The Hong Kong University of Science and Technology

FINA 5190 FAMILY BUSINESS

Spring 2020

ROGER KING, PhD

rking@ust.hk

WINNIE PENG, PhD

pengq@ust.hk

COURSE OUTLINE

Purpose of this Course

This course is tailored for individuals who are currently working in or are contemplating to work
in a family business, either as a family member or a non-family executive. The material covered
also gives a greater understanding of the dynamics of family business for current or future private
and investment bankers, family office professionals, accountants, lawyers, and other service
professionals working closely with families of wealth in the region.

As a case-based course, we will invite decision-makers (or “protagonists”) in the cases to join us in
the class discussion. Students will have the opportunity to direct their questions and present their
ideas to these leaders. Founders and their offspring from other prominent family businesses in
Asia will also be invited to share their insights on succession planning and unfold their secrets of
leading and managing their family firms.

Why is the Study of Family Businesses Important?

Family businesses are important firstly because they are the most pervasive form of ownership
worldwide. The common notion is that family businesses are small, informal, and secretive with a
limited growth potential. This myth has been dispelled when Anderson and Reeb (2003) and
Villalonga and Amit (2006) showed family firms constitute over 35% of the S&P 500 firms and
Fortune 500 firms listed in United States respectively. They also have empirically shown that
family business outperforms other forms ownership structure. In Hong Kong, over 70% of the
listed firms on the Stock Exchange are family controlled. In the Philippines, the Ayala family
controlled almost a quarter of the market capitalization of the Philippine Stock Exchange.
Secondly, family businesses contribute to more than 50% of the employment and more than 60%
of the GDP in most economies. The All-China Federation of Industry & Commerce reported that
private economy accounts for approximately 65% of China’s GDP and provided 84% of the job
opportunities. They also estimated that the private economy 70% is made up of family-owned
businesses. Thirdly, family businesses are complex and not well understood. It is often said that
family firms seldom survive beyond three generations. The question is why? Finally, most of our
lives are “touched” by family businesses either as employees, suppliers or customers. A key
understanding of family businesses is thus critical.

1
Learning Objectives

 Understand the fundamentals of family business including its definition, importance,

complexity, and how it differs from non-family business;
 Analyze the factors contributing to the longevity of family businesses, and the causes for the
potential early demise, especially for ethnic Chinese family businesses;
 Design suitable wealth management strategies, structures (e.g., family office, family trust,
philanthropic foundation) and governance systems for wealth creators to preserve family
wealth, legacy, and harmony across generations;
 Prepare for management succession, including selection criteria of future leaders of family
businesses (family members vs. professional managers; women’s roles);
 Understand the similarities of and differences between Chinese family businesses and those
from other ethnic groups around the world.

COURSE STRUCTURE

Date Time Topic

1 Feb 6 (THU) 7pm-8.30pm Family Business: An Asian Perspective
2 8.45pm-10.15pm A Century Old Chinese Family Business Case Study
3 Feb 13 (THU) 7pm-8.30pm Mainland Chinese Family Business: Transformation &
Upgrading and Succession Planning
4 8.45pm-10.15pm Monetizing a PRC or a First-Generation Family Owned Business
5 Feb 20 (THU) 7pm-8.30pm Art and Antique as an Alternative Investment
6 8.45pm-10.15pm Family Governance
7 Feb 27 (THU) 7pm-8.30pm Preserving Family Wealth and Family Harmony: Will and Trust
8 8.45pm-10.15pm Women in Family Business
9 Mar 5 (THU) 7pm-8.30pm The Great Eagle Case Study
10 8.45pm-10.15pm Family Philanthropy
11 Mar 12 (THU) 7pm-8.30pm Non-family Professional Manager in Family Business
12 8.45pm-10.15pm Family Office: The Glue that Keeps the Family Together
13 Mar 20 (FRI) 7pm-8.30pm The Destructive Power of Family Wealth
14 8.45pm-10.15pm Succession Planning
15 Mar 26 (THU) 7pm-8.30pm Case Study Workshop
16 8.45pm-10.15pm and Course Wrap-up

GRADING

 30% Class attendance – Students should attend at least 75% of the course to get a pass.
 30% Class participation, including a compulsory group presentation
 25% Case assignments – All assignments are required.
 15% Final take-home exam – compulsory

2
 SESSION CONTENT

Session 1
Family Business: An Asian Perspective
 Definition of family business
 Key differences between family and non-family businesses
 Research sharing and implications on trends of Asian family businesses
 Key success factors for Chinese family businesses to pass beyond three generations

