What comes to mind when you hear the phrase “family business”? The mom-and-pop store run by the husband and wife who live next door? Or the neighbourhood salon run by the sisters? What about the café down the road managed by the mother and daughter? While these can be considered a form of family business, there is much more to the notion of family business.
There is a misconception that a family business usually refers to small family-owned businesses in the neighbourhood, such as the ones mentioned above. But little do people know that many big corporations and conglomerates around the world are often family businesses. For instance, Walmart in the US has been owned by the Walton family since 1962 while South Korea-based Samsung, which provides many of our electronic devices, has been owned by the Lee family since 1938.
The list goes on. Spain-based Zara, which produces fast fashion, is a flagship brand under Inditex, owned by the Ortega family since 1975. Salim Group, the largest conglomerate in Indonesia, has been run by the Salim family since 1972. The group owns Indofood, which produces Indomie.
Back home, YTL Corp Bhd is a conglomerate owned by the Yeoh family since 1955. Its businesses range from utilities to property development. Meanwhile, Hong Kong-based Lee Kum Kee Co Ltd, which produces our favourite oyster sauce, is a family business that has been owned by the Lee family since 1888. And let’s not forget the luxury products produced by the LVMH group, which is majority-owned by the Arnault Family Group, based in France.
In identifying a family business, the most practical way is by looking into the family’s ownership and involvement — meaning that we see one or more members of the family owning a portion of the business, while other family members hold various positions in the company. The ultimate objective is for the family business to be passed down the generations. With this, the incumbent leader involves the next generation in running the business, whether starting from a lower rank to learn more about the business operations or straight into the managerial level.
The overlap of more than one generation in a business allows the intended successors to learn from the current leader, in preparation for a takeover. The succession is completed when the present chief relinquishes managerial control and power to his or her successors. Therefore, when there are offspring involved in the family business, we would identify the family business as a generational family business, because the succession process has begun with the incumbent’s intention to have a successor.
Succession is an important topic in the sphere of family business, being one of the important pillars in our economy. Thankfully, the Malaysian chapter of the Family Business Survey 2018 by PwC shows that 78% of the family firms surveyed were aware of the need for succession planning and had some form of succession plan in place, although 55% said it was a less formal one. This number is much higher than what was found in the past, as it is generally not part of Asian culture to talk about transferring managerial control and power to the next generation.
Notably, there is a difference between having the progeny involved in the business and having a formal plan to succeed the current leader. For example, in a recent discussion with a friend about family businesses, the CEO of a second-generation family business in Indonesia expressed that, “I am the CEO, but my father is the chairman — so long as he is alive and well, he is the boss. I don’t know about his retirement plan.” On the other hand, a Taylor’s postgraduate student, Mr Saidul Haque, who is managing director of a second-generation family business, National Group Bangladesh, shared: “My father is 51 years old now. I am working as an ‘intern CEO’ alongside him to learn, and I am expected to fully take over in 2022, so that he can retire and focus on his philanthropy work.” From these instances, we can see the difference between merely having offspring involved and clearly communicating the transfer of managerial control and power.
Legacy planning and succession strategies have always been the boon or bane of family businesses. Regardless of the size of the business, a successor should always be selected in advance to ensure that the family legacy — identity and values — is passed down the generations. Having a clear succession plan and transparent communication with the successor early in the process is also crucial in preparing them with the mindset, as well as skill sets, to lead the company to greater success. Not only does this ensure a smooth succession of the family business, but it also helps to prevent having a “void”, or being leaderless, during times of crisis or disaster, such as the pandemic we are currently facing.
Dr Feranita Senior lecturer, Faculty of Business & Law, Taylor’s Business School. Taylor’s Business School is the leading private business school in Malaysia, based on the QS Subject Ranking 2021 edition.