IMC: keeping the family business ship-shape

Family businesses in Asia are finding it hard to keep up with developments around the globe and shipping giant IMC Group is no exception. However, family member Yuelin Yang explains to Bruce Love that, with the help of outside professionals, the tide is starting to turn

There is a seachange happening in Asian family businesses, and although the tide may be shifting slowly, it is coming from the depths and rising to a full swell on the horizon. Ask Yuelin Yang (pictured), general counsel and managing director of strategic projects at shipping giant IMC Group, and he will tell you that family businesses in the region are slowly starting to professionalise in ways they have never before contemplated. At rates never before seen, they are enlisting the help of outside professionals – lawyers, business analysts, engineers and MBAs – to work with companies from the inside and to professionalise business processes and operations, bringing them into line with their international competitors.

"It's not that things were done badly in the past … quite the opposite. But times are changing and markets are moving more quickly. Asian family businesses can benefit incredibly from advances in technology and management thinking that are almost commonplace in many other international or listed companies," he says. "Asian family businesses are primarily first- or second-generation that were founded after World War II. They can learn from the failures and successes of older European and American family businesses."

Yang is one of the new generation of family members who grew up outside the business and has had an impressive career in his own right. The cousin of Frederick Chavalit Tsao, the Singapore-based company's group chairman, he is fronting efforts to integrate specialists from the global business community into the company's executive staff.

Like most large family-owned companies, Yang says Asian family businesses are more inward looking than their listed cousins. He also thinks that Asian family businesses may be more inward looking than many family businesses from other parts of the globe as well, due to the relatively early development stage of the Asian economy as a whole. He says many Asian family operations are facing challenges that families in other regions may long ago have solved.

"The economies of China, India and South East Asia are in a boom period never before experienced in the region," he explains. "Many of the family operations here – such as ours – have had incredible growth in an extremely short period of time. In anywhere from 10 to 50 years, some families enterprises have grown from extremely small local companies to international giants with billions of dollars in revenue, and all under the leadership of one or two family members and close protégés. For many Asian business leaders, dealing with the personal wealth and responsibility that this generates means closing ranks and keeping the counsel of a select few."

Bringing in fresh talent
While this closing of the ranks may help to keep the entire company on track, he says such a closed community can often become an impediment to taking advantage of new ideas and business developments. To combat this, IMC has embarked on a new recruitment strategy. In the last 18 months, the company has brought in three senior staff from the wider business community. They range from ages 38 to 43, which is young by traditional Asian standards.

Before moving to IMC, new CEO Koay Peng Yen was president of Neptune Orient Lines' China operations. He holds a masters degree of science in ocean systems management from Massachusetts Institute of Technology and a civil engineering degree from the National University of Singapore. The company's new COO, Harvard MBA Eng Aik Meng, also comes from NOL, where he was vice president of strategic planning and ran the company's APL Intra Asia/Australia shipping lines. And from global consulting firm Watson Wyatt, Kwan Chee Wei joined as chief human resources officer.

"These executives are true innovators and have incredible international experience," says Yang. "Over time, I believe that looking outward for senior management roles will become a growing trend within Asian family businesses. This will need to happen if businesses are to build themselves a solid future."

But Yang says this type of change does not come without its growing pains. As the company transforms, it runs into some potential problems. Moving towards a meritocracy inevitably means moving towards a more rigorous differentiation in performance reviews. Yang says this could be viewed as contrary to a family business's "family feel" and the tendency towards seniority-based, "socialistic" compensation systems.

"Rapid change goes against a family business's emphasis on continuity, stability and loyalty," he explains. "When you bring new people into a company where most of the senior executives have been around for 20 or 30 years, there can be some obvious cultural and trust issues to be dealt with."

The old guard will often see these new executives as a threat to their security and sphere of influence. In turn, new executives can often find the culture of a family business confounding. Unused to the pace of decision-making and the routes to getting things done, Yang says "new" executives may sometimes be concerned that their voices are not being heard, but this need not be the case. "Constant communication and an understanding of people's values and their roles within the organisation are paramount to the growth and future success of a family company in Asia."

Yang's story
Yang can empathise with both IMC's family members and the outside executives that have recently come onboard. Although both the company and family are based in Asia, Yang was born and raised on the west coast of the US. He went to Stanford University in California where he received an engineering degree before going to the University's prestigious law school to obtain his law degree. The first years of his legal career were spent practicing high tech law in Silicon Valley at prominent law firms, Cooley Godward and Brobeck Phleger & Harrison. In 1991 he moved to Acer Computers as associate general counsel in San Jose, California and Taipei, Taiwan, where he reported to Acer chairman Stan Shih

"This was a very interesting time in my life," he says. "I built my career from the ground up and never intended to join the family business. In retrospect, Acer was a good preparation as Acer was a combination of Asian and multinational business practices.

Yang believes his story is not unique amongst families from South East Asia: "Many families sent their children overseas to school in the US or the UK, and many people immigrated during the 20th Century, so it is natural for families to have two or three different threads growing up on different continents. In the past couple of decades, as the region has taken off, we have seen more and more of this next generation returning to Asia for business."

