Tuesday, February 23, 2016

Succession Crisis among the firms

An old mantou place in Chenggong on the east coast.

Not a secession crisis, as is usually the case in Taiwan, but a succession crisis as the founders of Taiwan's family owned firms age. The latest case is the Evergreen group (Taipei Times):
The dramatic shift came two months after Evergreen Group founder Chang Yung-fa (張榮發) died on Jan. 20 and left a December 2014 will that named his youngest son, Chang Kuo-wei, (張國煒), chairman of Eva Airways (長榮航空) and the only son of his second wife, as his successor and the sole inheritor of his estate worth billions of New Taiwan dollars.

Chang Yung-fa’s eldest son, Chang Kuo-hua (張國華), led his two brothers by his father’s first wife in moving to dissolve the group’s top management team during an extraordinary board meeting, effectively stripping Chang Kuo-wei of the chairmanship, local media said, without naming sources.
Economist chart from 2011

In an editorial, the Taipei Times observed more generally:
The court battle over the inheritance of late Formosa Plastics Group chairman Wang Yung-ching (王永慶) is still unresolved and the fight among four brothers over the division of Mayfull Group resulted in the shooting deaths of three of the brothers. The fight over Evergreen once again makes it clear that the operation of family businesses has become the biggest problem of domestic business groups and is turning into a nightmare in terms of the sustainable operation of publicly traded companies.

Three-quarters of publicly traded Taiwanese companies are controlled by families and 10 families control one-quarter of the value of the TAIEX. The death of a company’s founder can jeopardize the existence of that company: Only one-third of family businesses survive the second generation of family operations, and a mere one-10th survive the third generation. Businesses owned and run by ethnic Chinese families remain in the hands of the family even when they are publicly traded. Infighting among heirs is one of the main reasons for fluctuation in these companies’ market value.
BBC was among the many media reporting on this over the years, this one from 2014....
But some analysts estimate that just one-third of these family-run firms - which account for up to 90% of the island's businesses - have a succession plan.

Further still, Yeh Yin-hua, a professor at National Chiao Tung University's Institute of Finance, says that some 60% of Taiwan's publicly listed companies are still being managed by their original and ageing founders.

About 20% are being run by second or third-generation family members, Prof Yeh says, with a remaining 20% having hired leaders from outside their founding families.
The BBC article observes that many of these founders are workaholics, instancing Terry Gou, the head of Foxconn, who works 16 hours a day and micromanages every detail, from prices to expenditures in excess of $100,000. It is difficult to make such individuals give up.

Although big firms get the most publicity, this is a problem throughout Taiwanese industry at all levels, part of the still more fundamental problem of getting smaller and family run Taiwanese firms, where granddad still runs everything by the seat of the pants, to adopt modern methods of management and operation (one reason so many firms moved to China was to continue to do avoid such upgrades). Things just become more critical when the business is a global multinational rather than a tool and die maker in Taiping.
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1 comment:

P. S. said...

I discussed this very issue last weekend with the husband of my sister-in-law (who you have met). He created a thriving small business with 10+ employees, warehouses, inventory, etc. His kids are about to leave college, yet he has never taken a vacation. I asked if he considered grooming a replacement from within, or selling the business to someone. His response was that the business is based on customer relationships he has developed over the years and does not believe it could survive him leaving. At the same time, his main concern is that he feels a great responsibilities to his workers and their families to keep them earning. I guess he will work until he drops. Is that a succession plan?