Hong Kong’s most valuable real estate firm Sun Hung Kai Properties (SHKP) was co-founded by three Guangdong natives in 1963. The trio included Kwok Tak-seng and Lee Shau-kee. The latter would split off to start a new firm, Henderson Land, in 1976. Over the succeeding decades Lee grew it into one of the top four developers in a city famously obsessed by property.
Kwok died in 1990. His will required that his three sons work together and share everything in a family trust – a set-up that was once seen as solid succession planning for Hong Kong’s other tycoons.
However, it proved far from harmonious for the Kwok brothers, whose family feud erupted into the public domain in 2008 and would result in Walter Kwok, the eldest of the three, being ousted from SHKP.
On top of that, the squabbling led to the middle brother Thomas receiving a five-year jail sentence in one of Hong Kong’s most high-profile corruption trials (see WiC265).
When Lee Shau-kee’s elder son Peter Lee revealed in 2010 that he was a father to triplets, observers could not help but compare Lee’s three grandsons with the Kwok brothers whom he had once mentored (Lee is still SHKP’s vice-chairman).
Tycoons like Lee face a common challenge: many have bred large families but they know that too many siblings can create turbulence for their family businesses when the founder steps down. And last week, it was Lee’s turn to face up to the future, as the 91 year-old informed Henderson Land’s shareholders that he will retire in May. Once again this has made succession issues a point of debate.
Who will take over at Henderson Land?
Lee Shau-kee celebrated the birth of his triplet grandsons nine years ago by giving out HK$10,000 in laisee to each of his company’s staff. More handouts would follow as his family grew. Indeed as much as HK$50 million ($6.4 million) has been shared in these ‘birth of an heir’ red packets, Hong Kong Economic Times reports.
That is because his younger son, Martin Lee, has out-produced his brother by bearing four children with wife Cathy Tsui, a model and actress nicknamed locally as the ‘HK$100 billion daughter-in-law’.
In a stock exchange circular issued last week, Henderson Land said its founder “being advanced in age” would be stepping down after the blue- chip’s annual shareholder meeting in May. The company is proposing to appoint his two sons as joint chairmen and joint managing directors, while Lee senior stays on as a board director to “continue his service”.
The property conglomerate’s corporate umbrella shelters seven listed firms, with more than HK$500 billion in total market value, including a gas utility that provides nearly 80% of Hong Kong’s residential fuel supply.
Company executives have been keen to explain to investors that Lee’s retirement won’t change the group’s business strategy. Henderson Land’s spokespeople also told the Hong Kong newspapers that the plan was premised on the fact that the brothers are both very familiar with the company’s businesses, having worked together for many years, with Peter Lee in charge of the mainland China units and Martin Lee overseeing businesses in Hong Kong.
The company has not elaborated whether these division of duties will change, although investors will get more clarity in the months ahead.
Does the co-CEO system work?
It is nothing new for large corporates to be run on the co-CEO model. However, according to a study published in 2012 by George Washington University having two siblings in decisionmaking roles has often contributed to failure rates of second-generation, family-owned firms.
Other members of Hong Kong’s property elite don’t seem to like the idea much either. Take New World Development (NWD), whose founder Cheng Yu-tung passed away in 2016 aged 91. The real estate heavyweight seemed to prefer China’s imperial model of handing control to the eldest heir. And indeed, the company is now largely being run by Adrian Cheng, the eldest son of Cheng Yu-tung’s eldest son Henry (whose health has been recovering after the 72 year-old suffered a stroke in 2017).
Li Ka-shing, Hong Kong’s richest man, also opted against the co-CEO approach. The 90 year-old stepped down as chairman of CK Hutchison in May last year and asked his elder son Victor Li to take over. Indeed, in a press conference back in 2012, Li senior made his succession plan clear: Victor was to take full control of the listed empire of CK Hutchison, which Hong Kong media said has a market value of more than HK$1 trillion, while he would give full support to his younger son Richard Li to develop his own businesses.
Richard Li is the chairman of Hong Kong telecoms firm PCCW, which is worth HK$37 billion. But Li senior said the arrangement would end up with his sons having more or less the same amount of wealth. “[In this way] I am sure they can still be brothers,” he remarked at the time. “If they fight each other it won’t be my business.”
