relationships in family business

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Relationships, Governance, and Management in

Family Business

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Family relationships add an emotional dimension to running a business, but if improperly handled,

may become “a time bomb” for a family business.

A family business is a company based on family relationships. Without this distinctive aspect, family

businesses would face the same challenges as their non-family counterparts. It is relationships

among family members that lie at the core of family business governance.

Although family relationships can bring benefits to a family business, such as strong member

cohesion, efficient centralization, low-cost psychological contract, low managerial costs, rapid

decision-making and members’ great commitment, there are potential negative side effects that

cannot be ignored. These include an inevitable conflict of interest between the family and the family

business and top management’s values, a role conflict for decision-makers between top executives

and family members, a preference for male leaders, insufficient innovation and a shortage of talent.

Family relationships may not appear critical to the success of a family business, but they often result

in its collapse when crisis breaks out due to bickering, backbiting or outright conflict between family

members. For this reason, the greatest threat to the survival and success of any family business isn’t

so much linked with external factors like technologies, customers and competitors; it’s rather more

associated with the relationships among family members.

The complexity and intensity of family conflicts in a business depend on the overlap of duties in day-

to-day management of the business, its ownership and the family. The risk tends to be the highest



when the ownership, management leadership and family control completely overlap. If there are

multiple family branches and family members involved, the threat of family conflicts will be a time

bomb for the business. After the death of the first generation (often when both parents have been

involved), the bomb often goes off among sibling families in the second generation, or among the

cousin families in the third generation, where their interests are often difficult to reconcile due to theincreased distance in blood ties.

Family businesses in China don’t like to be openly seen as a family business, partly due to social

prejudices and jealousy towards individual and family wealth. The social-political environment likely

helps suppress conflicts in family businesses. Firstly, the one-child family lowers the complexity of

family relationships and incidences of conflicts; secondly, the relatively short history of family

businesses in China helps defuse family conflicts. Although succession has captured much attention

in recent years, the focus is not so much on wealth as on the capability of the second generation.

The next one or two decades will be a peak period of wealth transfer from first-generation

entrepreneurs to second-generation business owners. Therefore, succession will pose a

considerable challenge. The complicated succession process necessitates a well-thought out plan

that includes a programme for successions, distribution of ownership and recruitment of professional

managers. All these factors may determine the success or failure of generation-to-generation

succession. Properly training successors is widely regarded as the most critical factor for family

business succession. Family relationships are closely tied to the second-generation family member’s

propensity to join the family business as well as his happiness and job satisfaction.

Family relationships include family adaptability and family cohesion. The family cohesion refers to the

first-generation family members’ emotional ties with their children. Strong family cohesion indicates

the first generation dotes on the second generation, but does not necessarily mean the second-

generation family member is ready to pick up the baton. Research has found it is family adaptability

that determines whether a child will join a family business. His willingness to take the helm speaks

volumes for high family adaptability rather than strong family cohesion.

There are four types of family relationships:

• Disengagement - members make no commitment to their family

• Separation - though emotionally separated, members exchange views with each other



• Attachment - members show intimacy and loyalty toward each other

• Enmeshment - over-involvement in each other’s lives results in imbalanced relationships

Under these four scenarios, flexible and adaptable relationships are required for a family to

successfully steer their way through through difficulties. Thus, the family’s preparations and decision-

making process for adjustment of family relationships will have a bearing on its overall adaptability.

In a rigid family business system, the first-generation family member reigns supreme while the

second-generation family member is loath to succeed his parents as he is in no position to bring his

talent into full play. The so-called standardization means the independently formulated regulations

can be effectively enforced, leaving little room for alteration. The corporate flexibility we look forward

to refers to democratic decision-making on an equal footing, with wide scope for improvement of

rules. Nevertheless, excess flexibility will be accompanied by roles or institutions that are not clearly

defined. Therefore, it is critical to strike a balance in family relationships, where the family and thebusiness are interwoven with each other.

It is important for a family business to keep a standard but relatively flexible family system in place. A

balanced family system features open leadership, candid communication, clearly defined role

sharing and democratic decision-making, which can generate commitment and satisfaction among

second-generation family members. If someone keeps an iron grip on leadership and power or if

business members’ roles are not clearly defined, the second-generation business owner’ssatisfaction will be greatly undermined. Open leadership and mechanisms for coordination will

enable the second-generation family member to honour his promise to join a family business.

