Legacy or liability: The succession dilemma in Asian family businesses
With over 83 percent of our global clients being family business owners, we know firsthand that succession planning is a crucial aspect of any family business. It often determines whether the business thrives for generations or falters after the founding generation steps down. Is Asia different? It is more complex than other regions in a few key aspects.
A well-known ancient Chinese proverb goes: “The first generation makes it, the second generation spends it and the third generation blows it.” In the dynamic and culturally rich landscape of Asia, succession planning presents unique challenges that are often more complex than in other regions.
The interplay of tradition, generational differences and the rapid pace of economic change makes succession planning in Asian family businesses a delicate and often contentious process.
The influence of tradition and cultural expectations
At the heart of many Asian family businesses lies a deep respect for tradition, heavily influenced by Confucian values that prioritize filial piety, hierarchy and loyalty to the family. These cultural elements can significantly impact how succession is approached.
In many cases, there is a strong expectation that the eldest son, or another male heir, will take over the family business, regardless of his suitability or desire for the role.
This adherence to tradition can be both a strength and a limitation. On one hand, it ensures that the family legacy is preserved, with the business often seen as a continuation of the family’s honor and reputation.
On the other hand, it can lead to situations where the chosen successor may not be the best fit for the evolving needs of the business, particularly in a rapidly modernizing and globalized economy.
Case study: Lee Kum Kee
A prime example of the tension between tradition and modern business needs is the Lee Kum Kee Group, a household name in Asian condiments, particularly soy sauce. Founded in 1888 in Guangdong, China, by Lee Kum Sheung, the business has been passed down through generations. However, succession was not always smooth. The family experienced significant internal conflict when the founder’s grandson, Lee Man Tat, took over the business.
Lee Man Tat’s decision to professionalize the management of the company, bringing in nonfamily members for key positions, was met with resistance from other family members who wanted to maintain traditional family control. Despite the challenges, Lee Man Tat’s approach eventually paid off, transforming Lee Kum Kee into a global brand.
This case highlights the importance of balancing tradition with the need for professionalization, a challenge that many Asian family businesses face during succession.
Generational differences and the education gap
Another significant challenge in succession planning within Asian family businesses is the generational gap, particularly in education and exposure to global business practices. Younger generations are often educated abroad, exposed to different cultural norms and may have a more global outlook compared to their predecessors. This can lead to a clash of values and visions for the business.
A lot of our clients complain that their offspring does not know their home culture well enough to become successful, and does not build relationships and networks easily in their home country—crucial aspects of any entrepreneurial success.
The older generation, having built the business from the ground up, may emphasize conservative, risk-averse strategies rooted in local traditions. In contrast, the younger generation may advocate for innovation, diversification, or even a complete overhaul of the business model to keep pace with global trends. This divergence can create friction, making the succession process more challenging.
Case study: Tata Group
The Tata Group, one of India’s largest and most diversified conglomerates, faced a similar challenge. When Ratan Tata, who led the group for over two decades, decided to step down, the succession process became a highly publicized affair. Despite extensive search and preparation, the selection of Cyrus Mistry as his successor led to tensions and eventually a very public fallout, with Mistry being ousted just a few years later.
The case underscored the difficulty in finding a successor who could balance the legacy of the Tata Group with the need for modernization. Mistry’s vision for the company, which included divesting noncore businesses and focusing on profitability, clashed with the Tata family’s broader, more legacy-driven approach. This case illustrates the challenges of generational transition, especially in large family businesses where the stakes are high.
Family dynamics and internal conflicts
Succession in family businesses is often complicated by internal family dynamics. The close-knit nature of family businesses means that business decisions are deeply intertwined with personal relationships. This can lead to conflicts, particularly when multiple family members are involved in the business.
Often our clients ask us to resolve sibling rivalries—differing opinions on business strategy and the challenge of balancing family harmony with business efficiency can all create significant obstacles during succession. In Asia, where maintaining family harmony is often prioritized, these conflicts can be particularly difficult to manage.
Case study: Samsung Group
The Samsung Group, one of South Korea’s largest chaebols (family-owned conglomerates), provides a vivid example of the challenges posed by family dynamics. The succession of the group, from founder Lee Byung-chul to his son Lee Kun-hee and later to his grandson Lee Jae-yong, has been fraught with internal conflict.
Lee Kun-hee’s aggressive restructuring of the company, which included sidelining his siblings, led to significant family rifts. The issue of succession became even more complicated after Lee Kun-hee’s hospitalization in 2014, leading to a power struggle among family members.
The eventual rise of Lee Jae-yong was marked by legal battles, including a high-profile corruption scandal. The Samsung case highlights how internal family conflicts, exacerbated by the pressures of managing a large conglomerate, can complicate succession planning.
The influence of rapid economic changes
Finally, Asia’s rapid economic growth over the past few decades has added another layer of complexity to succession planning. Family businesses that were once small, locally focused enterprises have grown into large, diversified conglomerates. This transformation requires a different set of skills and strategies, which the founding generation may not have anticipated.
The younger generation, often more attuned to global markets and technological advancements, may push for significant changes to adapt to these new realities. However, the older generation’s attachment to the business’s traditional ways can lead to resistance, making the transition difficult.
Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email Tom.Oliver@inquirer.com.ph.
