Perspectives from ISB

A proud holder of the coveted Michelin star, the Yung Kee restaurant was once considered among the world’s top 15 restaurants (Fortune Magazine, 1968). However, today it symbolizes the problems faced by Chinese family businesses. In little over a decade after the death of the founding patriarch Kam Shui Fai, Yung Kee Holdings Ltd. is being liquidated on court orders. In-fighting among the two sons who inherited the business is attributed for the failed succession.

Unfortunately, the Kam brothers are hardly alone. Such family succession feuds have wrecked relationships in other family firms like the property behemoth Sun Hung Kai. In this case, one of the younger brothers, ended up in jail on graft charges. Likewise, the family of Macau gambling magnate Stanley Ho has staged a bitter battle for control of the assets.

Existing research confirms the problematic succession in the Chinese corporate universe. Chinese family-run firms on average witness a decrease in their profitability by about 60 percent in the intervening years after handover by the patriarch to the sibling successors. Similarly, as per a white paper released by the Fortune Generation Magazine, only 8 % of Chinese family companies have successfully managed to pass on the baton to the next generation.

Various reasons are being attributed for these failed successions. Chinese families are traditionally very cohesive and tight-knit. It is thus surprising to witness extremely bitter family feuds devastating these relationships. Usually, successful businessmen of the past century were not educated entrepreneurs, using instinct and guile to create their success stories. As the new generation returns home with university degrees, they are impatient to metamorphose the family business into something else. In their eagerness, they overlook the importance of family relationships.