Indispensable traditional values need to be instilled in the second-generation business successor

when he is a child. The second-generation family member who identifies with family prosperity will

be better placed to take over the family business from the first generation.



Traditional Chinese values, which place a premium on parental authority, involve family harmony,

family prosperity and family belonging. Research indicates that the more orthodox the family

business founder, the more likely that his family member will be appointed as a successor as his

values highlight family harmony and continuation of the family lineage. In other words, the founder

sets store by family prosperity and family belonging. What’s interesting is that a well-educated

founder tends not to pass on the baton to his child, while the founder who starts from scratch is

inclined to hand over his power to his child. In addition, the founder who attaches great importance to

family prosperity tends to recruit professional managers to ensure his business is built to last. The

first-generation helmsman of a family business may employ family relationships as a tool for

corporate governance, while the second-generation entrepreneur needs to exercise professional

management while downplaying family relationships. As for the third-generation business owner, he

should go beyond family relationships to improve corporate governance based on professional

management.

Family values need to be inculcated into the second-generation family member early on. When he

grows up, his ideas can be brought in line with development of the family and the business so as to

minimize frictions in business succession. Research has also shown that the second-generation

entrepreneur who has been educated abroad is more willing to take over his family business by

putting what he has learnt into practice, provided that he upholds traditional values and is on good

terms with his parents.

Regarding the continuation of family relationships, it is important for parents to manage therelationships with their children well, a process that necessitates interaction between the two

generations. The first-generation founder’s leadership serves as a prerequisite while the second

generation needs to be imbued with traditional family values at an early stage so that they are well

aware of the hardships their parents have suffered. In addition, the first-generation founder must be

open to new ideas from children who have been educated overseas. Both the first and the second

generation should strive to develop balanced family relationships that are in alignment with their

long-established family values, in order to ensure the long-term prosperity of their family business.

Family Relationship: An Advantage or Disadvantage?



Why do family relationships play such an important role?

What are the advantages? Family businesses tend to have low management costs, prompt decision-

making, commitment from family members, strong cohesion, centralized organization, a low cost

psychological contract, strong centripetal effect, family reputation which helps elevate business

reputation, and the exemplary role set by the family leader.

What are the disadvantages? These include conflicts between business and family interests and

business and family roles, affection and relationship orientation, satisfying too many family demands,

male dominated decision making, lack of innovation, little room for career development, and complex

relations as a result of excessive intervention by family members.

A family business demonstrates the overlap of two systems - the family system and the business

system. These two systems have different value orientations. The value orientation of family is

relatively subjective, affection-driven and relation-oriented. It is unconditional and tends to protect

family members. By contrast, the value orientation of business is objective, goal-driven and

utilitarian-oriented. It is conditional and usually focuses on employment relationship. The overlap of

these two value orientations can cause confusion and gives the family business a paradoxical nature

as it involves more relations than an ordinary company. This paradox can be a time bomb, which, if

handled improperly, usually explodes during the transition of power from the first-generation to the

second generation of leaders. It may also appear when the third generation inherits the business,

and during future transitions.

Social Emotional Wealth

Following the outbreak of the current global financial crisis, some economists and management

experts began to put forward the “social emotional wealth” (SEW) theory of family spiritual wealth.

The Dean of the W. P. Carey School of Business at Arizona State University studied the decision

making behavior of over 1,200 family-owned businesses in Spain in 2007, and his research results

indicate that when facing the trade-off between economic wealth and spiritual wealth, family

businesses tended to pursue family spiritual wealth. Rather than being completely wealth-oriented,

the owners of family businesses mostly choose to maintain the sustainable development of their

businesses.

SEW refers to the non-economic benefits derived from membership in the firm by being the owner,

decision-maker and manager. SEW includes a variety of related forms, including the ability to

exercise authority, the satisfaction of needs for belonging, affection and intimacy, the incorporation of



family values throughout the business, the preservation of the family dynasty, the conservation of the

family firm’s social capital, the fulfillment of family obligations based on blood ties, and the

opportunity to be altruistic to family members. The concept can be extended to include non-family

members involved in family businesses. Therefore, the “family” is a wider concept than simply a

consanguineous one.

