The challenges of company succession

Updated: 2011-07-12 09:34

By Karen Yip (China Daily)

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Letting rivals know the heir-apparent can put a company at a distinct competitive disadvantage

The challenges of company succession

Lost direction? Many companies controlled by Chinese families experience succession problems as the leaders age but their children are not yet ready to take over the business. The fact that most Chinese families have just one child means tough decisions will have to be made when entrepreneurs consider retirement and succession. [Photo/China Daily]

BEIJING - Lenovo Group Ltd may not want to disclose its succession plans but at least it has one. There's a good reason for the secrecy: Revealing who is going to replace whom puts the group at a disadvantage because it will encourage competitors to recruit its best people.

If history is an indicator, power or ownership transition is always difficult and most of the time, it will hurt.

"Chairman Liu (Chuanzhi) and CEO Yang (Yuanqing) realized that Chinese companies struggle with succession planning. The cornerstone for us is creating the next generation of leaders. The board worries about it," Kenneth DiPietro, senior vice-president of human resources at Lenovo, told China Daily.

Lenovo's board of directors, Yang and DiPietro discuss key moves within the organization once every year.

"We even create scenarios of possibilities such as 'what if we move this person to another department, what will happen?' or 'if this person is put here, what sort of results can we expect to see?' This helps us to build up the skills and capacity of certain people," he said.

The process, which was adopted four years ago, speaks volumes, especially when Lenovo is up against other Chinese mainland companies in terms of corporate governance.

Most Chinese chief executive officers and founders are young, the majority of them being in their 40s or 50s. Starting succession planning now doesn't carry as much importance as pursuing bigger profits and expanding into new markets.

The limitation of companies is not access to talent, DiPietro said. "The question is also not always about funding for mergers and acquisitions. As we move into new markets and new technology space, we ask ourselves: 'How are we going to execute with depth?'."

Now, 32 years after China's economic reform, the country's private sector, especially companies that have become globally competitive, will soon face the question of how to hand over to the next generation.

Liu Chuanzhi, Lenovo's chairman, is 67, and so is Ren Zhengfei, founder and president of telecom solutions provider Huawei Group. Zhang Ruimin, founder, chairman and CEO of Haier Group, a consumer electronics producer, is 62. Zong Qinghou, founder, chairman and CEO of Hangzhou Wahaha Group, a beverage maker, is 66.

Referring to succession planning in corporate China, Liu Shengjun, a professor from China Europe International Business School, said: "Usually they don't have a plan or they don't think it's necessary to have a plan. If they have a plan, it's usually poorly hatched."

He said the challenges that corporate China will face or is already facing are that founders are getting old, companies are getting too big to manage and companies are going global.

"Professionals are needed. Leaders with global vision are needed. But Chinese CEOs prefer to work life-long like Li Ka-shing. What they need are assistants rather than successors," he said.

When the 82-year-old Li was suddenly hospitalized in 2006, shares in his listed companies immediately sank.

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