(Don't) keep it in the family

24 October 2016

Author: Jeremy Hazlehurst


(Don't) keep it in the family

Family businesses grow faster and last longer than their rivals. But managing them means negotiating some troublesome HR challenges

Nobody who follows the business press can fail to be struck by just how deeply entwined the fortunes of family businesses are with the health of the wider economy. The likes of Stanley Ho, Li Ka-Shing, the Kwok brothers and Robert Kuok are household names. Around 85 per cent of $1 billion-plus businesses in southeast Asia are family-run, according to The Economist. In Hong Kong, the top 15 families control assets worth 84 per cent of GDP, while the figure stands at 76 per cent in Malaysia and 48 per cent in Singapore.
 
There is little doubt family ownership can be very successful, promoting stability and deep engagement with values. But it comes with a complex set of problems for HR professionals. With a fondness for promoting sons (and, increasingly, daughters) to top management positions, and business affairs that can be tangled up in those of other families, these businesses can cause headaches for even the most confident HR professional. Can family firms modernise the way they work without losing what makes them special?
 
Large or small (and most local SMEs are also family-owned), such businesses have a peculiar relationship with HR. Erman Tan, CEO of family business Asia Polyurethane Manufacturing, says that in SMEs the people aspects of the job simply aren't a priority. Often, Tan says, "there is no proper payroll, things are done from memory, the founder decides who is hired and how much they are paid." This might seem shambolic, but it means such firms can stay flexible, as well as friendly, informal and trust-based, which suits many employees and - importantly - keeps costs down.
 
"We have four tyres and no spare," is how Alvin Yap, the second-generation director of Singaporean advertising firm BusAds puts it. Many firms are not concerned with huge growth. "They produce enough money for the family and they would rather stay family-owned than grow," says Professor Roger King of the Chinese University of Hong Kong Business School, who also has a family business. "That is their decision."
 
But things are changing because firms are beginning to cede control away from the founders to their children. "Most firms are 30 to 40 years old, so they are transitioning from the first to second generations. The founder is probably still there and speaking very loudly behind the scenes," says Annie Koh, a professor at Singapore Management University and an acknowledged expert on family businesses. That transition often involves a process of "professionalisation", says Koh, where a sometimes-chaotic firm is given structure.
 
Often, that is because the second generation have, unlike their parents, been to university and picked up formal business qualifications, often in English-speaking universities and schools. "The new second-generation family business managers are coming in, they have been educated overseas, they have a better perspective on life and work, and they are more receptive to new ideas," says Wu Hong Chiu, head of enterprise at KPMG in Singapore.
 
"In the past, they have relied on their own kind, either family or clan, because they felt that if you didn't trust an employee you could be training your competitor," says King. "But a lot of founders understand that to keep the business going, you need outsiders. That might change the company, but when you ask patriarchs what is most important - the family or the family business - they always say the family." If upgrading the business keeps the family fed and watered, the message seems to be, so be it.
 
BusAds is a classic example. "My father dropped out of school at the age of eight," says Yap, who worked at Singapore Airlines for 12 years before joining the family firm. He took on the HR role and had to introduce what he calls "basic hygiene", such as employment contracts, salary scales, appraisal forms and official career paths.
 
BusAds has so far chosen to keep the HR function in the family, but those who wish to expand into new markets or verticals often find they need an HR professional. "[HR] can make a very meaningful contribution. It can help a firm become more competitive and relevant, and remain innovative in the new economy. HR people can be a great catalyst to make family businesses more relevant, competitive and people-oriented. Ultimately, it can help the firm remain family-owned," says Tan.
 
When a family business does decide to professionalise, an HR director is one of the first hires, and the role involves significant responsibility. "An HR leader must be almost like a business partner to the owner, and will probably have to put in place some things that are not in place, such as job descriptions," says Koh. "Probably in the past there were no clear job roles, and no framework for recruiting staff. As HR director, you must educate but also influence that there is a need for change, which is for the good of the whole business."
 
She says the HR director has to be firm. "One family member CEO told me that in the first week the new HR director went into his office and told him that he needed to fill in a leave form because he was going on holiday. He is learning that if he wants people to walk the walk, he has to learn to as well, and if he wanted the rest of the C-suite and the senior managers to come to him to request leave, he had to do the same," says Koh.
 
"The HR director must be bold and fearless and educate the C-suite and family members that they have to behave a certain way if they want to attract the best people, while also respecting where the founder came from and respect him for building the business."
 
What does this mean in practice? "We talk a lot about transforming the organisation to a high-performance team, but not compromising on the family business ethos and the family values," says Cecilia Ng, HR director of YCH Group, a pan-Asian supply chain management and logistics company which began in 1955 and is run by the founder's son, Robert Yap.
 