There are five dimensions of SEW, namely, the identification of family members with the firm, binding

social ties, emotional attachment, family control and influence, and renewal of family bonds to firm

through dynastic succession. First-generation entrepreneurs generally devote themselves to their

family business. Compared to professional managers, family members demonstrate higher

emotional commitment to their business. As a founder or potential successor of a family business,

the family member considers the business to be their lifeblood and tries their best to protect it from

harm. In terms of family control and influence, the transmission of family values can directly or

indirectly influence the operational management and strategic decisions of the business. As for

business succession, family members regard the business as a long-term investment that will endure

over generations. That’s why family business entrepreneurs think in a different way when making

decisions. They usually focus on long-term investment rather than short-term benefits.

Family businesses seek both financial and non-financial objectives. Financial objectives, or

economic benefits, include sales revenue, profit, market share, and growth rate. What are non-

financial objectives? These include building up the family reputation, sustaining the family’s social

status, satisfying the family’s emotional needs, and carrying forward the spirit of the family. Family

wealth is more than just money, and family heritage means more than inheriting economic wealth.

What matters most is the sustainable prosperity of spiritual wealth.



SEW is a double-edged sword. Its pros include altruism within the family, strong commitment to

family, emotional bonds, and enhancement of family values and social reputation. The cons include

self-interested behavior, emotional burdens, conservative strategy, and cronyism. During the past

three decades since Reform and Opening Up began in China, many Chinese private enterprises

have evolved through trial and error. They faced many challenges from factors beyond their control,and some of them reacted in an improper manner. However, we need to look ahead and believe that

the future will be different. The question is how family businesses can turn their disadvantages into

advantages and survive in a more complex environment. We believe that if they can face and

overcome these difficulties, they will demonstrate their strengths and find innovative solutions.

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When family enterprises first began to be recognized as a unique type of business organization, it

was widely assumed that because each enterprise represented a specific family culture and was

influenced by a regional culture, they would have little in common. However as increasing numbers

of family enterprises venture beyond their home markets, the integration of regional and family

culture begins to play a bigger role in the development of a family enterprise. When we know more

about different regional business cultures we can better understand family business cultures.

Kelin E. Gersick, a Management Fellow at the Yale School of Organization and Management and

Professor Emeritus of Organizational Psychology at the California School of Professional

Psychology, has for 35 years been dedicated to family business research. Based on his studies of

family enterprises worldwide, Prof. Gersick has identified some common challenges that family

enterprises face in an increasingly globalized business environment.



Key Traits of Contemporary Family Enterprises Worldwide

1.The aging of a remarkable generation of wealth generators. The late 20th century saw the rise of

an outstanding group of entrepreneurs who set up and developed their own businesses and built up

the infrastructure for future business and economic growth. Private enterprises in China have also

undergone radical changes during the past two decades. Today, intergenerational succession is

imminent for many family enterprises around the world. As this remarkable generation of wealth

generators grows older, they are realizing the many differences between themselves and the

younger generation. Globally, family wealth often does not stay solely in the hands of the older

generation but flows from the founding generation to the younger generation.

2.Unprecedented business opportunities and sources of capital in multinational markets. Ten years

ago globalization was a hotly debated topic, but today it is widely accepted as an irreversible trend.

The current debate is not about settling on a precise definition of globalization but rather identifying

its possible effects. It has clearly played a prominent role in the development of capitalization,

commercialization and e-commence. It has been responsible for continuous and radical

technological innovations. For example, containerized shipping, which has grown by leaps and

bounds in the past two decades, has made effective international logistics and transportation

possible. Demand homogeneity is seen in various sectors. Family enterprises must follow the tide of

globalization and enhance their global competitiveness in the areas of capital, HR management and

leadership.

3.The transition of power from the old to the new dynasties. The world has experienced a grand

transformation with the rise of new dynasties that are not from families with long-established roots.

