Highlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

March 12, 2013. Shanghai - World leading academics and dozens of first and second generation family business executives from across China turned out today for the first Roundtable Meeting organized by the CEIBS Kaifeng Center for Family Heritage (CEIBS Kaifeng CFH). Those with family businesses who attended included Chairman of Hangzhou Wensli Group Ms. Tu Hongyan, Chairman of Huatai Group Mr. Chen Xianbao and his daughter Ms. Chen Qi, Chairman of Changzhou Xinyu Ms. Zhou Xiaoping and her son, a third-generation leader of K.Wah International Holdings Ltd. Mr. Eugene Tang, as well as Chairman of Tengen Group Mr. Gao Tianle and his son Mr. Gao Xiao. The roundtable’s theme, Relationships, Governance, and Management in Family Business, sparked a lively discussion among the participants, who shared their insights and experiences regarding topics such as family relationships, cultivating successors, and inheriting the entrepreneurial spirit and family values.

Prof. Annie Koh, Vice President for Business Development and External Relations at Singapore Management University (SMU), asked the second generation attendees, “How do you address your parents in your family’s business?” Mr. Gao Xiao from Tengen Group replied that he called his father “Chairman Gao” during work, while Ms. Chen Qi confessed that she was often at a loss regarding how to address her father: Dad, Chairman, or President?

“How Do You Address Your Parents in Your Family’s Business?”

Highlights of CEIBS Kaifeng CFH’s First Roundtable MeetingHighlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

Most second-generation entrepreneurs call their parents by job titles, suggesting that they are somehow unwilling to draw attention to their blood ties with the family business. They would rather prove their worth through their own hard work, just like ordinary employees. It is sound corporate governance practice to address family members by job titles in business situations. Family and business should be separated to some extent, and the relationship between family members as superiors and subordinates should not be affected by kinship. You may be spoiled at home, but you have to obey the Chairman’s authority when working in the family business.

Of course, there are exceptions. For instance, Mr. Tang Weiqiang from Shenlong Investment noted that as many family members serve at both the company’s headquarters and subsidiaries, they generally use kinship terms with one another instead of job titles, whether during closed-door family board meetings or at formal executive conferences. Where family size is large and there is strong family involvement in management, the authority of the family leader often takes precedence over corporate rules. Thus, no matter how high your position is in the company, the patriarch may have a strong impact on corporate decision-making.

The Nurturing Responsibility of the Founding Generation

Highlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

Chairman of Fangzi Beauty Salon Ms. Liu Fang attended the meeting with her son Mr. Gong Chen. After a transition period that lasted for eight years, Mr. Gong Chen is now able to run the beauty business independently and Ms. Liu Fang had stepped aside to focus on educating consumers.Ms. Liu believes that educating the next generation is an issue all first-generation entrepreneurs must face.

“How to educate our children? First, it depends on who we are and whether we have a strong heart. Second, though we can’t predict what challenges and risks our children will encounter in the future, at least we can foster their resilience in this fast-paced world so that they can survive through both good times and bad.” She added, “In fact, the most important thing in corporate planning is how to educate your people. There are just two steps to reach success: first, get on your way; second, keep going.”

Regarding relationships, governance, and management of a family business, family should always come first. Founders should not start to care about their children’s business education until their business gets on the right track. Instead, they should instill the family’s values in their children at an early age. Intergenerational communication is also important. While developing the business, founders should pay attention to their children’s business education as soon as possible, so that their children grow up with the business. In this way, they can determine a clear path for family succession.

Mr. Gao Tianle and Mr. Gao Xiao, father and son from Tengen Group, said, “It’s worth considering whether to choose successors by competence or by kinship. It’s extremely important for the two generations to align their values.” Is the second generation destined to succeed their parents and run the family business? Many business owners also wonder if they should pass the baton to their children. Clearly, they should also take their children’s happiness and competence into consideration.