Session 2
A Century-Old Chinese Family Business Case Study
 How Eu Yan Sang survives over century

Guest Speaker: Richie Eu, the fifth generation leader of Eu Yan Sang

Session 3
Mainland Chinese Family Business: Transformation & Upgrading and Succession Planning
 History, statistics and characteristics of Mainland Chinese family businesses
 Research sharing
 Transformation and upgrading
 Succession planning

Guest Speaker: Margaret Zhao, the second generation of Hong Tao (HT) Capital, a large family
business in Mainland China

Session 4
Monetizing a PRC or a First-Generation Family Owned Business
 Characteristics and key challenges of PRC family-owned businesses
 Reasons for exit and exit strategy for family businesses
 Sharing of Personal Experiences by Prof. King

Readings:
“China faces tidal wave of exits by ageing tycoons. Their succession plans will shape China’s
future”, SCMP, 11 Jan 2019.
“In China, the family business is out and the business family is in”, Inkstone, 11 Jan 2019.

Session 5
Art and Antique as an Alternative Investment
 Current trends and past performance of investment in arts and antiques
 Appreciation and Valuation of arts and antiques
 Sharing of a personal experience by Prof. King

Guest Speaker: Johnathan Stone, Chairman of Asian Arts, Christie’s

Session 6
Family Governance
 Family conflicts and challenges
 Evolving family business into a business family
 Corporate governance and family governance

3
 Family council, family assembly, family constitution, family business policies

Reading:
King, R., Peng, W.Q., & Dowejko, M.K. (2014). Family Governance of the Lee Family.
(Extracted from the published case “Lee Kum Kee: Female succession in family business”).
HKUST.

Session 7
Preserving family wealth and family harmony: Will and Family Trust
 Succession by will in Hong Kong
 Threats of wealth preservation in family businesses
 Family disputes and solutions
 Trust: structure, features, variation on theme, and risk management

Guest Speakers: Michael Olesnicky, Senior Consultant, Baker McKenzie (Hong Kong), and
Elizabeth Yang, Law & Mediation Offices of Elizabeth Yang

Session 8
Women in Family Business
 Women senior management, women entrepreneurs, and women on board over the world
 Research sharing on gender issues found at family business
 Women in family business and its succession
 Examples on women’s impacts on family businesses
 A case study on women’s roles in Lee Kum Kee’s family business succession

Reading:
King, R., Peng, W.Q., & Dowejko, M.K. (2014). Lee Kum Kee: Female succession in family
business.
Pre-class Assignment 1

Session 9
Great Eagle Case Study
 Family Trust: potential problems and solutions

Guest Speaker: Ka-shui Lo, Chairman and Managing Director of the Great Eagle Holdings Ltd.

Reading:
King, R., Stewart, C., and Terry, E. (working). When Trust Fails and Family Civil War Breaks
Out: Great Eagle Case Study. HKUST.
Pre-class Assignment 2

Session 10
Family Philanthropy
 Traditional charities and strategic philanthropy
 Family foundations
 Case of Sun Hing: How family philanthropy serves as the glue to keep the family together

Reading:
King, R., Peng, W.Q., & Dowejko, M.K. (2014). Sun Hing: Keeping the family together through
philanthropy. HKUST.

4
Session 11
Non-family Professional Manager in Family Business
 Family manager as a non-family business member
 The roles of professions and expertise in a family business

Reading:
Bell, D.E. & Li, I. T. (2002). Sa Sa Cosmetics. President and Fellows of Harvard College.

Session 12
Family Office: The Glue that Keeps the Family Together
 Desires of UHNWIs / founders of business
 The Western concept of “family office” and its limitations in Asian contexts
 Challenges in the transition from family businesses to business families
 Adapting Asian Family Offices to handle these challenges

Reading:
King, R., Peng, W.Q., & Stewart, C. (2017). Family office: the Eastern approach. The
International Family Offices Journal, 3, 27-32.

Session 13
The Destructive Power of Family Wealth
 Family wealth and its destruction to a family
 The psychology of wealth
 Taxation and the need for dialogue on its transparency
 The wealth planning tools and engagement of advisors

Guest Speaker: Philip Marcovici, Author of “The Destructive Power of Family Wealth”

Reference: Marcovici, P., & Wiley Online Library. (2016). The destructive power of family
wealth : A guide to succession planning, asset protection, taxation and wealth management.
Hoboken, NJ: Wiley.

