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Introduction

The remarkable economic performance, and the subsequent meltdown,

of the East Asian region have provoked debates among social scientists.One key area of contention is whether there is a particular form of capi-talism to account for the East Asian phenomenon. Most of the studiesconducted have focused on either national industrial policies and marketforces or a broad cultural explanatory view, such as recourse to Confu-cianism or Asian values. Economists, for example, have tried to explainthe success of these economies by pointing to good government policies,consistently implemented in an environment of political stability.However, as Clegg et al. (1986: 12) pointed out, ‘it is a statement of economic growth rather than an explanation’. Sociologists have delvedinto cultural elements, especially the post-Confucian hypothesis, to expli-cate economic success (Kahn, 1979; Berger, 1987; Clegg et al., 1990; Clegg,1990; Redding, 1990). However, as Hamilton and Biggart (1986: 23)correctly criticized, the post-Confucian explanation is not very useful

because ‘it is a broadly-based underlying cognitive factor’ which ‘feedsthe society in general and for that reason explains nothing in particular’.Mackie (2000) calls it ‘the essentialist fallacy’.

Scholars have also taken up the study of the signicance of Asian business networks (Hamilton, 1996; Low, 2000). Some of these havefocused on mainly one or two factors to account for business success, suchas the emphasis on the importance of guanxi (Redding, 1990; Clegg, 1990).What most of all these studies have in common, which I see as a sourceof the problem of understanding Chinese business, is that they were alltrying to explain success. They fail to analyse the ‘dark side’ of family

business and ethnicity, that guanxi may be dysfunctional, or that there arelimitations to business networks.

This article seeks to look at not only the effectiveness of businessnetworks in the expansion of Asian businesses but, just as importantly,the drawbacks of Asian business networking, which is an area that has

been largely unexplored. Some of the questions the article sets out toanswer include: Are there issues of conict and inheritance that areexclusive to Chinese family business? If yes, what are they and why arethese issues unique to Chinese family business? Is there a particular wayin which these issues are handled? An analysis of the ip side of Chinesefamily business, that is, failure rather than success, I feel, will provide amore comprehensive picture and understanding of the nature and insti-tutional foundations of Chinese business.

There is a popular Chinese adage: ‘The rst generation lays thefoundation for a thriving business; the second builds on it, and the thirdsquanders it.’ This adage highlights the enduring problem of succession

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in Chinese family businesses. The central argument of this article is thatthe very nature and make-up of a Chinese family rm – its centrality of decision-making; personalism and paternalism; and the emphasis on

guanxi relations – valuing the informal over the formal, result in conictsand disputes within the rm. These internal factors, which are seen as theessential social foundations of Chinese family businesses, are the verysame factors that create problems of succession and inheritance – andoften the eventual dissolution of the family business – if they are notresolved. In the article, these internal factors are examined from bothstructural and processual points of view. In terms of the structuralfeatures, the article seeks to analyse the organizational and managementprinciples of the family rm. The processual aspects will include featuressuch as social relationships and the nature of the social conicts amongfamily members in the rm.

Just as the strong family bond in Chinese society enables the develop-ment of successful family business enterprises, it is also the source of conicts, especially after the death of the founding patriarch. However,much of what has been written on Chinese family rms has emphasizedthe advantages of a strong family unit in Chinese business (Redding, 1990;Weidenbaum and Hughes, 1996; Butler et al., 2000). As such, there is adearth in the current literature on how Chinese family businesses manageconicts and issues of inheritance. 1 This may be partly attributable to thefact that the Chinese tend not to disclose conicts publicly as it is regardedas a loss of face. This article attempts to ll in some of the gaps in thecurrent literature and argues that the study of conicts can reveal a greatdeal about the organizational foundations of Chinese family rms.

Methodology/Data CollectionThe study was conducted using face-to-face interviews with an unstruc-tured questionnaire. Interviews were carried out with 96 managers, direc-tors and owners of Chinese family rms. These were carried out inEnglish, Mandarin and several Chinese dialects. In total, 43 Chinesefamily rms, varying in the size and age of the rm, formed the basis of this study. Most of the informants were obtained through personalrecommendations. Subsequent interviews were snowballed from initialcontacts. It should be noted here that given the often secretive nature of Chinese business people, personal recommendations were an importantsource of interviews and paved the way for access to informants. Theinterviews lasted from one to several hours each. Several informants were

interviewed more than once to obtain more details and to verify certainfacts. When new areas emerged in the course of data collection, relevantinformants were reinterviewed for information.

Tong Feuds and Legacies

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Fieldtrips were conducted in Malaysia to gather additional data forcomparative purposes. This was important as many companies hadsubsidiaries in Malaysia. In drawing up the sample for the case studies,

special care was taken to ensure a fair representation of Chinese busi-nesses. Key variables that were considered included the size of the rm,and these ranged from small businesses with a few employees to largeconglomerates with multinational linkages; age of the rms, includingnewly formed companies; rms which have been in existence for anumber of years; as well as those which are in the process of liquidation.In addition, I thought that it was important to select businesses from arange of industries, including those in the service sector, such as banksand nancial rms, and in manufacturing, construction and textiles.

In this article, three case studies, CB Bank, Kong Construction and YeoHiap Seng, are discussed in some detail to illustrate the processes and keyarguments. Data and ndings from the other family businesses inter-viewed are used throughout the analysis. Secondary sources of datasupplemented the primary face-to-face interviews. Available interviewtranscripts conducted by the Oral History Unit and published biographiesprovided more details on the family rms. An important source of datawas the Registry of Companies and Businesses (ROCB), which provided

background information on the companies, as well as a record of boardsof directors and subsidiaries of companies.

