Feature Stories

08.05.2017

Family Office: The Glue that Keeps Chinese Families Together

Family Office: The Glue that Keeps Chinese Families Together

In many entrepreneurial families, the business itself is a means to keep the entire family together. As the business leadership is passed down from one generation to the next or as the family exits from the business, the family may lose its purpose for working and staying together.  

The question is: What will provide the family glue within these evolving dynamics?

In a recent workshop, leaders in the family office space in Hong Kong shed light on this issue with a group of family business owners from mainland China.

“While a family office itself is a Western concept, with necessary adaptations, it may help serve as the glue and regenerate the shared identity for Chinese families,” says Professor Roger King, Director of the Tanoto Center for Asian Family Business and Entrepreneurship Studies at HKUST.

The family office is an organization in which the day-to-day administration and management duties are carried out by family members and/or professional managers of the family’s affairs, with a focus on preserving family wealth, legacy and harmony.

Wealth Management with the Talented Next Generation

“It’s interesting to have the next-generation members managing the family wealth. This is their money in the future anyway,” Professor King says. His son, Stephen King, is Managing Partner of Violet Hill Partners, which he co-manages with his younger brother Geoffrey.”

“My initial concern was with the harmony issue,” Professor King says. “But the sibling team works out surprisingly well, despite their personality differences.” Stephen attributes this to the shared investment philosophy, the common attitude towards risks and opportunities, and mutual respect.

When well-managed, a family office also brings together family members by blood and by marriage.

Benny Wong is an in-law to the family-owned Glory United Investment, an Indonesian 18-karat gold jewelry manufacturer. “Given my background with EY and Oracle, I am entrusted to manage the family wealth, while looking after corporate treasury and financial operations,” he says. Mr Wong sees himself as an integral part of the in-law’s family, with his expertise being put to good use in the embedded family office.

Given that in Chinese society business assets are less often separated from family or personal wealth, an embedded family office helps manage the family assets alongside the business, instead of setting up a separate legal entity.

Family Philanthropy to Preserve the Legacy

In some families, the family office drives family philanthropy. Other families choose to set up a separate foundation, but keep the linkage with the family office. Either way, it is about sustaining the legacy of the founding generation while endowing new meaning to the future generation and to society.

Yvette Yeh Fung, Chair of the Yeh Family Philanthropy, is a strong believer in social entrepreneurship. She comes from a family with a long history of giving, but their philanthropy was not as strategic in the past. The family hired an external advisor to help redevelop their philanthropic vision and goals.

“Nowadays, we have moved almost completely away from the cheque-writing charities of my grandfather’s and father’s eras, and follow our identified mission: to build capacity in promising young minds through education and social entrepreneurship,” Mrs Fung says.  

Overseeing the Family Governance System

Another key function of the family office is to oversee the family governance system. The Tan family, which owns Luen Thai International Group, has just gone into its fourth generation, with a total of 50 members from six branches. The growing complexity means the Tans need ways to organize themselves and to make necessary decisions for the larger family.

“Following our family values, we established our family constitution and built relevant structures and policies. These are the hard side of our governance system,” says Henry Tan, Vice Chairman of Luen Thai International Group.

“The soft side–the family emotion and identity–is equally if not more important,” he says. “Most of the time we make decisions based on consensus. To strengthen the family bond, we organize social events like annual family retreats and weekly dinners.” The family office, run by non-family director Connie Hui, helps implement the policies and makes sure things are in order.

Value of Non-family Executives

Using an outsider to manage family affairs is still rare in Chinese families. These professionals oftentimes have to forgo the power and recognition they can get working in a multinational firm. 

“It is not easy for Chinese to trust an outsider, let alone letting an outsider manage the entire investment portfolio,” says Carl Tong, non-family CEO of UNIR (HK) Management Limited, the family office for Dr Ina Chan.

Mr Tong’s family has a long acquaintance with the principal family back to his grandfather’s time and he was highly recommended by their trusted advisor. In addition to his usual role, Mr Tong mentors the next generation to groom their business acumen and avoid potential in-fighting.

The workshop on family offices was among several organized by the Tanoto Center to share its research findings on topics of concern to family businesses.