For two centuries wealth was concentrated in northern Europe, then the US, and now new centres of



wealth are emerging, including Russia, India, Brazil, Indonesia and China. As the world wealth map

gradually changes, family businesses around the world will also be subject to change. Chinese

family enterprises are now finding their own ways to establish intercultural and intergenerational

succession and transformation. Therefore, it is necessary for family business entrepreneurs to

develop an international perspective and learn the latest management systems and philosophies toensure the sustainable prosperity of their family enterprise.

The Two Most Critical Global Challenges

There are two significant differences between successful and unsuccessful family enterprises. First,

a successful family enterprise often boasts more efficient development and utilization of family

human capital, which in turn guarantees a smooth intergenerational succession. If the founding

generation is willing to break away from long-established practices and hierarchies regarding

corporate governance and leadership it has a significant impact on whether the enterprise is mining

all potential sources of family talent to maximize the effectiveness of corporate operations.

Second, a successful family enterprise often boasts more effective structure and processes for

governance. The success or failure of a family enterprise is determined not by its operations alone

but also, and more importantly, by its governance. Effective operations can lead to enhanced

corporate competitiveness and optimized resource management. However a family enterprise can

stand out from others for its effectiveness and excellence in family and corporate governance,

strategic planning and leadership development.

The Family Circle: Tension between the Modern and the Traditional

It appears that the greatest tension is between senior and junior members of a family enterprise,

especially during the succession process. Junior family members’ new management philosophies

and HR management ideas come into conflict with the old-fashioned practices of senior family

members. What should they do to alleviate the tension between them, and seek the best solution for

sustaining family continuity and family business prosperity?

In most Asian family enterprises, senior family members, as the founders of the business, play a

decisive role in their enterprises. In most family enterprises around the world, the family expands as

follows: Seniors–Siblings–Cousins.



However, junior family members have a very different view. They advocate that every descendant of

the founding family should have his/her own small family unit, which, as shown in the following

diagram, is represented by an independent triangle around the family legacy. Each small family unit

comprises the family descendant, along with their spouse and children. Each chooses a life style,

education and career path, as well as personal interests, entirely at their own discretion. In the

meantime, each small family unit also carries part of the family heritage (the blue area of each

triangle). In summary, while inheriting some family traditions, the descendants also pick up many

new ideas, practices and orientations.



This is family. People may marry someone from a different culture, or they may travel to a new place

to learn new things. In other words, a family is by no means a simple pyramid but rather a complex

network. Some families have recognized and taken advantage of this complexity. Typically, such

families are open to and embrace new perspectives, and welcome newcomers from outside of the

family community. By contrast, some strongly resist any changes and firmly cling to a singlestructure: as a member of the family, you must act in accordance with the family traditions;

otherwise, you will be expelled from the family.

Today such old-fashioned families face huge challenges. Even family enterprises in the Middle East

with a “tribe-like” structure, which used to render stringent restrictions on cross-region businesses,

are finding it impossible to escape globalization. The same is true for family enterprises in the rest of

the world. To achieve greater growth, they need to keep up with the times and introduce new models

and patterns.

Family Networks

• A successful family network has adequate boundaries and a sense of family identity. Family

culture in China can trace its roots back to Confucian culture, which still exerts an influence

on contemporary business leaders. Chinese culture and Chinese families attach great

importance to balance. It is important to keep a balance between the preservation and

continuity of family heritage on the one hand, and the openness to new ideas and

newcomers on the other.



• A successful family network finds authority in effective collaboration, not in autocratic

hierarchies. Two or three decades have passed since the founding generation of Chinese

entrepreneurs successfully established their family enterprises. However, today’s younger

generation would be unable to replicate their success. Family enterprises today should

develop a cooperative network that mobilizes the unique strengths of every manager in

corporate operations, finance, strategy, values, external networking and family

communication. It is important that family enterprises retain such managers and avoid relying

on any one person to replicate the success of the senior generation.

Business Circle: Governance Demands Professionalism

The first generation entrepreneurs and enterprise founders tended to establish companies with

highly centralized leadership. Most preferred a patriarchal system, made themselves the lynchpin of

the organization and enjoyed sole authority in the enterprise. Today, however, centralized leadership

has become a bottleneck that hinders the future development of these family enterprises; the

probability that the second or third generation will have the same vision and competencies as the

founding generation is quite slim.