Organizational Dynamics and InstitutionalFoundations of Chinese Family Firms

Before we proceed, it would be useful to list in detail what the key featuresof Chinese family rms are. Chinese family rms are generally charac-terized by three features: personalism, paternalism and centralized auth-ority structures. The Chinese have a tendency to incorporate personalrelationships in decision-making (see Tong, 1996; Hamilton and Kao, 1987;Wong, 1985). Business relationships tend to be highly personalized, builton personal trust, and with personal control of the business enterprise.The head of the household, who is also often the ‘boss’ of the business,makes all the decisions. Termed as paternalism, decision-making is thushighly centralized with a minimal degree of delegation of authority andresponsibility. Moreover, because the business is also considered a familyactivity, the authority of the Chinese father extends beyond the familyunit and into the business (Tong, 1996; Redding and Wong, 1986).

In economic and business transactions among the Chinese, there is an

emphasis on guanxi relations (see Fan, 2002; Lin, 2001; Luo, 2000). Guanxirefers to interpersonal relationships which are seen to be crucial for facili-tating smooth business transactions (Yang, 2002; Tong and Yong, 1998;


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Jacobs, 1979). Positions of trust are given to close relatives, and jobs thatrequire the handling of money are assigned to close kin (Tong, 1996;Hofstede, 1980). Ownership of the business is effectively passed on to

family members, thus restricting the entry of outsiders into the innercircle. In addition, interpersonal trustworthiness ( xinyong) is of utmostimportance, and Chinese business people usually prefer to deal with thosewhom they are familiar with. Chinese business people are of the viewthat interpersonal trust minimizes fraud. In addition, it ensures certaintyand order. These same values that the Chinese hold true in their business– personalism, paternalism and centralized authority structure – containthe seeds for the conict and inheritance problems that also characterizemany Chinese businesses.

The Interlinkage between Businessand the Family

Many of the conicts that arise in a Chinese business stem from the closeinterlinkage between the business and the family (Ward, 1987; Cohn,1990). One informant, the owner of a family rm specializing in textiles,summed up the problem as follows:

Among friends, all these problems can happen too, but it hurts more in a family.

Disputes in the family are messy, more personal, and more complicated.Because you are a family, you know one another so well, mistakes that eachother have committed in the past, so in a quarrel, all these things are broughtup. The wounds caused are more deeply felt.

This is due, in part, to the lack of formality in Chinese family rms. Theydo not operate on explicit rules, because family members are employeeswho manage the rm through the personal control of the proprietor. Thislack of formality causes problems in management. As one informant, whofounded a family-run engineering company, noted:

Sometimes you scold them a little, but how often can you scold them? Withoutsiders, it is easier. If they do not do well, you can scold them, re them.With [your] own people, scold[ing] too much [is] not nice. When I pressed on[chastizing the family employee], he got offended and was displeased that Idid not trust him. He did not like being asked too many questions. What couldI do? I did not want to break up our relationship.

In addition to the lack of formality, there is also the problem of thedistribution of ownership and control. The Chinese, for cultural reasons,

often avoid the subject of death (see Yang, 1994). As such, many Chineseoften fail to leave a will upon death. A case study of the Chong family,owners of the Commercial Business Bank (CBB) provides a good example


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of how the inherent structure of Chinese rms, through power that isconcentrated on a single person, leads to the likelihood of the disinte-gration of the family rm upon his death.

The Chong family business began in the 1930s when T. C. Chong starteda granite quarry and a building construction company. In 1954, he estab-lished CBB. When T. C. Chong decided to distribute his family wealth,he wanted to ensure that the bulk of the inheritance would be passed onto his eldest son (see Figure 1). Thus, P. A. and his family were given themore valuable assets, such as the sawmill and the construction and

building companies, which, at the time, were more valuable than CBBshares. The younger siblings were given larger proportions of ST Realtyshares, the family investment company. This company operated a numberof subsidiaries, and it is through this company that the family controlledthe CB Bank. The way the shares were distributed among the descen-dants, however, set the scene for an eventual struggle among siblings forthe control of the boardroom.

As Singapore’s nancial centre became more developed, the bank’sshares became more valuable. When CBB was listed in 1978, the value of the stockholdings soared. In the process, the sons of the second and thirdwives, who together owned more than 50 percent of ST Realty shares,gained effective control of CBB. In 1974, T. C. Chong passed the chair-manship of CBB to P. A. This resulted in a situation where P. A. attainedpower in the bank, but was not on the board of ST Realty, which effectivelyowned the bank. This led to the unusual circumstance in which the share-holders of the bank, effectively the children of the second and third wives,


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Figure 1 The Chong Family

T. C. Chong

Second Wife

P. E. P. F. P. G. P. H. P. L.

First Wife

P. A.P. B.

Third Wife

P. M. P. N. P. R.




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were able to decide on the sale of the bank without the knowledge of thechairman and its executive directors, who were children of the rst wife.

In 1985, a family feud broke out into the open when P. M. and P. N.

(sons of the third wife) were nominated by ST Realty to compete for seatson the board of CBB. At the same time, P. A. announced the board’srecommendation to remove P. H. (son of the second wife) as a directorfor infringing the Central Provident Fund (CPF) Act. The timing of thisrecommendation intensied the family feud. The ST board retaliated bydemanding the replacement of the bank’s executive director, P. B. (son of the rst wife), by P. M., and the appointment of P. N. as bank director.Their inclusion would have, in the process, seriously threatened theposition of P. A.