Family Succession from the Second Generation’s Perspective

Highlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

Mr. Ye Xiaowei returned to his family’s business, Zhejiang Weitai Machinery, after leaving earlier to start his own business. He shared his own unique understanding of family succession, “Intergenerational communication is very important. You may set up a firewall to separate your business venture from your family business, but during the family succession process, conflicts are just inevitable. So the two generations have to communicate and give each other a certain space to try and continuously explore their own way for family succession”.

Mr. Zhou Dianyuan, whose family owns the Wenzhou-based ALLTA Group, thought that the second generation doesn’t necessarily have to join the family business. He said, “Now I have my own business, I share the ambition of all second-generation entrepreneurs, that is, to start my own business and pursue personal excellence. It also has something to do with the Chinese tradition. I want to do it for my children, just like what my father did for me.” Besides inheriting your family business, there are other ways to sustain and grow your family.

The Transitional Role of Second-Generation Entrepreneurs

Highlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

President of OPPLE Lighting Ms. Ma Xiuhui had already carefully thought about how to nurture the next generation. While it’s still early for her to pass the baton of leadership, given today’s increasingly fierce competition, she thinks it is imperative to cultivate successors’ ability to work hard and endure hardship. The second generation should be taught to open up their minds and be physically and mentally prepared for succession.

Ms. Tu Hongyan, who has already taken up the leadership baton in her family business, Hangzhou Wensli Group, said, “Family businesses in China have a short development history, as it was just 30 years ago when China first began its Reform and Opening Up policy. There is a well known saying that family businesses go from bottlenecks to bottlenecks in three generations. So I think that we, as the second generation, should ensure that our family business can be successfully passed down to the third generation. Globally-minded leaders are needed for Chinese enterprises to go global. The most important thing is to nurture a sense of mission among the second generation, as most have already been able to help their businesses go global. Children should be trained for the family business from an early age. . . . ‘Bigger is better’ is not true for family businesses. The second-generation, whether they like their family business or not, should regard it as their mission to inherit the family business and ensure business continuity. It’s a very important notion that needs to be implanted in the minds of successors. Second-generation entrepreneurs should have a vision of building their business into century-old brands, and attach great emphasis on educating the third generation. I think that’s something we need to strengthen in the future.”

Family Well-being Facilitates Sound Corporate Growth

Mr. Chai Zhengqi, who founded Suzhou Door to Door Commercial Delivery Co., Ltd. with his three brothers, said that he and his brothers had agreed not to involve their wives in the family business.

Highlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

“The purpose of setting that rule is not to exclude family members from the family business,” said Mr. Chai, “Family is very important. If we involve all family members in the family business, it would be hard to separate family life from business. It was for the well-being of the family that we set up the company in the first place.” Only when family harmony and well-being are ensured can family members play a better role in managing their family business.

According to Mr. Shen Dong, the founder of the Kaifeng Foundation, “Family business is just a tool for family harmony and well-being. It’s the duty of first-generation entrepreneurs to develop their children into good shareholders. Whether the children can further grow into outstanding general managers depends on their own capabilities and interests. We should, above all, use our resources to help our children pursue their dreams and become outstanding members of society. They don’t necessarily have to be the general managers of the family business.”

The Inheritance of Intangible Assets

Highlights of CEIBS Kaifeng CFH’s First Roundtable Meeting

Chairman of Huatai Group Mr. Chen Xianbao attended the event with his daughter Ms. Chen Qi. According to Mr. Chen, “The inheritance of family values and experience is even more important than that of wealth.” Ms. Chen Qi added, “The hardest part is how to inherit intangible assets such as family connections and social resources. For second-generation entrepreneurs who study abroad, it’s important for them to strengthen their social connections once they return from their overseas study.”

Chairman of Orsun Group Mr. Wu Jiangang said that, “In order to make successful family succession, potential successors should be encouraged to enrich their experience, develop a hard-working and upbeat spirit, and have the fortitude to take on more responsibility.”

Though Mr. Zhou Dianyuan has not yet joined his family’s business, he believes that “the cultivation of successors is very important, because good education facilitates a smooth transition for the business. The inheritance of family values and culture is more important than that of the business. The business may encounter bottlenecks during its process of development, but as long as the spirit carries on among family members, the family will survive and flourish.”