Why do the Chinese care about Hong Kong’s property bosses?
Many Chinese entrepreneurs grew up idolising Hong Kong’s most famous businessmen. Unauthorised biographies of Li Ka-shing and books about his business philosophies are bestsellers at mainland bookstores. And many of China’s business-focused bloggers still use the names of Li and the other Hong Kong property tycoons as click-bait for their articles.
That’s why the news of Lee’s imminent retirement has been widely discussed across social media on the Chinese mainland as well. Some articles have gone viral, recounting Lee’s most famous quotes or buccaneering business stories, including the legend of the “three musketeers” who founded SHKP in the first place (the third founder Fung King Hey later left SHKP to found his own investment bank, and became the single biggest shareholder in Merrill Lynch in the early 1980s).
Some of this month’s debate has speculated on Lee’s friendship with Li Ka-shing (they were once card- playing buddies), as well some of the grudges between the billionaire duo in the past.
Other commentators noted that Lee’s retirement marks another changing of the guard in Hong Kong’s economic order.
“A year after Li Ka-shing announced his retirement, Lee Shau-kee of the same era is also going. The curtain on Hong Kong’s ‘big four’ era has officially fallen,” a blogger on Jiemian lamented, referring to the property giants SHKP, CK Hutchison, Henderson Land and New World Development.
This is a topic that we have discussed extensively. Hong Kong’s transition from a UK colony back to Chinese sovereignty really began in the late 1970s (when China was about to open its doors to the outside world) and part of the process saw a small group of local families amass a large concentration of economic power and wealth (see WiC342).
That hegemony appears to be on the verge of a shake-up – partly because of the advancing years of so many of the more prominent names. Stanley Ho, Macau’s casino mogul, 97, also stepped down as chairman of his gambling flagship SJM last year. Lui Che-woo, another Hong Kong property tycoon who controls Galaxy Entertainment, is also turning 90 (see WiC422).
Meanwhile, many of China’s largest state-owned enterprises have been snapping up commercial towers in Hong Kong’s business districts and putting in bids for some of its newest residential plots. The central government in Beijing has also been trying to wean the city off some of its reliance on real estate and efforts are underway to integrate the territory’s economy into the more dynamic and more tech-focused Greater Bay Area (GBA) in Guangdong.
That promises a future in which Hong Kong’s property tycoons aren’t going to be so prominent, some commentators think. “You can call the Greater Bay Area a failure if the richest men there over the next decade or so still come from Hong Kong’s property sector,” one WeChat-based blogger opined.
Time for China’s entrepreneurs to draw up succession plans too?
Hong Kong’s plutocrats are not alone in planning for generational change. China is now home to at least 340 US dollar billionaires and 120 Fortune Global 500 companies. Its first generation of entrepreneurs are getting old – roughly half of the top 100 mainland Chinese on the Forbes Rich List are older than 55, and the oldest is 84.
However, few of them have figured out what comes next, according to a study released last year by PwC, the professional services firm.
Only 21% of the firms that it surveyed had a succession plan in place, which was 28% lower than the global average, the study said.
Many founders are so emotionally attached to their firms that they find it hard to even contemplate stepping down, the authors of the study said. There are also cultural complexities in discussing death with family members in a country where superstition stops most people from even writing a will (see WiC350).
In the coming years many of these founders will still have to work out how they want to hand over their companies when they step down. Interest in what happens next is widespread, not just among the kind of academics who study business management. After all the Chinese have a saying that “wealth never lasts for more than three generations”.
If the retirement age of Hong Kong’s property tycoons serves as a reference point – i.e. making formal departures from their firms at 90 or so – time is still on the side of most of the mainland Chinese entrepreneurs in drawing up their own succession plans.
In some cases a sudden death can propel the child into the top job unexpectedly. This happened late last month when Zhang Jianjie, famed locally as “the king of the irons” died. His 29 year-old son Zhang Zhoufan, who was educated at Imperial College, London, has now taken over at Cuori Electrical, the world’s leading maker of the electric irons used to press clothes. Cuori, which was founded by his late father, sells about one in four irons globally and its revenues topped Rmb2 billion ($296.9 million) last year. However, the death of Zhang senior at the age of 53 is a reminder of the potential fragility of family business structures when the patriarch passes away.