When this move failed, the sons of the second and third wivesproceeded to unload S$4.3 million worth of CBB shares onto the market.The persistent selling of CBB shares reduced ST Realty’s direct andindirect interest in the bank to 41.13 percent. The disintegration of the bank was hastened by negotiations by P. A.’s brothers to sell their remain-ing stake in CBB to UB Bank. As P. A. held only 12 percent of CBB shares,he was not in a position to resist the UB Bank bid. By October 1987, thetakeover was completed, and CBB became a subsidiary of UB Bank.

Interviews with sources that were close to the family revealed that allthe major companies of the family have gone into liquidation. One inform-ant commented:

The family was too big, too complex. When you have a big family, it is verydifcult. After T. C. Chong died, there was no leader in the family. There wasno single controlling shareholder, so it was very difcult, especially wheneveryone wants to be the leader. So it is better to liquidate and let each go theirown way.

This case shows that a Chinese family business is often held together by the dominant control of one person. Personal power over the family,supported by economic power in terms of large shareholdings, as well aspolitical power as chair of the board of directors, cements the entire family business network. When there is a failure to transfer the leadershipsmoothly, especially in ensuring that the chosen successor has theresources to maintain control of the company, it will portend the disinte-gration of the business grouping. As one director of CBB noted:

When you have many sons in the company, one person must lead. One personmust have the most say. He must have more powers in terms of shares. Hemust have control so that when conicts and jealousies emerge, he is strongenough to make decisions and avoid polarization.

In the case of CBB, the leadership succession, especially given the manywives, brothers and half-brothers, was not sufciently centralized. The


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successor, P. A., did not have adequate economic or personal power to bring the family business through to the next generation. As such, theonly way to resolve the family conict was to liquidate the business and

divide the family wealth that had been built up by T. C. Chong.

Authority Structures and Sibling DisputesBecause of the paternalistic nature of Chinese family rms, the father, asthe head of the business as well as the family, assumes leadership. It leadsto a structure that is highly centralized and where communication is basedon a top-down approach. Dependence on the leader is encouraged andcooperation depends on an authoritarian leader (Bond and Hwang, 1986).

This paternalistic tendency creates personalistic relations that are basedon the ow of centralized authority and control. In particular, recruitmentof personnel into the business, especially in strategic positions, is mainlyreserved for trusted family members. It should be noted that the insti-tutionalization of authority and trust of family members has a ‘taken-for-granted’ quality. It is ‘the way things are’, and ‘the way things are done’(Zucker, 1983). Moreover, there is a lack of structure in the organizationwith a degree of structural uidity. As one informant, a manager in afamily-owned manufacturing company, noted:

There are no xed rules and regulations regarding sick leave, annual leave,terms of employment, etc. Lower level staff, such as clerks, applies to thepersonnel manager who grants or deny requests according to what he feels.Upper level staff speak to the chairman directly. There are no guidelines forsalary increments. Many things are just left to the chairman’s discretion.

In a sense, the whole organization depends largely on the founder.When he retires or passes away, the succeeding generation does not enjoythe authority and legitimacy of the founder. The founder can get awaywith an autocratic style of management because he derives his authorityrst as the founder member and second, as head of the household whocontrols the majority of the company’s shares. His successors, however,do not enjoy the same unquestioned authority. Often, these disputes arise

because it is a competition among equals.This example of internal conicts within the company, arising out of

disputes among siblings, is clearly illustrated in the case of the Kongfamily business, which was, at one time, one of the largest constructioncompanies in Singapore. The founder, K. Y. was born in Kwangtung,China, and at the age of 16, came to Malaya to work as a carpenter and

clerk. After saving up some money, he, in partnership with a friend,started a company called Chop KW, which focused on house repairs andsmall building contracts. In 1923, the chief engineer of the Public Works


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Department (PWD) in Seremban asked K. Y. to tender for a small job. Ashis quotation was attractive and his work excellent, the PWD director wasvery pleased and, subsequently, most of the contracts for construction

work by the Seremban government were awarded to K. Y. K. Y.’s luckcontinued to hold when, in 1926, the PWD director was promoted tocolonial secretary of the Straits Settlements. Having shifted to Singapore,he persuaded K. Y. to expand his business to Singapore. K. Y. borrowedsome money and with his savings from the Seremban ofce, moved toSingapore to set up KWY Company, with a staff strength of ve to sevenpeople and a paid up capital of S$3000–4000.

K. Y. was not a qualied engineer, and although his business was doingwell, he kept to smaller and simpler projects – those that he was familiarwith. When K. Y. was asked to bid for a large pier-building project, hisrst inclination was to say ‘no’. After persuasion by the PWD director, heagreed, and hired three former PWD engineers to join the rm, with thepromise of a better salary and subsequent shares in the company. Thus in1940, KWY became a limited company, with about 40–50 staff. K. Y. becamechairman of the new company and the staff he recruited from PWD wereoffered directorships in the company. His cousin, who was the book-keeperin the previous company, was appointed the managing director, while theaccounting was managed by his brother-in-law, C. Y. According to aninformant, even though outsiders were invited to join the company, theywere not involved in nancial matters: ‘Chinese never trust outsiders withmoney. Our own people are always entrusted with that.’ He elaborated:

When it was a sole proprietorship, K. Y. made all the major decisions. Whenit became KWY, as a limited company, there was a board of directors, but onlyin name. In actuality, K. Y. made most of the decisions himself, especially oninvestments, borrowing from banks, dealing with suppliers and so on. Thus,the directors were more like executives than directors.

