Business leadership through generations

The expression may well apply at major Vietnamese private companies like beverage manufacturer Tan Hiep Phat, creditor ACB and Kinh Do Corporation. These companies have been operating for about 20 years—and now the founders are looking within their families for the next generation of leadership.

Examples of a dynasty vary, from closely-held, family-run businesses where it is to be expected, to large institutions where the appointments raise questions.

In mid September 2012, Tran Hung Huy, 34, became new chairman at ACB commercial bank following the arrest of its former vice chairman Nguyen Duc Kien due to his wrongdoings at his own companies. Huy is a young top executive among Vietnamese bankers. But otherwise, many people may ask, who is he?  

Those who know ACB, one of Vietnam’s top-tier banks, well know the answer. He’s a son of Tran Mong Hung, a founder of ACB like Kien. Reportedly, the two founders had different viewpoints at the bank during their leadership time.

Between 1994 and 2008, Hung held the position of chairman of the board at ACB. He and Kien were considered the two leaders with the strongest influences on the bank’s strategies although they often had opposing views. When ACB faced a personnel storm following Kien’s arrest in August 2012, Hung’s son Huy was announced as  the new chairman, representing a younger generation. Huy holds three international degrees. But it’s often said that his father Hung is behind the bank’s important and strategic decisions, and Huy’s appointment represents a kind of a trial test for him to navigate the ACB ship through the storm.

Under very different circumstances a few years ago, the heir apparent of REE Corporation became clear when Nguyen Thi Mai Thanh, chairwoman and CEO, appointed  her son Nguyen Ngoc Thai Binh, aged 27, as CFO of the company. Binh, a former HSBC staff member, was then elected to sit on the REE board of directors. REE used to be a state-run company but it recognised  Thanh’s key role in creating strategic development directions to turn the company from an ice factory into the mighty REE today.

At the time of the appointment, critics said Thanh had given her son too much privilege, and that she wanted to gradually transfer her power to her son. But Thanh recently told VIR that she saw it differently. “At that time, REE lacked CFO,” she said. “The burden was on the executive board’s shoulder. I did not take in a family member for the position, but I saw Binh as a suitable candidate who was able to wholeheartedly work for the job.”

Thanh now has plans to step down as CEO to be able to focus more on the firm’s development strategies. This is the beginning of a process where young talents who were educated and trained overseas will become the third-generation leadership at REE.

At family-run Tan Hiep Phat Group, a daughter is helping his father. It is still a family company of Tran Quy Thanh, whose daughter Tran Uyen Phuong is now working like his right hand at the firm, having recently finished a three-year senior management course at Harvard University.

Asked about whether his daughter would run Tan Hiep Phat, which some reputable organisations say is worth $1.5-1.8 billion, Thanh said he would not require his daughter to take it, but if she could prove capable, he would let her do so.

Phuong said she and her younger sister worked side by side with their parents to run the company, and now she might not have enough experience to replace her father. “But once my father puts all trust in me, I would make Tan Hiep Phat’s scale at least two times bigger than it is  now,” says Phuong.

International business experts say it is advisable for a family company to transfer power to the next generation. In Vietnam, ACB’s transfer of power to the second generation is rare. However, it’s quite common that a whole family co-runs a business. An example is Sacombank, party to a major merger and acquisition Vietnam in 2012. After the deal, business men Tram Trong Ngan and Tram Khai Hoa came to light as ones who are holding lots of Sacombank’s shares. Both are sons of secretive banker Tram Be.

After the M&A deal, Dang Van Thanh quit as Sacombank chairman. He was the man who wrote different success stories at the bank over the past 20 years, with his whole family involved in prominent businesses. His son Dang Hong Anh, 33, is a member of Sacombank’s board of directors. His wife Huynh Bich Ngoc is considered the “queen” of the Vietnamese sugar industry.

Their daughter Dang Huynh Uc My, 32, is also in the sugar sector, holding executive posts in a series of large sugar companies.

Similarly, at property developer Quoc Cuong Gia Lai, deputy general director Nguyen Quoc Cuong is the son of the company’s chairwoman Nguyen Thi Nhu Loan.
 
Rough seas

There are also cases in which transfer of power did not go smoothly. An example is technology corporation FPT. When Truong Dinh Anh resigned as CEO after 18 months in office, his uncle Truong Gia Binh, the chairman, had to be the caretaker. At Hoa Sen Group, the transfer of power failed as the CEO quit after just 18 days.

Taking the two cases into consideration, a large listed company with plans to transfer power in the upcoming 2013 annual general meeting had to reconsider the timing. This company’s chairwoman and CEO said: “The economic crisis is prolonging and challenging businesses.

Such transfer may not run well and this can get us off the track and cause incalculable damage to shareholders. Despite the schedule and the fact we found a successor, our company’s transferring of power would be delayed for two years, when the conditions allow us to do.”

At many publicly traded companies which used to be private enterprises, the founding shareholders still hold power. They are decisive executives, who are able to take advantage of business of opportunities when the situation changes, but their power will sooner or later be transferred. The problem here is to find a successor. How could they have faith in outsiders?
In some circumstances, the second generation of the family is still young or not in the business.

For example, Nguyen Phuong Anh, a daughter of Tan Tao Group chairwoman Dang Thi Hoang Yen, is a graduate from Oxford University as a stage director, and is in pursuit of the media and entertainment business. The children of big names like Hoang Anh Gia Lai boss Doan Nguyen Duc, Nguyen Duy Hung at Saigon Securities Inc. and Dang Thanh Tam at Kinh Bac Corp. are still quite young.

Notably, a report by business consulting firm Mid Market Capital says that transferring power inside the family often fails rather than succeeds. Only one-third of this transition succeeds in the second generation and about 13 per cent makes it for the third generation. Another problem is in many developing countries in the region, the second and third generations pursue new areas such as painting, arts and music, far from their families’ traditional business. In Vietnam, not all entrepreneurs think about transferring their business to their family members. For example, Kinh Do Corp. CEO Tran Le Nguyen told VIR that when he felt aged, he would step down to focus on development strategies and would hire an outsider for this position.