---
title: "Family Business: The Awkwardness and Wisdom of Succession!"
description: "This article discusses the challenges and strategies of succession in Chinese family businesses, drawing parallels with classic Chinese novels and offering practical advice for entrepreneurs to manage leadership transitions effectively."
author: "雷永军"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-06-15"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/family-business-the-awkwardness-and-wisdom-of-succession-83bf496d/"
markdown: "https://xinjignxiao.com/en/articles/family-business-the-awkwardness-and-wisdom-of-succession-83bf496d.md"
original_source: "https://mp.weixin.qq.com/s/A8VXayoYC15inxPCAxrJNw"
translation: "https://xinjignxiao.com/zh/articles/%E5%AE%B6%E6%97%8F%E4%BC%81%E4%B8%9A-%E4%BA%A4%E6%8E%A5%E7%8F%AD%E7%9A%84%E5%B0%B4%E5%B0%AC%E5%92%8C%E6%99%BA%E6%85%A7-83bf496d.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/family-business-the-awkwardness-and-wisdom-of-succession-83bf496d/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Family Business: The Awkwardness and Wisdom of Succession!

> This article discusses the challenges and strategies of succession in Chinese family businesses, drawing parallels with classic Chinese novels and offering practical advice for entrepreneurs to manage leadership transitions effectively.

Click to read the original article for details
**Preface**
In China, the organizational structures of private enterprises come in several forms:
One is the family type: aunts, uncles, cousins, and in-laws joining hands, etc.;
One is the brotherhood type: classmates banding together, comrades-in-arms warming each other, former colleagues forming teams;
One is the partnership type: technology and market complementing each other, talent and capital combining, market and capital marrying, etc.;
One is the idealistic type: for a common goal, heroes from all walks of life gather, each showing their special prowess. Although there are contradictions, because the goal is aligned, they are often easy to resolve.
I call these models the Four Great Classical Novels model: the family type is "Dream of the Red Chamber," the brotherhood type is "Romance of the Three Kingdoms," the partnership type is "Water Margin," and the idealistic type is "Journey to the West."
Thousands of years of history show that the cooperation models in politics and economics have not fundamentally changed. Now, thinking about why these four novels have a massive and enduring following in China, it is essentially because they reveal Chinese human nature from different organizational states.
Chinese people are very wise; many proverbs contain profound insights. For example, "Wealth never lasts three generations" points out the developmental fate of many family businesses.
In "Dream of the Red Chamber," the decline of the four great families is lamentable. After the splendor fades and glory is stripped away, everything becomes a dream. I think that neither Jia Zheng nor Wang Xifeng, neither the Twelve Beauties nor Baoyu, wanted to exit history this way, but the decline of the Jia family became a certainty; that was their fate.
The Jia family was known as one of the four great families at the time. Why did they decline so quickly and completely? Many Redologists attribute this to the death of Imperial Consort Yuan, which lost political support, but I do not think so. I believe the fundamental reason for the Jia family's decline was that there was no one to succeed them.
The Jia family had many men, but none were accomplished: Jia She was lustful, Jia Zheng was pedantic, Jia Zhen was absurd. In this generation, the Rong and Ning mansions had no men of great promise. What about the next generation? In the next generation, Jia Lian was a playboy, Jia Zhu died young, Jia Cong was timid, and Jia Baoyu was detached from the mundane world; there was no economic genius either.
If a family business has no strategic talent for two generations, it will naturally decline. That is why the general manager position of the Jia mansion fell to Wang Xifeng, a woman. Wang Xifeng was resourceful and eloquent, but she should have been a public relations manager, and she abused her position for personal gain, so she was not competent. The Jia mansion declined because there was no successor.
Similar to "Dream of the Red Chamber," most family businesses also face a fateful problem. **For family businesses within an organization, who will take over often determines whether fate is broken or fulfilled.**
We know that China's first and second-generation entrepreneurs, after more than 20 years of entrepreneurship, are mostly around 60 years old. Indeed, it is time to consider business succession.