By 1949, K. Y.’s two eldest sons, M. A. and M. B. had completed their

secondary education and were initiated into the rm as directors andgiven shares in the company. As one of them noted:

My father always intended for us to continue the business. When I was young,I used to follow him around the worksite. In the beginning, it was necessaryto include outsiders because my father had few kin and he lacks the experi-ence to tackle correspondence in English to handle the technical aspects of therm. But now that we are old enough, we can help out. My father intends toset up afliated companies for each son to take charge of. He dreamt of buildinghis own empire, but he died suddenly.

In 1950, K. Y. passed away. Since he left no will, his entire estate was bequeathed to his rst wife. Mrs K. Y. distributed what was given to herto all the children, including those of secondary wives, but kept the shares


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in the rm for her own sons (daughters were not included). During the1950s, three of the directors who were non-kin retired and their shareswere sold to Mrs K. Y., who gave them to her third, fourth and sixth sons

(the fth son had passed away). Thus, while the rm had started out asa partnership between K. Y. and friends, it had now become a family-owned rm, with all the seats on the board of directors occupied by familymembers.

Not long after, external auditors discovered that funds were beingmisused by the chairman, K. C. The board decided against pressing legalcharges as, after all, K. C. was a relative. However, K. C. ‘voluntarily’resigned and surrendered his shares to repay the misappropriated money.With K. C. out of the rm, Mrs K. Y. took over the chairmanship of therm, and made her second son, M. B., managing director. In 1962, MrsK. Y. passed away, and M. B. took over the chairmanship of the company.According to an informant, that was when the problems started.

M. B. appointed his wife to sit on the board of directors. In addition,M. B.’s son, Y. A., was also given shares and a directorship position. Thus,the voting power of M. B. became even stronger. This caused a lot of unhappiness, especially since M. B. led the company in an autocraticmanner. As one of the other sons indicated:

In name, the board made the decisions. Actually the chairman, my second brother, made all the decisions. In the beginning, we had some sort of votingsystem. Gradually he just decided on things without consulting us or eveninforming us. When P. A. [wife] and Y. A. [son] came in, it became worse. He just made us sign contracts. The three of them practically owned the rm. Asa result, many disputes erupted.

Another informant recounted:The main decision-makers were M. B. and M. C. The dispute revolves aroundthem. One wants to liquidate while another wants to hold on. They could notcome to any agreement. And as no one is the majority shareholder, they all tryto force their will. But it was not about policy or business decisions. It wasabout one side of the family trying to gain control of the rm.

He then blurted out: ‘It is the wives that play a more important role thanthe brothers. They are the cause of the strains in the relationship.’

Things came to a head, and according to the informant, M. C. becamereally fed up. He decided to sell all his shares in the company and wantedto start his own business. The two youngest brothers also decided to selltheir shares so as to also branch out. Only the sixth son, M. F., decided tostay with the company:

M. B. and P. A. made a lot of noise. They were very angry. They didn’t haveenough money to buy out the shares of the younger brothers. As such, thestability of the rm was greatly threatened.


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Another interviewee, with a sense of resignation, noted:

You know, the company was started by my father. It will go to the dogs if thedispute is not settled. When a family breaks, it can’t get together again as

before. There is always a vacuum.Negotiations went on for over two years. Finally, an outsider but trusted

friend of the founder of the company was asked to mediate. It was decidedthat another family company, PT Development Ltd, would be sold to thepublic (a nance company bought it over) in order to raise sufcient fundsto buy out the younger brothers. According to the informant:

It was such a waste. We had to sell PT to save KWY. PT is worth much morethan KWY. But to resolve the conict, we had to sell PT. In my father’s time,KWY was one of the biggest construction companies around. Now, it is justanother construction company.

In Chinese family rms, there is often a lack of documentation regard-ing inheritance and succession issues. This often results in feuds amongsiblings upon the death of the head of the family, especially in cases wherethe deceased had many wives. Moreover, a Chinese rm is often started by a strong entrepreneurial founder with a particular management style.The very succession principles in Chinese society, where inheritance isdivided among sons, often result in a situation where the new chair of the

rm does not get a controlling share or block votes in the business, unlikethe original founder. This is clearly exemplied in the case of KWY. Struc-turally, the successor is invested with the position, but not the power. Thisoften leads to disputes in the running of the rm, and the new chair doesnot have the clout or the legitimacy to overrule these disputes. Further-more, the management or policy disputes that are related to the rm arereinforced by sibling rivalries and jealousies that may have started fromchildhood, or are related to familial rather than business matters. Theseconated problems have very little differentiation between familial and business matters, and end up exacerbating the conicts. In the end, whenthere is no agreement or if the differences are so severe, it often results inthe dissolution of the business, where each son takes his share of the money.

