Family ties strain private enterprises

Source:Global Times Published: 2012-9-25 21:10:08

After decades of growth, many of China's family-run companies are beginning to run into trouble as a lack of clearly-defined ownership rights and responsibilities pulls these businesses into internal power struggles. This could spiral into a major problem for the domestic private sector, where more than 95 percent of companies are run by families.

It has always been common for Chinese business owners to give family members high-ranking positions within their companies, especially in their early stages of their development, in order to cut down on recruiting costs and build consensus within the upper echelons. However, as these companies mature, family-management structures have become enormous liabilities standing in the way of long-term success.

Without stringent guidelines on their performances, managers promoted based on their family connections can exploit this deficient structuring model to secure their own profits, leaving the company to flounder.

The author is Rupert Hoogewerf, founder of Hurun Rich List.

Posted in: Markets

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