Based on my observations, entrepreneurs generally undergo a change in mindset after the age of 55.
One entrepreneur I know well, before 55, had the goal of being the industry leader from strategy to tactics. But after 55, every time he saw me, he said that stability was paramount and why bother with exhaustion.
This mindset also affected the company's middle and senior management. I noticed that in the past five years, the company's execution has significantly declined, hedonism prevails, and middle management is held by the brothers who started the business with the boss, causing ambitious young people to basically leave.
Now, key positions in this company are held by people around 60 years old, and the generational transition is basically disconnected. From a corporate diagnosis perspective, this company has contracted a serious case of big company disease. Now, overstaffing, poor execution, lack of strategic ambition, and empty talk in tactics fill this company, and its performance has dropped from the top tier to the third tier in the industry.
I served many home appliance companies early on. Because most private home appliance companies are in coastal areas and started early, the issue of family business succession was discussed early and trial and error also occurred early.
As an observer, I have seen many companies collapse due to succession issues, so I have always instilled an important viewpoint in the entrepreneurs I know: regardless of health, they should deploy successor selection around age 55, not wait until after 60 to scramble. However, many entrepreneurs simply do not listen, allowing the company to become lifeless, old, and crisis-ridden.
For family businesses, many entrepreneurs face these problems: **First, for various reasons, it is difficult for children to inherit the father's business; second, for various reasons, veterans become obstacles to reform; third, for various reasons, successors are disloyal.** These three problems are very common in family businesses.
Liu Yonghao and Zong Qinghou, as China's first-generation private entrepreneurs, share not only the trait of building large and successful companies but also having only one daughter each, facing the same succession pressure. For women, in a society with prominent patriarchal culture, this often brings uncertainty and pressure to family business succession.
After Liu Yonghao called his daughter Liu Chang back from abroad, he first had her work in the office of the dairy division. At that time, I had some business dealings with New Hope, and everyone was troubled by Liu Yonghao's daughter because she was willful and a bit nonsensical. I think Liu Yonghao must know his daughter well; he was probably anxious, but he had a way.
Liu Yonghao found Professor Chen Chunhua to be his daughter's teacher. Teacher Chen mentored Liu Chang for several years, which can be said to have completely transformed Liu Yonghao's daughter. I recently watched a TV interview with her; the former rebellious girl has become rational, steady, and wise, and her speech and demeanor are that of a mature entrepreneur. Few entrepreneurs in China have Liu Yonghao's patience and wisdom. In transforming his daughter and cultivating a successor, Liu Yonghao should be a model for Chinese entrepreneurs.
Similar to Liu Yonghao is Zong Qinghou, who also has only one daughter named Zong Fuli. President Zong once cultivated a successor within the company, but for various reasons, that successor eventually left Wahaha. This was not only a blow to Wahaha but also forced Zong Qinghou to push his daughter to the forefront.
Perhaps President Zong's arrangement was to protect his daughter, but this change forced Zong Qinghou to push his daughter out. So when Zong Fuli entered people's sight as a successor, it was a bit vague, sudden, and dramatic. Today, Zong Qinghou, already 74, is still on the front line, and his daughter has not fully taken over; there are still variables.
The problems faced by Zong Qinghou and Liu Yonghao are not isolated cases. An entrepreneur I know also has only one daughter, and she is not interested in business operations. I had an in-depth exchange with this daughter; she is a simple and artistic girl. She told me her ideal is to be a writer or painter.
With no other choice, the entrepreneur had to push his son-in-law into the general manager position, but the son-in-law's rise immediately drew unanimous opposition from the founding veterans within the family. For a family business, the son-in-law is always an "outsider," and without special wisdom, it is indeed difficult for him to quickly establish authority.
When the problem surfaced, the entrepreneur came to me and asked how to adjust and transition.