What do we know about succession plans at some of China’s biggest private companies?
Of the 46 people that were 55 or older on the Forbes Rich List, 33 have made it clear that their children will take over at the top.
Some, such as Yang Huiyan, heiress to the Country Garden real estate empire, have already been gifted chunks of their parents’ firms. Yang is the sixth richest tycoon in China as a consequence, Forbes says. At 38, she is the youngest on that list too.
Wahaha’s founder has also said the beverage giant will be run by his daughter when he steps down. And in February Sun Hongbin, China’s 32nd richest man, made his son, 29 year-old Sun Zheyi, vice president at his real estate company Sunac. Sun junior will take day-to-day charge too of Sunac’s cultural businesses unit (which has had a run of success recently, with three of its co-invested films topping the box office over the lucrative Chinese New Year period).
Other heirs may reject the offer of taking on the family firm. For instance, Wang Sicong, the son of Wang Jianlin, has said he has no intention of taking charge at property conglomerate Wanda Group. Wang senior has also said he will hand the company over to professional managers after he steps down.
Wang junior’s career preference is more in line with a report from the Centre for Economics and Finance at the Chinese University of Hong Kong last year. Academics there found that only one in four children of Chinese business owners showed much interest in taking over after their parents retire.
“In China the issue of succession is especially pressing because as many as 90% of the country’s 21.9 million businesses are family-run and huge numbers of these were all founded within the same 10-year period,” an article on the university’s website warns.
It adds that the implementation of the One-Child Policy – which was in effect from 1979 to 2015 – means there is usually only a single candidate for the succession role (an advantage in avoiding sibling rivalry, but a drawback if the heir does not show the interest or the skill needed to take on the business.)
Added to that is the massive attitudinal shifts that shape the different generations in China because of its rapid economic and social development. Many of those first generation entrepreneurs sent their kids overseas to study. In some cases it means they came back with a very different outlook on business to their parents, or simply very different values and interests altogether.
Take Wang Sicong again. The Wanda princeling has suffered from sustained criticism over the years for being a playboy and a show-off – with even his own father questioning the “bad influence” of some of his son’s social media posts and blaming his foreign boarding school for what he termed his “individuality”. Indeed he even expressed hopes his son would become “more low key” (see WiC284).
That said, the younger Wang could provide a more positive example when it comes to the transition of ‘good’ business genes. That’s because he has built up a commercial empire of his own, reportedly growing a Rmb500 million loan from his dad into Rmb6.3 billion of wealth over the last eight years.
His main area of interest is the fast-growing field of eSports, where his team IG won the League of Legends World Championship in November (see WiC432).
How about China’s tech giants?
The question of whether it is a good idea to mix family and business has been highlighted by the recent case of Meng Wanzhou – daughter of Huawei’s founder Ren Zhengfei. Meng, 47, is under house arrest in Canada, fighting extradition to the US on charges that her father’s company violated American sanctions against Iran.
Ren has since told BBC that Meng has no chance of becoming his successor at Huawei because of her lack of technological background and her shortcomings in “CEO material”.
Huawei – arguably China’s most successful multinational (its political challenges notwithstanding) – has even adopted a ‘collective leadership system’ which sees key executives take turns in the chairman or CEO positions.
Other tech firms such as JD.com and Baidu have also been trying to introduce ‘rotational elements’ into their senior management ranks so as to dilute the reliance on company founders.
The most-watched succession story in China this year will happen in September, however. By then, Alibaba founder Jack Ma will step down as chairman in a retirement plan he first announced in September last year.
The 54 year-old will stay on as a permanent member of the Alibaba Partnership (this shares de facto control of the company across a group of founders and outperforming executives). There were 27 such partners when Alibaba went public in New York and the partnership has since expanded to 38 people (according to Caixin Weekly). This group owns roughly 13% of the internet behemoth’s stock but takes all the important decisions.
This collective ‘partnership’ structure could prove a significant innovation – should it ensure a continuity of leadership as founding members retire. However, only time will tell whether other family-owned corporates choose to emulate it or judge it unique to Alibaba’s circumstances.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.