The Recipe For Chinese Family Business Failures

For 77 years, since 1938 when it was a lowly dai pai dong – a sidewalk food stall in Hong Kong’s Tsuen Wan district -- Yung Kee Restaurant’s roast goose has been one of the territory’s most famous dishes – and the restaurant one of its most renowned assets. Yung Kee, populated with ill-tempered and venerable waiters, was long ago transplanted to the central business district’s Wellington Street and to serve thousands, tourists and locals alike.

Yung Kee has traditionally been favored by bankers and masters of the universe who want to give their overseas clients a taste of what is supposed to be the real Hong Kong, within a short walking distance of the towering high rises where money moves with the swiftness of light. With its coveted Michelin star, it is one of the relatively few traditional restaurants able to survive given the astronomical land prices in Central. As long ago as 1968, Fortune Magazine included Yung Kee in its list of the world’s top 15 restaurants.

Family Squabble Closes Restaurant

But today Yung Kee has become another kind of traditional Chinese story. The star is gone. The once-fabled restaurant may close, forced to do so by squabbling between the sons who inherited it from their father and founder, Kam Shui Fai. On Dec. 16, the Court of Final Appeal confirmed the liquidation of Yung Kee Holdings Ltd. Previously the family had been given 28 days to reach agreement over the sale.

The Kam brothers are hardly alone. Such family succession feuds have wrecked relationships all the way to the top with the property behemoth Sun Hung Kai, Thomas and Raymond Kwok wresting control from their elder brother Walter – and Raymond ending up in prison on graft charges when unknown individuals went to the police over a bribery matter. Although Walter has denied doing so, the matter has splintered the family.

Likewise, the family of Macau gambling magnate Stanley Ho has staged a bitter battle for control of the assets. Or they can descend down to a 2010 incident in Hunan in which a man showed up at his cousin’s home for Lunar New Year dinner with explosives strapped to his body. He killed himself and four others as well as his cousin and his cousin’s parent over a family land dispute.

Kam Shui Fai's hope had been to provide his sons with everything, granting them the opportunity to prosper the business instead of starting from zero as he had done. Nonetheless, the iconic restaurant has ruined family peace, divided it into two camps and stirred hostility between the sons of the founder. Now the closing down of the restaurant seems just a matter of time.

Yung Kee Holdings Ltd owned the restaurant. When Kam Shui Fai died in 2004, the shares and assets of the company were designed to be divided among his children. Kinsen Kam Kwan-sing, the eldest, and Ronald Kam Kwan-lai together owned 90 percent of the shares – 45 percent for each – with daughter Kam Mei-ling holding 10 percent. Equal controlling shares is obviously poison. Ronald subsequently bought her 10 percent.

Brothers Fall Out on Who Runs Restaurant

With his brother holding the controlling share, Kinsen Kam complained that Ronald restricted his right to manage the company. The dispute intensified after Ronald Kam appointed his son, Kam Lin-wang, a director at HK$45,000/month. Eventually, in mid-2010, as antagonism intensified, Kinsen Kam filed suit for the liquidation of the holding company if the younger brother refused to buy out his stake. Then, in 2012, Kinsen Kam died. The family accused Ronald of Kinsen’s death.

The patriarch had even bought apartments in the same building for each son. The feud grew to the point where the brother-neighbors reportedly refused to even say hello to each other in the lift.

After five years, the court gave the family until Dec. 9 to reach agreement on the share price or the company would be liquidated. According to the local media reports, Ronald Kam offered his dead brother’s family HK$ 1.2 billion, but the Kinson’s widow refused to meet halfway, demanding no less than HK$1.3 billion. So now the heirs face the real threat of losing their family business.

All of this turmoil has affected also the restaurant’s reputation. In 2011, Yung Kee lost its coveted Michelin star. Governed by Kam Shui Fai, the goose dishes were prepared immediately, fresh and in house. Now customers complain about the cuisine. Rumors have also spread that service is less than welcoming, with staff described in some cases as outright rude – hardly a surprise in a city where waiters seemingly have made it a tradition to be brusque.

Retaliation!

In the meantime, Kam's Roast Goose, set up by Kam Kinsey's sons on Hennessy Road in Wan Chai, has won not only the confidence of consumers but also a Michelin award.

Most importantly they have taken a crucial lesson from the debacle of the previous family business. The brothers have set up safeguards to guard against the brouhaha that apparently has wrecked Yung Kee as a business if not a restaurant.

As with Sun Hung Kai, the failed succession of family businesses is not an exception in the Chinese corporate universe. Joseph Fan, a professor at the Chinese University of Hong Kong, confirmed that the phenomenon is almost indisputable. In research published by Fan, Chinese family-run companies in China, Taiwan, and Hong Kong, decreased their profitability about on average by about 60 percent in the intervening years after handover by the patriarch to the sibling successors.

And according to Fortune Generation Magazine in a story titled “China's New Economic Crisis: Keeping the Family Business in February 2015, 8 percent of heirs managed their family businesses successfully. Reasons for Failure Vary

The reasons of failed succession vary. However, one of the widespread problems is the contradictions between the management blueprints between old and young generations. Usually, successful businessmen of the past century were not educated entrepreneurs, using instinct and guile to create their success stories. But they have taken care to send their children to prestigious universities, either domestically or abroad, according to the article.

The children usually return home with university degrees and plans to metamorphose the family business into something else. Those initiatives can often be devastating for the companies leading them into miscalculation or irrelevant markets.

That can complicate life for companies. But it is the family feuds that are equally dangerous. “The Chinese are known for the strength of their families,” Jessica Carson-Wang wrote on Apr. 18, 2011 in eChineacities.com. “The ancient idea was “five generatons under one roof. This ideal has carried on to some degree into the presend ay, although families are smaller than they used to be, they are generally just as tight-knit. That is, until something happens to tear them apart. Perhaps it is the fact of their closeness that makes their feuds all the motre bitter.”

Manvel Keshishyan is a master’s degree candidate at Hong Kong University and an Asia Sentinel intern