings are a norm.  During hard times, the families stick together as one by supporting each other.  This is useful especially during hard times or in formative years.  It is critical for emerging family dynasties as market conditions in emerging economies are not always favorable, making it hard to retain good talent. Therefore family members who have studied abroad are more willing to endure the suffering and contribute to the success of the family.

3) Family-run businesses treasure loyalty:  Asian families have the inheritance and succession rules clearly defined. The eldest in the family is expected to be the heir apparent.  In case, the successor is not in a position to take over due to age or a lack of capacity, someone else in the family is then groomed.  Therefore when people serve these organisations, they are clear about their roles as collaborators. At the same time, family-owned enterprises tend to reward loyalty more. Hence it is normal to see staff who have served in family-run enterprises for years.

The fact that so many large enterprises in Asia remain family-run proves that there is significant merit in the model. However, the world is changing and consumers in Asia are becoming less loyal to traditional brand names. At a time increasingly shaped by innovation and ideas, family dynasties have to be aware of the winds of change and rethink their approach so as to thrive in the 21st century.

How to extend the leadership of family-led enterprises?

1) Proper leadership succession planning:   TATA Group took a long time to select Cyrus Mistri when Mr. Ratan Tata announced that he was retiring. The care in thinking through the various candidates both internally and externally helped to assure members of the firm that it was a well-thought out process. Although Cyrus is the son of the largest shareholder of the company, it helped that he had to go through a robust review process, thus lending him the legitimacy to lead a sprawling conglomerate like Tata.

2) Distinguish Ownership from Management:  The Ambanis of Reliance had to settle their differences by demarcating their ownership through splitting the business between the two brothers.  While you can co-own a business, you cannot co-manage a business since decision making needs to be flowing from one direction.  The owners should decide if they want be part of the management or to simply own the business and let professionals run the operation. When family members don’t make this distinction, it prevents the organisation from maturing into a professional institution, limiting its ability to scale and grow revenues.

3) Bring in new thinking:  It may be customary for family businesses to appoint their off-springs to all key decision-making positions but this also leads to a closed organisational structure.  Bringing in new members to the management team will bring in fresh thinking and professional management discipline. This will create a team of accountable leaders complementing the family’s sense of responsibility.

4) Blend the traditional and contemporary thinking in shaping the future of the organisation: The founder’s experience, exposure and organisational virtues need to be blended with modern management thinking so as to create an innovative and yet socially-responsible organisation. Modern organisations are more savvy and tend to forget the virtues of being a traditional business with responsibility. This means that family-led organisations must be more willing to take risks and be innovative while retaining their core values.

Just last week, Samsung declared lower than expected earnings but still managed to project an impressive operating profit of USD8.3 billion. The story of Samsung is an amazing one but like all businesses, it had its moments of realisation. In 1995, Samsung CEO Kun-hee Lee decided to demonstrate the inferiority of its products by burning them in a bon-fire. More than 2,000 workers cried and he made his rallying cry to only produce world-class products. From then on, Lee would go on to make impassioned pleas to his staff at different moments, reminding them not to be complacent and pushing them to achieve the impossible. Fast forward to 2013, Samsung is now the only Asian giant able to challenge Apple and is winning on several fronts.

If there is one thing that unites 1st generation founders of family dynasties and entrepreneurs then it will be the badge of sacrifice associated with the founding years. This legacy of sacrifice gives them a unique moral authority to lead. But this same badge of sacrifice and passion can also work against the organisation if it is not managed properly. If too much aura is associated with the founder then it risks undermining the efforts of successors, as their efforts may be perceived as lesser when compared to the founding years. This is dangerous because every generation will have to deal with a different set of challenges. So it is best not to be nostalgic. Disney started as a family-led enterprise and in the past, when it was too nostalgic about the days when Walt Disney was around, it lost track of the present and fell behind. Under the current CEO, Bob Iger, Disney has thrived again by leading the future with a new game plan.

Therefore, the ultimate truth for all family or non-family owned dynasties is: how do you continue to keep the fighting spirit alive. Doing that might require some drastic measures such as re-imagining the business model needed to succeed in the 21st century. It is better to sacrifice some ‘sacred cows’ and retain the vibrant growth of the dynasty rather than let a new competitor drive it out of existence.

Read the full article published on Ceylon Today here.

Lawrence Chong is the CEO of Consulus, a company specialising in helping Asian firms rebrand and redesign their organisations to be more innovative through business design. Consulus has begun operations in Sri Lanka in partnership with Hummingbird International.  Shiraz Latiff is the CEO/Lead Consultant  of Hummingbird International, a regional knowledge house specialising in coaching, consulting & outsourcing through global partnerships & collaborations.

This article is part of a weekly column called Shaping the World where Lawrence and Shiraz share insights and ideas about building innovative Asian Brands. It is published by one of the leading dailies in Sri Lanka, Ceylon Today.