When decentralized authority comes into play, the situation can become more complicated. Family

enterprises jointly founded by several siblings are a typical example of this. For some companies,

especially those in Latin America and China, the elder brother in the family calls the shots, and a

pseudo-parental relationship exists within the family. The elder brother plays the role of the father in



taking care of his younger sisters and brothers. In northern Europe and the United States, sibling-

partnership-based family enterprises attach much importance to sufficient egalitarianism and

advocate shared authority instead of giving all power to a single person. The model of “first among

equals” represents another mainstream sibling partnership in the world. In this version, family

siblings assemble a leadership team to lead the family enterprise. The head of the leadership teamhas the final say for most decisions but doesn’t claim supreme authority over the family and the

enterprise. In fact, the leadership team may reach an agreement in advance to specify the scope of

authority for the head and make clear that some decisions are subject to discussion and approval by

the whole team.

The governance structure of a family enterprise that has adopted a centralized style of management

may be of less significance while the founding generation is in charge. However, when power is

passed to the second generation, this may no longer be the case. Second-generation entrepreneurs

lack the experience of having grown with their family enterprise, therefore they cannot simply hire a

professional manager to handle all corporate issues nor can they expect a high degree of loyalty

from all employees. Therefore, to improve the governance of their family enterprises, second-

generation entrepreneurs must rely on more effective procedures and systems, such as a board of

directors, family governance council or trust, to address issues such as the allocation of rights,

methods for communication and cooperation among family members, and business development

models.

A Blueprint for Family Heritage

1.Education and benchmarking. Today many family enterprises send junior family members to top-

tier business schools to learn modern business operations and the latest management philosophies.

But combining these new ideas and practices with their family traditions ends up as a big challenge.

An open platform for family members to exchange knowledge and experience is needed, but it is

particularly difficult for Chinese family enterprises to build. Chinese family enterprises place a strong

emphasis on maintaining privacy and face. It is hard for them to take on board the successful

experiences of others, let alone share their own failures. However, if family enterprises with similar

backgrounds or business scopes can learn from each other and promote short-term personnel

exchanges, they will realize a tremendous benefit.

2.Enhanced governance structures. A listed family enterprise may have a very complex governance

structure that includes a board of directors and audit committee, as well as holding companies,

trusts, councils, subsidiaries, foundations, and family offices. Each of these is closely connected with

the family and needs effective governance, well-established values and development objectives.



Furthermore, appropriate procedures should be developed to define the roles and authority of the

board of directors, family governance council and council of owners, and to promote mutual

communication among them.

3.Increased tolerance for transparency and discussion. External and internal transparency are both

needed. The older and younger generations should be encouraged to jointly brainstorm about

innovative ideas, though this can be a great challenge for family enterprises. In most cases,

intergenerational communication is difficult as junior family members are impatient and senior familymembers are reluctant to accept new ideas. If these problems can be resolved, it will enable a family

enterprise to enjoy a brighter future.

FAMILY TIE"

Volume 3, 2013



by Janine Coughlin

The family unit is so revered around the world that family-owned brands often leverage their family

ties when promoting themselves to customers. The idea that a product or service is delivered “from

our family to yours” conveys a feeling of trust, stability and romanticism that has universal resonance.

Yet sometimes the reality of what is happening behind-the-scenes in a family business can be quite

the opposite of stable. The same familial ties that can help promote company culture, build the

brand, and streamline decision-making to make family firms more nimble than others, also have the

potential to choke a family business and keep it from continuing beyond the first generation.

Consider what happened with India’s Reliance Group. When the founder of this large conglomeratedied suddenly in 2002 without a will, it set off a battle between his two sons for control of the

company that lasted nearly a decade. The company ended up being split in two, and Indian

government officials even became embroiled in the feud. Fearing it might impact financial markets,

India’s Finance Minister in 2009 urged the brothers to resolve their business differences.

In South Korea, details of the lawsuits between siblings in the Lee family get more media attention

than the unveiling of the latest mobile phone made by Samsung, the multinational electronics giant

their father Lee Byung-chull founded in 1938.

