Monday, August 26, 2019

Soriano: Family Charter and succession planning

I will now continue my Family Business Longevity Series using Royal Selangor as a gold standard for family and business governance. Family-owned businesses reaching a milestone of more than 100 years are indeed extraordinary, and Royal Selangor, a Malaysian company of Chinese descent that started in the 1880s, has proven that with a well-crafted Family Charter (constitution) and a timely succession process, the family business can continue to survive and grow amid a complex and competitive marketplace.

Allow me to continue Royal Selangor’s amazing 132-year story.

The Yong brothers started out as tinsmiths who made everyday items catering to the growing mining community at that time. Gradually, they started a side business crafting pewter to make Chinese ancestral worship items.

In time, Yong Kong veered off and established Malayan Pewter Works. The company—jointly run by Yong Kong’s four sons—expanded into making cigarette boxes and tea sets in the 1900s, which got the attention of a European clientele.

After World War II, family feuds tore the business apart and the brothers set up rival companies Tiger Pewter, Selangor Pewter and Lion Pewter. However, only Selangor Pewter, which was renamed Royal Selangor in 1992, survived.

Right after Malayan independence, it began making souvenirs and corporate gifts.

What were the lessons learned that led to the break-up?

“My father told me to beware of family feuds. If you have family members contesting over the pot, then nobody looks after enlarging the pot,” says Yong Poh Kon, the managing director of Royal Selangor International and third-generation leader of the family business.

Although, in one interview, he concedes that for this type of business to survive, product innovation is the key to stay in the game, he also asserts that succession planning should be given utmost attention.

While he wouldn’t say whether his son or his nephew would eventually be chosen to lead the business, the third-generation patriarch stated criteria and gave advice for his successor.

“It will be based upon the track record of the person and the support he will be able to derive to bring his idea into action. Maintain the family harmony so that everybody feels that they are part of the business... continue this, then you are able to have the passion to drive the business forward,” Yong said.

The PwC Family Business Survey 2016—the Malaysian chapter points out that although 69 percent of local family businesses have members of the next generation working in the company, only 15 percent have a robust, documented, and communicated succession plan. That survey reflects a looming universal trend among family businesses that tend to overlook the dire consequences when senior business leaders set aside or completely neglect succession planning.

Another source of major conflict and possibly one of the biggest dangers faced by family businesses today is the risk of the younger generation taking it as a free ride and feeling a sense of entitlement to a position in the company purely because of his or her surname.

To avoid this, Royal Selangor employs a policy wherein every family member has to work in another company for a period of time before joining the business. “The rationale behind working in another organization and the reason that rule is in place is that you have to have something to contribute and bring to the table if you want to work for the company.”
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