Soriano: Rule 3: No extramarital affairs

THE rule definitely appears controversial and has raised many eyebrows every time I introduce the topic during Family Governance talks. Even my best friend, who is a second-generation Chinese family member, weighed in on the rule and said it was very “un-Chinese.” I leave it to the readers to interpret what my Chinese friend said.

But for the 129-year-old Lee Kum Kee Group, the family edict related to extramarital affairs is one of the most powerful rules that the third generation and grandson of the founder, Lee Man-tat, has required the next generation shareholders, especially those sitting on the board, to obey.

These are the equally unique governance rules that Lee Man-tat espoused:

Rule 1: No late marriage.

Rule 2: No divorce.

Rule 3: No extramarital affairs.

Any family board member who contravenes Rules No. 2 and 3 are expected and required to leave the board automatically and will no longer have the right to speak and participate in the family council and business decision-making process.

For Lee Man Tat, these rules are crucial as the family has grown in size, some have lost personal interest in the business, the market environment has become complicated, shareholder ownership has become dispersed, and owners have varying versions of where the future is headed.

After weathering two major corporate battles, the Lees agreed to finally set up a family council and draft a family constitution in 2002.

In an article, Jeff Pao highlighted the different corporate governance systems set up by LKK and what came out of the initiatives. Most notable was organizing the Family Council Board and the roles of the 29-member family assembly.

Pao contended that the family council is in charge of the family business, family office, family investment firm, family charity fund and family training center.

I will share more initiatives that the Lee Kum Kee incorporated in their Family Constitution:

All family members have to work at least three to five years in other companies after graduating from college if they want to join the family business.

Family members who violate rules do not just defy the values enshrined in their Family Charter but also lose their moral and business ascendancy to implement, enforce and discipline erring or wayward family members.

Another powerful value worth repeating in this article is their strong adherence to “si li ji ren,” a Mandarin saying that means “Put others first, before yourself.”

If family members quit the board or company for personal reasons, they can sell their shares to the company and remain as family council members.

The next generation is allowed to inherit shares even if they are not involved in the daily business operations.

These rules are the heart and soul of Lee Kum Kee’s flourishing existence and the foundation of their commitment to pursue business excellence and stewardship so the business can be handed to the next generation seamlessly.

Lee Kum is the name of the founder, and Kee is a Chinese word that means a new family business.

The enterprise will be celebrating 130 years in 2018 and there are no signs of the group slowing down. On top of their strict observance of protocols, the other critical and indispensable governance rule that the Lee family initiated was formalizing their succession plan.

The family believes that the plan is critical to sustaining a long-lasting family business.
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