The ongoing conflict at CDL highlights the risks of entrenched family control in Singapore's prominent companies. While family businesses often outperform non-family businesses, generational succession doesn't always guarantee better leadership.
While family business es often outperform non- family business es in the longer term, generational succession doesn’t always translate to better leadership, says NUS corporate governance expert Mak Yuen Teen. The high-profile feud at Singapore -listed CDL has shaken investor confidence in one of the country’s most prominent companies.
Shares in the property giant plunged to a after trading resumed on Monday (Mar 3), following executive chairman Kwek Leng Beng’s Feb 26 statement accusing his son Sherman Kwek of attempting a takeover. There is a famous Chinese saying about wealth not lasting beyond three generations and indeed it has been estimated that 95 percent of family businesses do not survive beyond that. If the Kwek family wants to be in the 5 percent and not the 95 percent, it needs to sort out its family and business governance.Singapore has long been home to family-run conglomerates that have helped shape its economic success. But the feud at CDL, which has spilled into court - another closed-door High Court hearing is scheduled for Mar 4 - reveals the risks of entrenched family control. While family businesses often outperform non-family businesses in the longer term, generational succession doesn’t always translate to better leadership as personal relationships can cloud corporate decision-making. Some family businesses evolve to professional management with the family retaining control. Others continue to be both family-owned and managed. In Singapore, we see the different models in two of the three listed banks. OCBC has long transitioned to professional management while continuing to have significant family ownership. There is only one member of the founding family on its 10-member board, and it has had non-family members as CEOs for decades. Meanwhile, UOB continues to have significant family ownership and a family member as CEO, who is currently also deputy chairman.Globally, we see successful examples of both models. Bechtel Corporation in the United States and Victorinox in Switzerland have family members as CEOs, while Walmart and L’Oreal retain family control but have non-family members as CEOs. In Asia, Tata Trusts set up by the family still control Tata Group in India, but the current chairman and CEO is not a family member. Meanwhile, the Ayala family in the Philippines continues to control and manage the eponymous group, with Jaime Augusto Zobel de Ayala from the seventh generation as chairman, and until August 2022, his younger brother Fernando Zobel de Ayala as president and CEO. When Fernando resigned for health reasons, Ayala appointed Cezar P Consing, a long-time executive and a non-family member, to replace him, rather than accelerating the rise of the next-generation family members. Succession planning is crucial for all companies but is especially critical – and often neglected – in family businesses. It requires careful consideration of unexpected events, as well as the availability, suitability and readiness of family members to assume senior leadership roles. Even the best-laid succession plans can unravel. Whether transitioning to professional management or continuing with family management, things do not always go as planned. A highly successful professional executive may not succeed in a family business due to differences in governance and management style. In 2011, Tata Group broke away from tradition and appointed non-family member Cyrus Mistry as deputy chairman of Tata Sons after endorsing him as his successor. Mistry assumed the chairmanship a year later, but differences soon cropped up and he was ousted in 2016 under very bitter circumstances and Ratan Tata returned as interim chairman. In 2017, Natarajan Chandrasekaran became the third non-Tata family member to be chairman of Tata Sons. A lack of proper succession planning can also have catastrophic consequences. In South Korea, Hanjin Shipping – named Korea’s Best Company in 2016 – went bankrupt in 2017 after the death of the second-generation heir left the chairmanship to his unprepared spouse. As family businesses grow, governance issues become more complex. Conflicts tend to increase as members of various generations take on different roles as shareholders, directors, executives or employees. Some rely on dividends, while others draw salaries, making employment and remuneration policies important governance issues. Family governance mechanisms such as a family constitution (which sets out the family vision, mission, values and policies regulating family members’ relationship with the business), family meetings, family assembly or forum, family office and family council may become necessary. CDL is just the latest case of a bitter dispute in a listed company. Similar disputes have plagued other businesses in Singapore and across Asi
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