The Case of Selecting a Successor to the Family Business
By Tan Chee Teik
It took Lee Hong Cheng 43 years to become the leader in the dried seafood business in Singapore. As he nears his seventieth birthday, he thinks it is a good time to choose a successor for the business. There are three strong candidates. Who is the best to keep the ship afloat?
CHOP Boon Seng is the importer and processor of abalone, shark’s fins, and bird’s nests. Sold under the brand “Gold Coin Fine Foods”, the firm has a turnover of S$20 million a year in Association of Southeast Asian Nations region. Managing director and sole proprietor, Lee Hong Cheng, 68, is known as Papa Lee in the dried seafood business. He came from China when he was 16 and worked as a coolie at the godowns beside the Singapore River.
One day, he held a special meeting with his three senior staff. He said: “My chain-smoking over the years has affected my health. The specialist has told me that I need to slow down or I will leave the world earlier. You are three of my most trusted employees. One of you will be elevated to take over as managing director. I will be chairperson. It will be a very difficult choice for me but I’ll have an old friend, Sherlock Kok, partner from international consulting firm, Asia Grande Consultants to advise me. We will interview each of you in turn and by next month I will announce my successor to the staff and clients.”
The first to be interviewed was Lee Kim Cheng, 45, Papa Lee’s eldest son. He was in charge of the factory and has been with the company for 20 years. He did not complete his management studies in Australia as he was very playful. He likes to gamble, sometimes going to the casino even during office hours. He can’t get along with the production staff and is very short tempered. He is married with two children. He owns five cars but drives the Porche Carerra GT most often. He is excellent at entertaining clients.
Papa Lee came straight to the point: “Son, I heard that you flew to Macau twice last month. How much did you lose?”
“Dad, you must have spies in my factory. I went to Hong Kong for business meetings and since I was there, I hopped over to Macau for a break. In fact, I made $50,000.”
“I’m worried about your gambling habit. You could gamble the company away,” said Papa.
“When I’m MD, I’ll have little time to gamble. The financial manager will control the firm’s funds. He won’t let me use a cent for my hobby,” said Kim Cheng.
“What are your plans for the company?” asked Sherlock.
“We need to diversify. We can’t put all our eggs in the dried seafood industry. One way is to expand into the restaurant business. Our restaurants can buy the finest seafood ingredients from us,” said Kim Cheng with a gleam in his eyes.” He added that as the eldest son, his job is to look after the rest of the family so his job is even tougher to increase the profits to support an expanding family. The interview ended after three hours.
Emily’s Turn The next day, it was Emily Lee’s turn. At 40, she was the firm’s marketing director. She has an MBA from the United Kingdom. Her advantage is that she is the daughter of Papa Lee’s second wife. She is single and very good looking. She does not get along with step-brother Kim Cheng. Instead, she depended on Chen Wing Fatt, director of finance and sales. Both have the interest of the company at heart. They are working on the expansion of sales into China and Japan.
Papa asked: “I know you have the capability to run the company. My main worry is that you will sack Kim Cheng the moment you are MD.”
“I believe in meritocracy. He is not worth his pay which is very high but if you’re still chairperson, I still need your consent,” said Emily carefully. “One way is to give him half a million dollars so that he can start his own business.”
Sherlock said: “You are very generous. What happens if he squanders the money in a year and returns to beg for a job?”
Emily said quickly: “Then he should be punished. Perhaps we could hire him as a delivery driver.” The meeting ended after three and a half hours.
Third Candidate Wing Fatt’s turn came the following day. At 46, he is the director of finance and sales. He is a visionary who has done a lot to improve the company’s sales and expansion. Papa trusted him greatly and would even sign blank cheques whenever he is out of town for long trips. Wing Fatt has been with company for 20 years. He has an accounting degree from the National University of Singapore. Last Christmas, he became the fiancé of elder Lee’s fifth daughter. He is an excellent negotiator and travels on business trips with Emily. Under his charge, the company has expanded its Asean outlets from 12 to the present 45.
Sherlock asked: “I learnt that the competition in the business is getting hotter. What are your plans to keep the company ahead? “
“We need to expand very quickly to remain as Number One,” said Wing Fatt. “One way to do this without borrowing too much from the banks or putting Papa’s fortune into the business is to go public. With an initial public offering we could get $100 million for expansion.”
“Wouldn’t that mean that our family will lose control of the direction of the company?” asked Papa.
“We will ensure that the family holds at least 55 per cent of the shares. We will have trusted directors in place and the minority shareholders have no say. They will be pleased with the large dividends we pay,” said Wing Fatt.
Papa nodded his head and asked: “I notice that both you and Emily do not see eye to eye with Kim Cheng. What are the chances of you getting rid of him when you have the power?”
“If he has done nothing illegal why should I get rid of him?” said Wing Fatt. “I’ll ensure that he does a fair share of work to deserve the fat salary he’s getting. If not, I’ll hire professional managers to do his work but he will still have a place in management.”
Among the three candidates, Wing Fatt’s interview was the longest at four and a half hours.
Questions to Ponder: (a) If you were Sherlock, who would you recommend to succeed Papa as managing director? Why?
(b) Do you think it is a good idea for the company to be publicly listed? Why or why not?
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