The principles of reliability, integrity, sincerity and enterprise (known as RISE) run through the family and the business, she says, which means a continuation between the two. "My favourite question when I am interviewing is: 'what are the family values you have got from your upbringing that brought you to where you are today?' A person who appreciated their parents is someone I want to work longer term with the organisation."
 
Family ownership can have great advantages when it comes to culture. The HR director at another large, family-owned firm, says that the senior management team has not changed for almost 30 years, which makes the company "very stable". The culture is very clear, in contrast to large corporates where changes of personnel can mean radical changes of ethos, she says.
 
However, family firms are clearly not perfect. The downside of long-term leadership can be that nepotism creeps in further down the ranks. "We have a lot of referrals from family members, and normally that guy will get the job," says the HR director, who wishes to remain anonymous. "Also, appraisals are one of the check-points for promotion, so the question of who will write the performance appraisal is important. If the supervisor is a relative of one of the staff, he or she will rate them well, so they will find it easier to get promoted. We ask the staff to state their relations, but if they keep it confidential we won't know," she says.
 
It can be hard to recruit into family-owned firms, and some families have had to find innovative ways to attract new talent. Cheong Wing Kiat is a third-generation member of the Wen Ken Group, founded in Malaysia in 1937 and famous for its Three Legs brands of traditional Chinese medicines. When he joined the family business in the mid-1990s, he initially planned to float it, but when that plan fell through he opted instead to corporatise it.
 
"It was hard for us to attract professionals to join us. I had been a venture capitalist before, so I fell back on an angel investing strategy and instead of recruiting professionals I invested in entrepreneurs," he says. "They complement some of the HR gaps in the family business."
 
It has also helped nudge the business in directions that would be more likely to appeal to top managers. "It was not easy to attract top talent because of our company structure - they felt that being family owned there was a glass ceiling - and also we were not in a very sexy industry. Added to that, Malaysia and Singapore were really booming and they had lots of options. Why should they join a family business?"
 
Wing Kiat extended the business into Western medicine, health supplements and functional food, areas that are "more attractive to talent". Given that salaries are not as high as in some other companies, he also made sure the business was viewed as a good employer and that people were appreciated and respected, worked on projects they enjoyed and were given a degree of freedom (he calls the system RAFT, which stands for resources, appreciation, freedom and time.)
 
Some HR professionals might decide that such lateral thinking is more trouble than it is worth. But they might be missing out, because there is another reason that family businesses are a growth sector in southeast Asia. "Many people are starting to realise that family firms are focused on the long term rather than quarterly reporting, and that they are better for building a longer career path," says Koh. "A firm where there is a closer alignment between the workers and the talent could be a good opportunity for an HR director. I think HR will be at the heart of a lot of the changes we will see in the coming years."
 
Navigating the family firm: experts give their HR advice
 
Cecilia Ng
HR director at YCH Group
 
"Understand that family values animate the business. Just as we are accommodating and show brotherly or sisterly love for each other, in a family business when someone is sick or down we all chip in and cover their work. But remember: you need to be clear about ownership, especially when things go wrong."
 
Annie Koh
Professor at Singapore Management University
 
"If a family business has hired an HR director, it is because they are ambitious to professionalise and expand, and to attract the best talent. But you cannot pitch the business as a highly professionalised one. You have to say it is one that treasures its staff, is solidly anchored with a set of values and principles and that there are like-minded people here who are in it for the long haul. You have to say: 'We are not offering you a job, but a career.'"
 
Wu Hong Chiu
Head of enterprise at KPMG in Singapore
 
"You have to make sure you have the buy-in of the patriarch. You have to say: 'We need guidelines, and that might not be good for some people'. The reporting must be solid. For example, if the HR director is hired by the patriarch, they should report to that person, and not to his son who is the CEO. You need to be seen to be fair and objective, and the HR director must show there are clear hiring guidelines and a development plan, or they won't be able to compete with multinational companies."
 
Alvin Yap
Second-generation director of BusAds
 
"Have a very honest conversation with the family and ask them what they want. You need to know if they want an entirely professional, non-family-run business or not. You need to understand if they want to be in charge. They might have a CSR programme that is very important to them. They might have strong values that will affect HR. Understand the family culture, then you can be guided properly and work with those guidelines."
 
Cheong Wing Kiat
Third-generation member of the Wen Ken Group
 
"A lot of family members want influence over HR. They might say they will look at KPIs and so on, but when it comes to signing the cheque, they still think that if they pay someone more, their family will get less. A potential HR director must really understand the shareholders' thinking, the age profile, and how to communicate with family members. If they find the family is too stubborn and can't accept modern HR thinking, I'd advise them not to join the firm. Why waste your life on someone who can't change?"