I proposed two methods: one, the entrepreneur steps down from the chairman position, serves as the actual controller and honorary chairman with veto power, then lets the family veterans serve as rotating chairmen, each for one year, with the son-in-law still as general manager. With four veterans, the rotation would take exactly four years, and in the fifth year, the son-in-law would be promoted, thus resolving the current confrontational contradictions;
Two, provide option incentives to the veterans during their tenure as rotating chairmen. The method is: if the company's annual revenue growth reaches the target, the increased portion's benefits are converted into equity, and a part is given to the veterans as gifts. The plan runs continuously for four years, with equal opportunities for everyone. This way, the company's development direction and everyone's efforts align. Moreover, because the veterans serve as chairmen, from another perspective, it just trains the son-in-law as general manager. Options are generally incentives for newcomers; I tied veteran options to the company's development, which both dismantled the veterans' united resistance and promoted unity.
Initially, the entrepreneur applauded my plan, found it practical and stable, but unfortunately, for some reason, he did not choose it.
He first forced his daughter to become chairman, but she had no interest and could not adapt, so she stepped down; then he made his son-in-law chairman and general manager, which intensified the veterans' resistance. The company saw a wave of middle management resignations, departments could not coordinate, and it nearly became paralyzed; finally, with no other choice, he had to come back as chairman himself and choose a family veteran as general manager, declaring the reform a complete failure. However, they are older now and cannot keep up with the times, and sales have declined severely in recent years.
This company originally had better development opportunities because the past 10 years were a period of major transformation in its industry, but they spent nearly 10 years on succession, losing development opportunities, and eventually the company became a third-tier enterprise.
A few days ago, the entrepreneur communicated with me, saying that my previous suggestion was good, and he planned to adopt my previous proposal for a final reform. He also confided that if this reform fails, he plans to give up his position as the major shareholder and completely exit. He spoke tragically, which was very lamentable. Because today's scarred company no longer has the reform opportunities of the past.
Is this the fate of private enterprises? In China, most family businesses rely more on rule by man than rule by law. Succession is not just a change in management rights but also a reform of corporate governance structure. It can be said that succession carries a lot of strategic content. On the issue of succession, my suggestion is that entrepreneurs should take three steps: entrepreneurs should look for successors around age 55; cultivate successors around age 60; and after 60, help them get started and accompany them for a while. Moreover, do not bet on one successor; learn from Huawei's "spare tire" plan and encourage internal competition.
Entrepreneur Liu Chuanzhi is very forward-looking in this regard. He promoted Yang Yuanqing and Guo Wei early on and ultimately chose Yang Yuanqing through a horse race. But not all entrepreneurs have Liu Chuanzhi's wisdom and luck. We must know that China's professional manager culture is still in its infancy, and the Chinese market is full of opportunities, making it difficult for excellent talent to serve a company long-term. The impetuous wealth values also make it hard for successors to be loyal to the company.
Among the companies I once paid close attention to, most experienced betrayal by professional managers. This betrayal, on another level, directly affected the courage and boldness of Chinese entrepreneurs in handing over the reins.
Most Chinese private enterprises were founded after the reform and opening up, with a survival time of about 30 years. In these enterprises, most find it difficult to remove the family-based organizational structure. This structure often played a positive role in the early days of entrepreneurship, but when it develops to a certain stage, it often becomes a shackle to enterprise development.
Because of family factors, excellent talent finds it difficult to enter the core layer. On one hand, this makes the enterprise's "inbreeding" ability low; on the other hand, it hinders the metabolism of enterprise talent. When problems accumulate to a certain extent, entrepreneurs often adopt a "one-size-fits-all" approach, removing all founding veterans at once. Succession often becomes forced, sudden, high-cost, and high-risk.
Now, although many entrepreneurs have considered the succession issue for years, because they have not cultivated a leader internally or do not trust professional managers, many entrepreneurs are already over 60 and still fighting on the front line, with no successors, which is very awkward.
I have always believed that "wealth never lasts three generations" is not a curse for family businesses but should be a crisis awareness for them. In this sense, what we need to do is to start deploying immediately and accelerate the pace of layout. Plan ahead and avoid detours.
Source: Dairy Club (ID: chinadairyclub)


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671