Role of Wives, Secondary Wives andDaughters-in-Law

As can be seen from the previous case studies, the centripetal tendencyof focusing power and control on a single person often results in a vacuum

upon his death. This is exacerbated by the predilection of wealthy Chinese businessmen who have many wives (Chung, 2002). This creates a situationwhere different interest groups, wives, brothers, half-brothers and other


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so-called relatives, compete for power and control of the family rm.Failure to deal with these problems often results in the breakup of therm that the founder had spent years building up. It would seem that

wives play a signicant role in conict and inheritance issues. Chinesesociety is polygynous, and it is not uncommon for successful and wealthyChinese businessmen to have several wives. While this practice is

becoming less common in Singapore today, many Chinese family rmsin Singapore still have to confront this problem. For example, in the casestudy discussed earlier, T. C. Chong had three wives, 10 sons and ninedaughters. Wives would compete for power and resources through theirhusbands and sons. As one informant puts it,

The Chinese have a saying, ‘you le xi fu, mei le hai’ (when you gain a daughter-

in-law, you lose your son). It all depends on the wives. I think we women arepettier than men. I think wives play a very large part. It is always the wiveswho tell their husbands, ‘You should get more’. Maybe he has never thoughtabout it, was contented. But the wife comes in and says this and that. Wivesare outsiders but they play an important part in the family and business. Theyare the ones that instigate. This is especially true when there are many familyunits. They would compete with other family units in the extended family.

It should be noted here that second and third wives are commonlyconsidered inferior to the primary wife in the formal family structure,which makes their position less stable. The key to strengthening theirposition is to produce sons. Informally, there is erce competition betweenthe different family units for control. Often, different groups will createalliances to protect their positions. Bourdieu (1977: 39) points out thatalthough people are genealogically closely related, proximity does notguarantee unicatory efcacy. In fact, the closest genealogical relation-ship, that between brothers, is also the point of greatest contention. Inshort, genealogical relationship is not strong enough on its own toreinforce and unite the relationships between relatives and kindred, andit has such predictive value only when it is combined with shared inter-ests that are produced by the common possession of a material andsymbolic patrimony. As such, the family becomes fertile ground forcompetition and conict. Since the business is regarded as a family enter-prise, these familial differences spill over into the business arena. Whenthe founder and head of the family is still around, these conicts seldomlead to the fragmentation or dissolution of the business. He is the forcethat holds the network together. Once he passes away, things fall apart.Sometimes, these differences are so severe that they get dragged intocourt, as the following case study of the Yeo Hiap Seng family business

shows. More often than not, however, the conicts are resolved intern-ally, as there is a belief among the Chinese that there is a loss of face if the matter becomes public.


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The Yeo Hiap Seng Group began as a small shop selling soy sauce, setup by Yeo Keng Lian in Zhang Zhou, China, in 1900. In 1935, the eldestson, Yeo Thian In migrated to Singapore and opened their rst soy sauce

factory. Two other sons migrated with their families soon after, and bythe 1950s all ve sons, Tian Hwa, Thian In, Thian Soo, Thian Kiew andThian Seng were based in Singapore.

In 1951, the factory moved to Bukit Timah Road. This period also sawthe rapid development of the family business, not only in the productionand sale of soy sauce, but the expansion into canning operations thatincluded the popular Yeo’s ‘curry chicken’ as well as the bottling of thefamous ‘Yeo’s soy bean drink’. In addition, the family business grew toencompass the development and production of many consumableproducts. In 1955, the business was incorporated into Yeo Hiap SengCanning and Sauce Factory Ltd. The next stage saw the internationaliza-tion of the business, with the setting up of a branch in Malaysia in 1959,and a Hong Kong ofce in 1962. In 1969, Yeo Hiap Seng became a publiclylisted company, and was traded on both the Singapore and Malaysia stockexchanges. In addition, a holding company, Yeo Hiap Seng Holdings PteLtd was set up. This company, where all shareholders were familymembers, owned shares in all the publicly listed companies of the family(see Figure 2). There was a process of diversication beyond food anddrinks to property holdings and development, prawn and musselfarming, and trading. Business continued to grow, especially when YeoHiap Seng managed, in 1970, to secure the very protable franchises forpacking and distributing American soft drinks such as Pepsi, 7Up,Schweppes and Gatorade. At its peak, Yeo Hiap Seng employed nearly4000 staff and had ofces all around the world, including the US, London,Canada, Indonesia and Mauritius; exporting its products to over 35 coun-tries that included Europe and the Middle East.

All along, the company was run by Yeo Thian In, who was chairmanof the holding company as well as Yeo Hiap Seng Pte Ltd. The four other brothers and their children were on the board of the holding companyand held managerial positions in the family business. Mr Yeo Thian Indied in 1985, and the reins of the family business were passed on to thethird generation. Alan Yeo, the third son of Yeo Thian In, assumed leader-ship of the family business. In 1988, Alan Yeo won the Businessman of the Year award, and was appointed chair of the Trade Development Board,which was a statutory agency of the Singapore government. This addedto his personal stature, but, to some extent, it also caused resentmentamong the other Yeo family members.

However, it was Alan Yeo’s decision to invest in Chun King, a NorthAmerican food canning company, that brought the familial disputes to ahead. In 1989, Yeo Hiap Seng invested a hefty US$26 million for a half


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share of Chun King. It turned out to be a bad investment because in 1991,for example, Chun King suffered an annual loss of US$13.4 million. Theother family members blamed Alan Yeo for leading Yeo Hiap Seng into

such a bad investment. In addition, they were also dissatised with hismanagement style. In fact, disagreements had reached a point where AlanYeo admitted publicly that there was no longer any common groundamong the six different families of the Yeo clan (see Figure 3).

Charles Yeo (Alan’s nephew) and his supporters in the family felt thatAlan Yeo was holding the reins too tightly and they wanted a bigger sayin the running of the company. Another problem, according to Alan Yeo,was his inability to nd a suitable successor. He claimed to have tried togroom Charles Yeo. However, other family members felt that he showedfavouritism to his son, Timothy, who moved rapidly through the ranks inthe company, thus causing dissatisfaction from other branches of the Yeoclan. As one informant puts it, ‘Father and son think they rule the wholecompany.’