Though the founders of Gebrüder Dassler Schuhfabrik (Dassler Brothers Shoe Factory) died in the

1970s, residents of their hometown in Germany are still divided by the 1948 falling out between the

two Dassler brothers that saw them shutter their successful sports shoe business and divide its

assets. One brother went on to found Adidas, while the other founded Puma, and they became bitter

business rivals. Both companies are still headquartered in Herzogenaurach but neither remained in

the Dassler family beyond the third generation.



“It is relationships among family members that lie at the core of family business governance,” says

Professor Jean Lee, Academic Director for the CEIBS Kaifeng Centre for Family Heritage. “Family

relationships may not appear critical to the success of a family business, but they often result in its

collapse when crisis breaks out due to bickering, backbiting, or outright conflict between familymembers. For this reason, the greatest threat to the survival and success of any family business isn’t

so much linked with external factors like technology, customers and competitors; it’s rather more

associated with the relationships among family members.”

Research has shown that globally less than 30% of family businesses have a successful transfer to

the second generation, and less than 14% are successfully transferred to the third. It remains to be

seen how well Chinese family businesses handle the succession process – in the coming decade

the majority will undergo their ‘first succession’, in which the founder passes the baton to the second

generation.

“Entrepreneurs have some very unique characteristics,” says Professor Oliver Rui, Co-director of the

CEIBS Kaifeng Centre for Family Heritage, in explaining why there is such a high failure rate after a

family business passes to the second and third generations. “The first generation, they have the

guts, they have the knowledge. They are smart.”

In fact 175 of the world’s top 500 firms are currently family-controlled. Among the largest public

companies listed in the US, 40% are family businesses and as of July 15, 2012 China had 684 A-

share listed family-owned companies, which accounted for 49% of the total listed privately-run

companies in the country. Family-owned companies in their third or more generation are morecommon in the US and Europe than they are in China, since it was only in the 1980s when China

began its policy of Reform and Opening Up that Chinese entrepreneurs began to build their

companies.

Prof Rui said his interest in researching the family business arena was sparked when he joined

CEIBS, where the entrepreneurs in his EMBA classes often share their business challenges. “Some

of the students are the first generation family business founders,” he says. “They’re around late 40s,

early 50s and are coming to the age where they should be thinking about how to enjoy life. But they

cannot, because nobody will take the responsibility or share the responsibility for the business. I

think these are not very isolated cases in China.”

There are many lessons that Chinese family businesses can learn from their more mature global

counterparts, says CEIBS President and Chengwei Ventures Chair Professor of Entrepreneurship

Pedro Nueno. “Quite often families in business [in Europe and the US] prepare their members to

have an adequate relationship with the company, as shareholders, directors, or managers,” he says.



“The relationship tends to be regulated by a family agreed set of norms about the most important

aspects: Who can be a manager and what are the basic requirements, such as preparation and

experience? Who can be a director and how to assess them? How should the family be rewarded

through the company’s earnings?”

Preparing the second generation to step up is more of a challenge in China, says Prof Lee, since the

country's one-child families are less likely to see the kinds of conflicts for control found in the West,

where sibling rivalries among the second generation more often make for a messy succession

process. However Chinese society still places a high value on family relationships and a Chinese

business owner still faces the decision of whether to pass the baton to his child or other family

member, or bring in a professional manager from outside the family.

Prof Pedro Nueno Prof Jean Lee Prof Oliver Rui

In order to better understand how Chinese entrepreneurs are approaching this all important process,

Professors Lee and Rui have done a study that examines the role that social trust plays in the type of

CEO the owner of a Chinese family firm chooses. Among their findings, which will appear in a

forthcoming paper entitled “Trust and Professional CEO Selection in Family Firms”, is that family

firms that are larger, have more sales growth, and are located in regions with high social trust, are

likely to choose professional managers with no family ties.

“What’s interesting is that a well-educated founder tends not to pass the baton to his child, while the

founder who starts from scratch is inclined to hand over his power to his child,” says Prof Lee. “In

addition, the founder who attaches great importance to family prosperity tends to recruit professionalmanagers to ensure his business is built to last. The first-generation helmsman of a family business

may employ family relationships as a tool for corporate governance, while the second-generation

entrepreneur needs to exercise professional management while downplaying family relationships.”

