Family dynasties rule business

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

While public attention is riveted on family dynasties in politics, it is also a fact that family dynasties dominate the world of business in the Philippines and most parts of Asia. Any cursory survey of the top business names in most of Asia is a testament to this reality.

While there are several significant differences between families in business and politics, there are also a number of parallelisms that are worth taking note. For example, it is true that most family businesses do not last beyond three generations. The same is true for political family dynasties.

It is also true that when a family dynasty ceases to be the dominant owner, the business will either close or pass into the hands of another family. The only exceptions are the few that are sold to Western multinationals. In politics, after a period of power struggle, a dynasty is normally replaced by another family dynasty.

Two to three generations is normally the rule for a family dynasty in both business and politics. Two or three generations ago, there were dominant political names like Osias and Quirino in the Ilocos; Lopez and Yulo in Western Visayas; Kangleon in Leyte; Lacson in Manila; Pendatun in Cotabato; Pelaez in Northern Mindanao; Lim in Zamboanga; among others. The scions of these families have retired or chosen other careers. But most of them have been replaced by other family dynasties.

There are family businesses that have lasted more than three generations. The longest is the Ayala-Zobel family business which has lasted nine generations. It traces its roots to a trading company — Roxas y Cia- founded sometime in 1840 by Don Domingo Roxas. His daughter Dona Margarita Roxas and son-in-law, Don Antonio Ayala continued the business and renamed the company Ayala y Cia.

Two businesses — Aboitiz and Lopez — are now being run by the fourth generation. 

There are other families that have now mostly retired from major corporate endeavors although they continue to remain prominent in the social or civic circles like the Madrigal, Ynchausti, Yulo and Elizalde families.

There are businesses that have survived but the ownership has passed from one owner to another. San Miguel Corporation passed from the Soriano family to Enrique Zobel to Danding Cojuangco, then back to the Soriano and back to Danding Cojuangco. The PLDT group, which controls SMART, went from the Cojuangco family control to its present major stockholder, First Pacific of Hong Kong, a company controlled by the Lim Siep family of Indonesia which also controls Indofoods, reputedly one of the largest food processing companies in Asia.

Chinoy family businesses undergo the same transition. There were taipans in the past whose heirs are not as active as the previous generations. The biggest and most prominent was Antonio Roxas Chua whose firm, ARCA, dominated sugar trading and owned Pacific Bank, the second largest bank and the pioneer of the credit card in the Philippines. There were others like Ralph Nubla, Leonardo Ty and Carlos Ty. Now of course the dominant Chinoy family businesses include the families of Henry Sy, John Gokongwei, Alfonso Yuchencgco and Andrew Tan.

In Asia, aside from the Lim Siep family of Indonesia, the other prominent family dynasties include Li Ka Shen of Hong Kong, Kwok of Malaysia, and Tata of India. South Korean business was, and perhaps still is, dominated by four family business groups — Hyundai, Samsung, Daewoo and Lucky Goldstar. The family of the founders have continued to dominate the respective business conglomerates.

Hyundai was founded by Chung Ju Yung who brought in his brothers and children to run the business. Lee Byung Chul founded Samsung. He was disappointed by his first two sons and groomed his third son to run the business. Lee Kun Hee founded Daewoo and was said to have recruited not only his children but also his schoolmates. Upon the death of Koo In Hwoi, founder of Lucky Goldstar, his son automatically took over.

There are many books and studies that have been written about the rise and fall of family businesses. The public impression is that family businesses will eventually become extinct or, at least, will be limited to small entrepreneurial ventures. This is very far from the reality in the business world.

Family business continues, and will continue, to be the most dominant form of business organization in the Philippines, in Asia, and surprisingly in the Western world increasingly. There is also evidence that family businesses can be professionalized and become globally competitive while remaining a family business.

In fact, in times of economic downturns family businesses have proven to be more resilient and capable of surviving volatile environments. One reason is that families are not motivated by profit alone like professional managers. Many families will sacrifice profits because they view their family business as a legacy they have inherited and something they would want to pass on to the next generation.

The Economist magazine recently said that “companies controlled by founding families remain surprisingly important and look set to stay so.” Around 85% of $1 billion plus businesses in Southeast Asia are family run, around 75% in Latin America; 67% in India, and around 65% in the Middle East. China, with about 40%, and Sub Saharan Africa, with 35%, stand out for their relatively low share of family businesses because in both cases most large firms are state owned.

In the West, families still dominate in firms like Walmart, Mars, McGraw Hill, Ford, Banco Santander, Fiat and Fox-NewsCorp. In technology firms, Facebook is controlled by Zuckerberg and Google by the Page and Brin families.

For the Philippines to have rapid economic growth in the future, the Filipino family businesses must eventually become the primary engine of growth. This will require professionalizing family business management and reconciling the family’s needs and desires with the demands of running a successful, innovative, globally competitive business. It can be done.

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