The family feud broke out into the open in March 1994. One faction,said to be led by Charles Yeo – the company secretary and Alan’s nephew– together with Michael and Benjamin Yeo (children of Thian Kiew, whowere also Alan’s cousins) and Thian Seng (Alan Yeo’s uncle), called foran extraordinary general meeting (EGM) and proposed to elect four newmembers to the board. A few days later, Wing Tai Holdings, a propertyand textile group, made a surprise bid to take over Yeo Hiap Seng. It lateremerged that it was Alan Yeo who had encouraged the Wing Tai takeover because he refused to sell his shares to the other family members whohad sought to remove him as chair of Yeo Hiap Seng.

If the matter had been put to a vote, Alan Yeo would have been removedas the faction led by Charles Yeo controlled 53 percent of the shares in theholding company. In any case, because of Charles Yeo’s faction’s control-ling shares, the bid by Wing Tai was foiled. In the meantime, while all theinternal squabbling continued, several other external companies becameinterested in a takeover of the family business. Ng Teng Fong, a propertymagnate, began buying shares and acquired 11 percent of the shares inYeo Hiap Seng. However, any takeover bid would have failed as themajority of Yeo Hiap Seng shares were held in the Yeo holding company,which only comprised Yeo family members. However, despite the familydispute, and the rival faction’s attempts to remove Alan Yeo as the chairof the company, a twist in the Yeo saga occurred when Alan Yeo peti-tioned the High Court in Singapore to dissolve the Yeo holding company.Alan Yeo felt that since the family could no longer cooperate on business

matters, there was no longer any basis to maintain the holding company.In the end, the High Court ruled that Yeo Hiap Seng Holdings should be dissolved and Alan Yeo was to become a non-executive chair of Yeo


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Hiap Seng Pte Ltd, while Charles and Henry Yeo were asked to leave the board altogether. However, Alan Yeo announced his retirement from YeoHiap Seng and sold all his direct shares in the business. This allowed Ng

Teng Fong to increase his shares in Yeo Hiap Seng, and eventually to takeover the company. Today, Yeo Hiap Seng forms the food and beveragearm of Ng Teng Fong’s Orchard Parade Hotel Group. What had been asuccessful family business that had been built up over two generationshad, because of familial conicts, ended up being taken over and managed by non-family members.

Succession Problems and GenerationalDifferences

At the other extreme, instead of having many wives and children ghtingover the inheritance of a family-owned business, the major problem faced by family rms is the lack of offspring to continue the business. Accord-ing to informants, many Chinese family rms have folded because of succession problems. As one informant, who managed a ship repaircompany, noted:

Many Chinese businessmen, like my father, are self-made, came up fromnothing. When the children are not interested, as it is a family business, they

will not bring in other people to run the business. They might try to sell thecompany, but . . . They will not take in other people to run the business withhim. They would rather close the business.

One young informant, working with his father, commented on thegeneral attitude of the younger generation:

If the business is viable, people from my generation will come in andcontinue. . . . But many are already professionals in other elds. For example,doctors, engineers, teachers, journalists . . . they are not likely to be interested.

This generational gap – in terms of how the older generation deal withthe family business and their children, many of whom were sent overseasfor an education – often results in conicts in terms of management prac-tices within the company. It is not simply the difference in managementprinciples that may result in conicts between the different generations.One key problem is that the working relationship between the father andthe son is not merely economic, but an emotional one. Differences inopinions are often complicated by personal differences. Given that familyrelationships are already fraught with problems, these are carried over

into business dealings. As one elderly manager of a construction andtrading company commented:


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The younger generations have their own thinking. With further education,there is even less chance of them coming back into the family business. Thisis the problem with Chinese companies now. The children, after studyingabroad, their way of thinking is different.

Many informants also mentioned the difculties in identifying ortraining a successor to take over the business. There are several reasonsfor this. First, because of the desire to keep the rm within the family, thenumber of people who can succeed the founder is limited. This isespecially true in present-day Singapore because the institutionalizationof monogamy and family planning policies has ensured that families arenaturally smaller. Moreover, many successful families tend to send theirchildren for an overseas education, often to be trained in professions suchas medicine or engineering. Upon their return to Singapore, many takeup jobs in sectors that are often unrelated to the family business. Inaddition, many talented staff who are outsiders are often not given keyappointments.

While it is possible for non-family members to end up as potentialsuccessors, it is not considered desirable. Even in cases where the appoint-ment of an outsider is made, it does not affect the ownership of the rm

because although he or she may be given shares within the rm, owner-ship is usually retained by family members. Thus, non-family membersdo not see an opportunity to advance in the rm as the top jobs are gener-ally reserved for family members. Most of them leave the rm or set uptheir own businesses. As such, the pool of talent for succession in family-owned businesses is often very limited. Fukuyama (1995) posits that partof the problem is the inability of Chinese businesses to make the tran-sition from entrepreneurial control to professional management, a prere-quisite step for a rm to establish itself beyond one or two generations.While true to some extent, in the interviews, I found several companiesthat had in fact hired professional managers, but still fragmented becauseof conicts and inheritance problems. The issue, in my view, is notwhether professional managers were hired, but rather of ownership andcontrol. Even with professional managers, the ownership of the rm stillrests within the family, which, as the article argues, is the source of theproblems.