She suggests the third-generation business owners should look beyond the family and improve

corporate governance based on professional management.



Despite the unique challenges they face, many family firms have survived and thrived well beyond

their third generation. “The Haniel Group in Germany was founded in the late 1700s as a warehouse

for regional importers of products from Holland. The company grew, evolved, diversified and

deployed globally,” explains Prof Nueno. “Today it has a controlling interest in Metro Supermarkets,

chains of pharmacies and other businesses. Its turnover will approach Euro 30 billion and it hasmore than 50,000 employees. The company continues to be family owned after more than 200 years

and has more than 600 family shareholders.”

A success story from the US cited by Prof Nueno is Cargill, which was founded in 1865 as a cereal

storage provider. “Today the company is widely diversified, and includes operations in the food

industry, financial services, and energy-related businesses,” he says. “The total turnover exceeds

US$ 100 billion and the company has more than 100 family shareholders.”

How best to manage the divergent interests of all those family shareholders? Prof Rui says that

many family businesses set up family trusts or foundations as a means of sharing profits with

extended family members, while keeping them at arms-length from day-to-day business operations.

“They want to build a wall between the business and the family,” he explains. “They may realise their

son or grandson is not smart, so they build a wall between the business and the family to ensure the

long-term sustainability of the business they created, so their legacy can continue.”

“I think that’s why we still remember the name of Rockefeller,” Prof Rui adds. “Those second, third

and fourth generations of the Rockefeller family, they are not actively involved in the daily operations

of their family. They just become passive shareholders.”

Only time will tell who among today’s Chinese family businesses will have the same longevity of the

Rockefellers or the Haniels.

Family Business Facts

- 175 of the world’s top 500 firms are currently family-controlled

- Globally less than 30% of family businesses can successfully

transfer to the second generation

- Less than 14% of family businesses are successfully transferred

to the third generation

- 40% of the largest public companies listed in the US are family businesses

- 49% of the listed privately run companies in China are family-

owned (as of July 15, 2012)



- 45.9% of the 684 A-share listed Chinese family companies are husband-

and-wife businesses, while one third are brother-and-brother businesses

- 46.8% of the 684 A-share listed Chinese family companies

involve a parent and child in business together.

The CEIBS Kaifeng Centre for Family Heritage

In order to help Chinese family businesses successfully negotiate the unique challenges they face,

CEIBS collaborated with the Kaifeng Foundation last December to establish the CEIBS Kaifeng

Centre for Family Heritage.

The Centre aims to become a leading academic and research institution in the area of family

business that will provide a platform for knowledge creation and knowledge sharing for family

businesses in emerging markets, and between eastern and western family businesses.

Already the Centre has organised two China Family Heritage Forums and several smaller closed-door roundtable sessions which bring together world-renowned academics and family business

members to discuss the challenges of family businesses and their potential solutions. Upcoming

roundtable sessions will be held in cities across China as well as globally.

Many Chinese family firms are now considering whether they should go global, and the “China

Depth, Global Breadth” value proposition offered by CEIBS makes it well-positioned to develop such

a family business platform. “CEIBS is a bridge between Eastern and Western management

education, and therefore it can play a key role in the sustainable development of Chinese family

businesses,” said the Centre’s Academic Director Professor Jean Lee. “The Centre has a global

mind-set, with a China focus.”

The Centre is also sponsoring numerous research projects on family business. There are also plans

underway to create EMBA and MBA elective courses on the topic for CEIBS students, as well as

developing a library, database, scholar network, and network of family business owners.



“We want to leverage the platform of the Centre to do deeper research into family firms,” says Centre

Co-director Professor Oliver Rui. “Understanding the unique issues of family firms requires in-depth

surveys and interviews. You can’t just look at the annual report of a listed firm.”

Research projects will focus not only on the corporate side of businesses, but also on family

relationships. Topics will include succession planning, philanthropy, and how to balance family

relationships with good corporate governance, as these are among the topics most critical to family

businesses. The Centre will sponsor research by CEIBS professors along with scholars from top

universities around the world.

relationships in family business

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