Session 14
Succession Planning
 Ownership Succession
 Management Succession
 Grooming the next generation

Reading: Yung Kee Restaurant Case Draft

Sessions 15 & 16
Case Study Workshop & Course Wrap-up
 Analyzing the complexities of a family business
 Planning for ownership and management succession

Reading:
Case A – The Hong family case; Case B – The Borne family case
Group Project

5
Profiles of Instructors

Professor Roger KING

Founding Director, Tanoto Center for Asian Family Business and
Entrepreneurship Studies, HKUST
Founding Director, Thompson Center for Business Case Studies, HKUST

Professor Roger King is Founding Director of both the Tanoto Center for Asian Family Business
and Entrepreneurship Studies and the Thompson Center for Business Case Studies at The Hong
Kong University of Science and Technology (HKUST). His teaching and research interests
include family business, family office, entrepreneurship, and corporate and family governance.

Professor King was a former US Naval Officer; member of Technical Staff of Bell Telephone
Laboratories (USA); Non-Executive Director of Orient Overseas (International) Limited and Chief
Operating Officer of Orient Overseas (Holdings) Limited, listed on the Stock Exchange of Hong
Kong (SEHK); Chairman and Founder of ODS System-Pro Computers Limited; Chairman of
Euro-Asia Shipyard Limited; Chairman of Pacific Coffee Limited; President and Chief Executive
Officer of Sa Sa International Holdings Limited, listed on SEHK; Independent Non-Executive
Director of Sincere Watch (Hong Kong) Limited, listed on SEHK; Board Director of Arrow
Electronics Corporation, listed on the New York Stock Exchange; Supervisory Board member of
TNT Express, listed on Amsterdam Exchange; President of Harvard Business School Association
of Hong Kong; Chairman of the Association of Honorary Consuls in Hong Kong and Macau;
Honorary Consul for the Republic of Latvia in HKSAR; Standing Committee Member of the
Zhejiang Province People’s Political Consultative Conference; and Council member of The Hong
Kong Baptist University and HKUST.

Professor King is currently Honorary Court Member of HKUST; member of the Board of
Governors of Tel Aviv University (TAU); member of the International Advisory Board of Coller
School of Management at TAU; member of the Academic Council of Moscow School of
Management SKOLKOVO; Chairman of the Case Center Committee, Association of Asia-Pacific
Business Schools; member of the Advisory Council of the Israel-Asia Center; member of the Ernst
& Young Family Business Advisory Council; and member of the Editorial Board of the Journal of
Family Business Strategy.

Professor King is a graduate of the University of Michigan, BSEE; New York University, MSEE;
Harvard Business School, AMP; and HKUST, PhD (Finance). He is the 2011 recipient of the
HKUST Honorary Fellowship and a member of Eta Kappa Nu and Beta Gamma Sigma, the
honorary societies for electric engineers and business scholars respectively.

6
 Professor Winnie PENG
Director, Tanoto Center for Asian Family Business and Entrepreneurship
Studies, HKUST
Director, Thompson Center for Business Case Studies, HKUST

Professor Winnie Qian Peng is Director of both the Tanoto Center for Asian Family Business and
Entrepreneurship Studies and the Thompson Center for Business Case Studies at The Hong Kong
University of Science and Technology (HKUST). She is Board Member of International Family
Enterprise Research Academy, the largest membership association of family business scholars in
the world; and Director of Education for Hong Kong Family Office Association. Her research and
teaching interests include family business, family office, family philanthropy, entrepreneurship,
private equity and venture capital, etc.

Professor Peng’s research has been published in top journals such as Journal of Corporate Finance
and Journal of Family Business Strategy. She writes articles for local and international media such
as Hong Kong Economic Journal, China Daily, and Forbes China. She has published various case
studies on companies such as Lee Kum Kee, Wanda Group, Sun Hing, Chevalier Group, Pacific
Coffee, Harilela Enterprises, Jebsen Group, Cathay Capital, GE Equity Asia, Perception Digital,
Cathay Pacific Catering Services, Hongkong International Terminals, Gree Electric, etc

Professor Peng teaches executive programs on family business and entrepreneurship with HKUST.
She is also an instructor of the “Private Equity Fundamentals Course” of the Hong Kong Venture
Capital Association. She has been invited to teach family business for family business owners and
senior executives of global financial institutions.

She received her Bachelor’s degree in Accounting from Tsinghua University, and her PhD degree
in Finance from HKUST. She is also a graduate of Harvard Business School Executive Education
program “Private Equity and Venture Capital”.

Office hours: By appointment – LSK Building Room 5004