Some deal with the problem of succession by grooming younger brothers or nephews to take over the business. There is little evidence thatsuccessors are non-kin. Marrying off daughters to capable employees isanother alternative, although this is not widely practised today. A thirdoption would be to groom capable employees who have proven their

loyalty over the years to act as regents, so that when sons are ready totake over the reins of the company, the regents are expected to step down.In the course of my eldwork, several such cases were encountered.


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However, being non-kin, the loyalty and xinyong of such a person areoften held in suspicion. Thus, even though where a close guanxi exists aperson may be trusted sufciently to be given positions of responsibility,

there is still quite a high degree of distrust and insecurity as far as one’sown (or family) interests are concerned. Informants mentioned the manydangers of trusting outsiders. Since Chinese business people place theirfamily interests rst, they believe that their employees will also givepriority to the interests of their own respective families. There is a fearthat employees may steal the contacts for their own businesses. Thisdistrust of non-kin creates a problem that is particular to Chinese busi-nesses, that of centripetal tendencies and the ssion of the company. Thisis discussed in the next section.

Centripetal Tendencies and Fission inChinese Business

The strong overlap that comes with the ownership and management of Chinese businesses facilitates the paternalistic style in the control of rms.This characteristic style of authority in Chinese management has beendocumented by several studies (Hofstede, 1980; Hwang, 1983; Redding,1990; Redding and Wong, 1986). Redding and Wong, for example, suggestthat the leader ‘holds information, and thus power, and doles it out insmall pieces to subordinates, who thus remain more or less dependent’(Redding and Wong, 1986: 278). Moreover, there is a lack of delegation of authority. As one informant noted, ‘For every decision, we have to go back to the boss. Sometimes even the approval of $200 to buy somethinghas to go all the way up to the chairman.’ The authority of the boss largelyhinges on the fact that he is the owner of the rm. Thus, the strong over-lapping of ownership and management in turn facilitates the authori-tarian style of management and in particular, it propagates personalism.As one director of a nance company remarked of his chairman:

After all, the company is his. So there is no need for board meetings. No suchthing as voting. He and his family own more than 70 percent of the shares. Healone is the majority. If he wants to promote his son, he can. No need to askthe board. We only meet when he wants to tell us things, or to get informationfrom us.

This personal and highly centralized authorial structure creates aproblem in the rm when it comes to succession and inheritance. I suggestthat it leads to a developmental pattern that has centripetal tendencies

and the eventual ssioning of the company (see Tam, 1990). Since the toppositions in the business are reserved for family members, the career pathfor non-kin employees will always be blocked. As one informant remarked,


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‘If you are a non-family member, the highest you can go is the secondman, never the top.’ As key positions are ultimately reserved for familymembers only, capable and ambitious employees nd it more attractive

to set up their own businesses. This thus creates a problem for the familyrm as many of these employees, after they have learnt the trade, will become business competitors. It increasingly forces the boss to reduce hisknowledge-sharing tendencies with his subordinates, and to tighten hiscontrol over the rm. This further exacerbates the fragmentation of therm. Informants suggested that one way to deal with the new competitionarising from newly ssioned companies is for the boss to enter into somekind of business cooperation with his ex-employees. In fact, the extent towhich pain is inicted on the rm by the breakaway companies is partiallydependent on its ability to integrate them into its orbit.

Contrary to popular belief many, if not most, Chinese family rms didnot start out as family businesses (Chan, 1992; Redding, 2000). More oftenthan not, and partly because of the lack of capital, they began as partner-ships with friends, co-workers, or with people with guanxi relations.However, there is always the desire to convert them into family rms.Generally, over time, family members will buy out the shares of non-family members. In this sense, Chinese family businesses are familyoriented – entrepreneurs work towards the establishment of family owner-ship, and eventually, they aim to keep succession within the family, thusretaining ultimate control of the business. This family-orientednesscharacterizes the fabric of the development of Chinese rms, and it allowsthe family to retain complete control of the rm.

The nepotistic nature of Chinese businesses facilitates the ssion of the business. However, it should be noted that the Chinese themselves arewary of these nepotistic tendencies. For example, one informant talkedabout trusting one’s own people more, but also lamented that he had tokeep his kin employed in the family business, ‘even though he [a relative]had made a mistake that cost us [the company] $700,000. What did wedo? Nothing. We still employ him. I quote this as our managementattitude.’ Another informant pointed to the burden of social obligations:

Of course you trust your own people more. But it is difcult to correct yourown people when they do not perform well. You can tell them once or twice.But too many times, it is not so nice. It makes it very difcult. You may wantthem to leave, but it is difcult to re your own people.

Hence, the eldwork suggests that there is a great deal of ambivalencetowards kin. On the one hand, there is a belief that guanxi relations areimportant and there is a desire to trust close kin. On the other hand, obli-gations towards kin will inevitably cause burdens in the smooth func-tioning of the rm.


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Conclusion

Most studies on Chinese businesses have focused on the success ratherthan the failure of the rm (Haley et al., 1998; East Asia Analytical Unit,1995). This article, however, has aimed to analyse the failure of Chinese business practices. In a sense, it looks at the ‘dark side’ or dysfunctionsof Chinese business practices. The article has sought to identify issues of conict and conict management, and succession and inheritance inChinese businesses, thus suggesting that internal rather than externalfactors are largely responsible for the failure of Chinese family rms.There are, of course, external factors that inuence the success or failureof Chinese family rms. Changes in the political and socioeconomicenvironments of Asian countries have challenged many traditional prac-tices and methods of doing business within the Asian context. The increas-ing permeation of legal rationalism that accompanies the rise of thenation-state has led to increasing emphases in the market on issues suchas meritocracy, professionalism and credentialism. This is particularly trueif the Chinese rm is publicly listed, and there are increasing demandsfor greater accountability and the need to justify decisions to the boardand its shareholders. In addition, there are mandatory requirements bythe state regarding reporting and accounting procedures. In an increas-ingly globalized environment, and the need to do business with multi-

national corporations, more demands are placed on formal relationships.Chinese rms that are resistant to change will face increasing competitionand problems in this new globalized environment.

