Official release of PRIMA survey findings in Malaysia

 

23 January 2002

Pete and his brothers have taken over the company from their father. The chain of drugstores has grown in strength. Together with his three brothers, he decided that it was time to retire. The major shareholder, Pete spent his retirement time enjoying his vineyards and rolling hills after handing over the reins to his son. A few years later, he received a letter from his son, the new president, that he had to cut dividends due to poor showing by the company.

Pete was shocked! What has happened to his cash cow? He immediately flew to Phoenix. To his dismay, he found out that his son and two daughters had begun feuding as soon as he had left. While they were feuding, they did not notice a new drugstore chain in the neighbourhood, which soon began to eat into their company's market through heavy advertising and campaigns.

“How could you let this happen?” asked Pete.
“Where were you when we needed you?” asked the kids.

There was commotion and tears but the writing was clearly on the wall. Stories of this sort are heard in all communities and in all countries. Sibling rivalry and the issue of succession pervade all family-owned businesses. A study conducted by the Malaysian Institute of Management (MIM) in partnership with Grant Thornton showed succession in family-owned businesses was a major concern.

The study attracted 225 respondents comprising small-scale, medium-scale and large-scale industries. Although only 21% of the respondents wanted their children to join the businesses, about 50% felt that their children should be taught about the businesses from an early age. Similar studies conducted by Grant Thornton in Ireland and India indicate the same thinking – that it was important to create an interest in the child so that he or she could grow up to love and lead the business.

Business owners were also realistic. Half the respondents (52%) said that children should join the business only if they wanted to. The majority of those who opined this were from the large-scale industries. It shows that many of the respondents understood the unique nature of family business. Family businesses are not just products, service, profits, etc.; they are, according to Thomas Hubler emotion based “oriented toward security and nurturing members”. They place a high value on loyalty and protection. In addition, they operate to minimize changes to keep the equilibrium intact”. In such a set up, they wanted successors who were loyal and who understood and cared for the business.

Sibling rivalry was a no, no to many of the respondents. Studies elsewhere point in the same direction. In the case of Malaysia, 61% of the respondents voiced this opinion. We know that in the local scene, sibling rivalry in Cycle and Carriage, Tan Chong Motors, Asia Motors, the Haw Par Group and others have led to the closing of the business or the curtailing of their growth.

Times are changing. Values, wants, needs, priorities and sacrifices differ. Many of the younger generation are not thought to be as hardworking or committed. Typically, an elder bemoans, “It is not easy to pass down a Chinese-owned business from generation to generation… the founders were fairer. The older generation was more straightforward and the elders looked after the younger ones. But the new generation mostly look out for themselves,” said Kwek Hong P'ng of the Hong Leong Group (extracts from Asiaweek).

This factor could have led many of the respondents to conclude that there should only be one management successor. The said individual can be a member of the family or an outsider. It must be remembered that not all children have the same ability. Fairness may be difficult to practise. One from among them has to be chosen to head.

Two or more people at the helm is sure to bring disaster as was the case with O'Brien Fresh Markets, Inc., a grocery chain which was led by two first cousins. Taking over from their fathers, the cousins did not see eye to eye, which later led them to stop talking to each other. The poor staff, vendors and contractors had to dash back and forth from one office to another to get decisions. It is anybody's guess how the business would have fared. Unless there is a clear demarcation as to who the CEO is, and who the marketing manager and such like, one is sure to get into trouble. The famous Konosuke Matsushita, when he chose to retire in his mid 60's, handed over his business leadership to his son-in-law. There is a need to differentiate between employment, ownership and management.

Family owned-businesses need not be small. Some of the largest companies in the world are family owned. Examples are Wal-mart (revenue $191.3 billion), Ford Motor company (170.1 billion), Carrefour, Samsung, IKEA, The Genting Group of companies, YTL, and Royal Selangor. The majority of small businesses around the world are small. So is the case in Malaysia.

In the US, 90% of the businesses are family owned. In the case of Malaysia, the number would exceed two-thirds of the companies existing. Some studies say that the average staying power of a family-owned business is about 55 years. Recent studies seem to indicate that it may be of a shorter period, perhaps 30 years. A study by John Ward indicates that 70% of family-owned businesses do not survive the founder's passing and that two successions is nearly impossible.

Importantly, the business founders themselves would have to initiate action in this important area of succession. He or she is expected to plan his or her succession, i.e. identify the individual early. Frank W K Tsao, the shipping magnate in his book, Success and Succession, says that “preparing for succession is a long-term commitment. The founder has to commit time and energy to prepare and nurture his/her heir for succession. The preparation should begin with cultivating the heir apparent's interest in the business at an early age provide opportunities to observe…the successful and unsuccessful endeavours of the founder.

As the MIM-Grant Thornton study indicated, exposing their heir apparent to work elsewhere, starting at the bottom of the hierarchy and working his or her way up is crucial. When he or she has shown an exemplary record, he or she could be considered to lead the company, availing himself/herself of the advice from the founder.

Education is paramount. Family-owned businesses need to know what is happening to other family owned-businesses in the country and the world at large. What are some of the steps owners take to address the issues of company survival and smooth succession? Family-owned businesses can be encouraged to attend seminars, and read up circulated simple and relevant literature on managing family businesses. Readers may know that there is an American magazine called Family Business.

Membership of associations and Chambers of Commerce is crucial. A number of small-scale industry founders or owners may not belong to them. These institutions together with training providers like MIM and consultants like Grant Thornton can help to advise and train on the issue of succession among others. There should be concerted effort to embark on recruiting new members from the small-scale industry owners if they are not already members and reactivating the old ones. This is important as membership allows for greater exchange of ideas and synergy.

Government agencies also play an important role. Their advice, provision of financial loans or assistance needs to be friendly and simple. An entrepreneur is ‘emotional' and passionate about his business; he often moves through gut-feel and braves risk taking and may not be too attracted to filling countless forms and playing to the tune of bureaucratic circus. He values speed and action. These factors should be appreciated and accommodated.

Neighbouring countries are rudely finding out that entrepreneurs are a rare commodity. We still have a sizeable number of entrepreneurs in our country. With globalization setting in, the playing fields of yesteryears are changing. Family-owned businesses would have to prepare for succession in an orderly manner, be it for the son of the founder or an outside professional; otherwise, many could face the inadvertent early demise.

You are welcome to contact the writer Mr S. Hadi B. Abdullah at e-mail: hadi@mim.edu