Photo: IC

After three decades of reform and opening-up, the first generation of prominent Chinese entrepreneurs are now reaching the age of retirement.

They have adopted several approaches so far in passing on the torch to the next generation of company leaders. The baton of leadership is often passed on to their biological children or to professional executives.

Others, such as real estate tycoon Wang Shi, believe the success of their companies is based on the systems they have built, rather than grooming of successors.

Despite the different approaches, maintaining the company's DNA is essential in the succession and transition of power, members of the China Entrepreneur Club said Monday at a seminar at the China Green Companies Summit held in Nanning, Southwest China's Guangxi Zhuang Autonomous Region.

Handing over

"I began to promote young managers aged between 30 and 40 in the past few years, and I gradually handed over power to professional executives who are not members of my family but own substantial shares in my company," Yang Shaopeng, executive chairman of Hong Kong-listed SITC International Holdings Co, told the seminar.

Yang quit his job at State-owned shipping firm Sinotrans and started his own company in 1991.

"The people who set out to start the business with me in the 1990s have many merits that constitute the DNA of our company," Yang said. "But their mindset, knowledge structure, and their health mean that it is no longer right for them to be in charge of the company in an age full of novelties."

The same process also took place at New Hope Group, under Chairman Liu Yonghao. Liu formed a team of executives with a different range of ages to ease the transitional period.

Naming his daughter as the new chairman, Liu handpicked two men - a former president of the company and a veteran executive who had served the company for many years - as aides for his daughter.

"As well as their experience, the two partners I picked for my daughter have strong knowledge of my company and can bridge the age gap, which is important," Liu said.

"A survey of Fortune 500 companies indicated that companies run by families tend to produce more value than those run by public stakeholders," Liang Neng, a professor with the China Europe International Business School, said at the seminar.

However, Liang also said the survey found this only applies to the first generation of entrepreneurs, with companies operated by second-generation entrepreneurs tending to produce less value than publicly owned companies. 

Will they work hard?

CEOs who are members of the second generation of the families that own the companies tend to spend less time on work than professional executives, who fear losing their job if they don't work hard enough, Liang said, citing a recent survey by the Harvard Business School.

"The findings are true, as many second-generation family members are indeed reluctant to shoulder the company their fathers started," Wang Junhao, president of JuneYao Group, told the seminar. "Picking up a family-run business is a big commitment. It needs full-time devotion."

Wang and his two brothers set up JuneYao Group in 1991. The brothers became millionaires operating a dairy business in the early 1990s, but Wang's elder brother died at the age of 38 in 2004.

Wang Junhao then developed an ambition to build their business into a century-old enterprise with a focus on the service industry.

"What makes being an entrepreneur so great is that you get to turn an idea into something real," Wang said.

"It is pivotal to let younger members of the family recognize at an early age that starting an undertaking is the most thrilling adventure in life. It helps to groom new successors within the family and keeps the family-run business evergreen," Wang noted.

But Yang Shaopeng, who opted for a professional executive to run his company, believes that people who are not part of the family can still feel that they are part of the company, and have the same loyalty.

Yang has now pulled back from his former role at the company and stays on the sidelines, maintaining only loose control over the company.

"As my person of choice soldiered his way to top positions from within the company and had my mentoring, along with an effective incentive scheme, I believe he will treat the company as his own," Yang said.

Admitting that shipping can be a boring business, Yang did not hand the role of chairman to his daughter, who never showed interest in the shipping industry.

"The shipping industry belongs to men. My daughter likes fashion and has started her own company. I want to respect her choice."

Keeping quiet

As the first generation of entrepreneurs pulls back and the young leaders take over, the older ones should act discreetly and help the new leadership establish their own authority, the entrepreneurs said.

"As the founder, you have absolute authority among the people in the company you forged with your own hands. People will still pay attention to whatever you say, even after you have given up all your titles," Liu Yonghao said.

Liu had chosen to withdraw from many of the board meetings, and leave the job to younger leaders.

Liu said he refrained from even looking at the company's balance sheet for almost half a year, as he wanted to give the new leadership full play in the company's affairs.

"As a founder, you may believe that whatever you think about the company is always right, and you may have a strong desire to say it and see it done," Liu remarked."But for the sake of a smooth transition, you have got to learn to keep your mouth shut, and that is a painful experience,"Liu said.

"As the first generation, we tend to regard ourselves as the captains of the ship, leaders of the fire fighting squad. We believe the company will fall to pieces if we are absent for one day," Wang Junhao said.

"This attitude adjustment - to stop thinking of yourself as a big potato - is an important contributing factor in the power succession."