Many Chinese businesses are undergoing changes. This is especiallytrue of the younger generation of Chinese entrepreneurs. But in manyChinese family rms, changes have been gradual and incremental, ratherthan revolutionary. And it has not included the wholesale adoption of ‘market’ practices or western models of management. Changes can onlyoccur when the taken-for-granted assumptions are challenged. For

example, one of the key trends that has been observed has been the hiringof trained professional managers for family rms (Tong, 1996). This isespecially true when family rms become very large enterprises, or arepublicly listed. But the recruitment of outsiders in management positionsand even to seats on the board of directors has not resulted in a loss of control of the family business. Rather, there is a bifurcation of ownershipand management. Very often, these professional managers and executivesdo not exercise enough control compared to core family members becausetheir control is limited to one section of the group business only. Moreover,control of the family business is not diluted because, often, the family willset up a holding company that has majority control over company shareswhich are restricted to family members.


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This prerogative of trust of family members on the one hand, and thedistrust of non-family members on the other, takes us away from thepresupposition of the market approach where prot maximization is of

paramount importance. While the employment of kin does offer someeconomic savings, it is not the main motivational factor for employment.It must be emphasized that informants are aware of the dark side that guanxi and dependence on family and kin have on businesses. It is not asif they are cultural automatons that are driven by cultural principles. Thishas always been one of the key problems of the cultural approach inunderstanding Chinese businesses. In the interviews, for example,informants were aware that problems could arise when businessesdepended solely on family members. Thus, there is a basic tension inChinese family rms. On the one hand, there is a sense that family staff members cannot be assessed objectively, or that they cannot be repri-manded if they make mistakes because such actions may threaten familyunity. On the other hand, there is also the belief that relatives are moredependable and trustworthy as compared to outsiders. Moreover, inform-ants are aware that as businesses, prot-making and efciency are import-ant ingredients for business success. At the same time, there is anobligatory feeling that providing jobs and a stable income for familymembers is a moral responsibility that is equally, if not more important,than business success.

It is interesting to note that many scholars who study Chinese busi-nesses tend to have an idealized notion that personalism, paternalism and guanxi relations are desirable elements in Chinese business culture(Weidenbaum and Hughes, 1996; Kao, 1993; Redding, 1990). Thiscontrasts sharply with the conventional view in international manage-ment techniques, derived primarily from research on western businessrms, which argues that the key to business success rests on the ideas of efciency, accountability and transparency (see, for example, El Kahal,2001; Child, 2001). Recent literature after the 1997 nancial crisis seemsto promote the view that the crisis was caused by certain elements pertain-ing to Chinese business practices, except that instead of personalism and guanxi relations, the terms used now are nepotism and cronyism (see, forexample, Backman, 1999).

It is too simplistic to pin the causes of the crisis on Chinese businesspractices, and in any case, there are multiple causes for the nancialmeltdown. The issue, in my view, is not whether personalism or guanxirelations are good or bad. Rather, these business values and ideas weredeveloped within an institutional environment (China, East and Southeast

Asia) in which there was a high degree of distrust due to uncertainties inenvironments that had unreliable legal, political and other institutions.Given these environments, Chinese business people developed an aptitude


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towards personal trust that relied on guanxi and xinyong (see Tong andYong, 1998). Moreover, once these institutions of personalism and relianceon guanxi are established, they are resistant to change. Their persistence

goes beyond simple functional necessity, but is nevertheless preserved because ‘this is the way things are done’.This is not to say that Chinese business practices do not undergo

change. Personalism and guanxi are dynamic, not static concepts. Theinterview data suggest that informants are aware of both the benets andproblems of having to deal with family members. In spite of this, giventhe years of coping with an unreliable and often volatile environment, business transactions based on personalism have come to be insti-tutionalized and are still seen as appropriate and necessary behaviours.However, as this article has demonstrated, these same principles of personalism, familism and guanxi relations, if they are not managedcorrectly, will engender conicts within the family business and give riseto succession problems.

Note1. Interestingly, there is copious literature on western family rms (see, for

example, Dyer, 1986). Most of these studies, however, were carried out bymanagement studies and business administration specialists, and as such arepractical-oriented and dealing with management strategies, and so oftenlacking in sociological analysis (see, for example, Ward, 1987; Rosenblatt et al.,1985; Cohn, 1990).

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Cohn, Mike (1990) Passing the Torch: Succession, Retirement, and Estate Planning inFamily-Owned Businesses. New York: McGraw-Hill.

Dyer, W. Gibb, Jr (1986) Cultural Change in Family Firms. San Francisco, CA: Jossey-Bass.

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University, USA. Tong Chee Kiong’s research interests focus on ethnicity, religionand Chinese business in East Asia. His publications include Chinese Death Ritualsin Singapore (Routledge, 2004) and Alternate Identities: The Chinese of ContemporaryThailand (Brill, 2001). Tong Chee Kiong has also published papers in the British Journal of Sociology, Diasporaand International Migration Review .

Address: Department of Sociology, National University of Singapore, 11 Arts Link,Singapore 117570, Singapore. [email: [email protected]]


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