And at 33, after experiencing some "burnout" from 16 years in Silicon Valley, Yang was swayed by his uncle's invitation and moved to Singapore to take a position within the company.

"I'd intended to come across to Singapore for a couple of years to learn the business and lend my legal knowledge. However, two years became four, and then five became 10, and I found a place where I could really contribute."

He sees himself as a bridge between the family – specifically his cousin, who is chairman, and his uncle – and the new executives that have come into the company. Because he spent the first decade of his career outside of the family business, he says this provides him with a unique understanding of "both worlds".

The move to Singapore proved beneficial in more ways than one. He met his wife there and has firmly set down roots in a dynamic environment. "I moved to Asia at a very interesting time," he says. "I have been there long enough to see the region's fortunes waiver in the late 1990s and then boom in the last few years. It really is a challenging and vibrant place to be, like Silicon Valley of the 1990s"

And IMC Group has been perfectly positioned to take advantage of the region's growth over the past decade. Its dry bulk and oil shipping lines have grown considerably off the back of regional demand for infrastructure and commodities, such as crude and metals. At the beginning of the century, the company already had extensive interests in container terminals, shipyards, real estate, food packaging and construction materials operations in South East Asia and China. It has since diversified further across 14 countries and a wide variety of businesses, including biofuel and engineering services.

A new direction
With such vast geographical and business diversification, Yang says it is important to set up the resources for the family to keep abreast of the business and understand its multifaceted dimensions. And key to this is talent, organisation and structure. "You need the right people – with the right experience – in the right jobs. And the business itself needs to be structured so that it can take advantage of this, otherwise it is pointless to bring new people into the organisation."

To this end, IMC created a new executive office that sits below the corporate structure and above the company's business units. The executive office's mandate is to help
coordinate policy and to help the common cause.

"The executive office isn't an extra layer of management. It's a shared resource. If one unit needs specific strategic or business development, legal or accounting talent, for instance, we can help to find these resources from within the wider company. It's a way of helping us share resources and pull together in the same direction."

The idea is to maintain the culture of a family business – sharing resources and working together to similar goals – whilst also professionalising at the same time.

To the same end, Yang believes that Asian family businesses need to make a separation between the family's wealth and the business itself: "This is vitally important, not only for the continued success of the business, but also for the management of the family's own assets."

He explains that many family companies in Asia do not run their own family offices and do not separate the family's assets from the company assets.

"More and more, this will become a problem, especially as succession issues become more prominent and as the businesses themselves become more far reaching."

"In the past, what was good for the family, investment-wise, was good for the business. And vice-versa. But we are beginning to realise in Asia that this is not the case anymore. For instance, the business side will be interested in maintaining cashflows for the company, managing joint ventures, looking at specific investments to grow the business for the sake of the business. Meanwhile, the family's interests can involve different criteria that are unrelated to the business per se."

Families and private equity
According to Yang, direct management of the business is important and necessary in certain circumstances. But there should also be clear separation of the family's interests, as a committed and united shareholder. He sites a recent study by management consultancy the Boston Consulting Group which asserted that there were very few world class companies in the emerging markets, even though there is tremendous personal wealth accumulating in these regions.

"What is good for the family may not be good for the business. Conversely what is good for the company should be good for the family from a long term, sustainability point of view. This is an issue becoming more and more obvious in businesses in Asia, but it is not purely an Asian problem," says Yang. "There are plenty of examples around the globe where families would be better served by a true separation of family interests and company interests."

He also believes that private equity will play a major role in how family businesses in Asia will develop in the years to come, but he says both the businesses themselves and the private equity partners they work with will have to work hard to understand each other.

"Working with private equity can be very rewarding," Yang says. "But you have to choose the right partner. Some companies simply do not understand the culture and drivers of a family business. On the other hand, many family businesses are also not equipped to get the most out of private equity. Their ability to communicate can often be impeded by their lack of understanding regarding the expectations of private equity partners."

Yang believes that private equity firms – far more than corporate and listed companies – are able to think along longer timeframes and are more concerned with the continuity of the business. He also believes that private equity firms are able to move more swiftly than large corporations. "Even though family businesses are always thinking long-term, they nonetheless are able to move very swiftly when they want to because of their relatively flat decision-making structure," he says. "This provides a good fit with private equity firms."

However, Yang does not discount the potential that large European or American corporations represent for Asian family companies. In fact, IMC already has an offshore engineering joint venture with Chevron, one of the largest integrated energy companies in the world.

As Asian family businesses continue to grow in this boom environment, working with partners from private equity and multinational conglomerates will become more and more attractive," he concludes. "There are many advantages to be had through these working relationships. But to get the most out of them, the family businesses themselves may need to raise their game and achieve a higher level of internal professionalism."

Click here to read our web exclusive: Yuelin Yang gives advice on private equity and family joint ventures.