Click image for more info Jack Ma, the head of Alibaba, recently announced his retirement. What are the retirement plans of Zong Qinghou, chairman of Wahaha Group, also based in Hangzhou? Can his daughter Zong Fuli take over? On December 2, at the 2018 China Business Leaders Annual Meeting, Zong Qinghou was asked about retirement and shared his intentions, but he seemed to speak without giving a definitive answer. How should we observe Wahaha's generational transition? 01 Not necessarily letting daughter Zong Fuli take over? Zong Qinghou, founder and chairman of Wahaha In 2018, Wahaha celebrated its 31st anniversary, with founder and chairman Zong Qinghou at 73. Having weathered many storms over the years, including declining performance, the "Wahaha war," and even rumors, there is no doubt that as long as Zong Qinghou is there, Wahaha remains the leader in the FMCG beverage industry. For years, Zong Qinghou has been hailed as the entrepreneur with the most local characteristics in China. His "Zong-style management" may differ from what Harvard Business School or MBA textbooks teach, yet Wahaha has survived fierce market competition and achieved remarkable results. No wonder some say: "Understand Zong Qinghou, and you understand the Chinese market." Zong Qinghou once said: "In fact, many times I was self-taught. The methods I thought of and the things I did later found theoretical basis." In 1987, when Wahaha was first founded, there were only three people, and the initial 140,000 yuan was borrowed. For a long time, Zong Qinghou was reluctant to "let go," even requiring his signature to buy a broom. Such meticulous "one-man" management has faced criticism and disdain. Can one person manage it all, and manage it well? Currently, many FMCG companies are experiencing declining performance as a norm, with various reasons. External factors include market environment changes and consumption upgrades, while internal factors include insufficient capabilities, such as failing to keep up with external changes in brand, product, and communication methods. When competitors rise, the categories they produce or operate lose. But in the end, it boils down to a fundamental issue: no matter how the market changes, it's not the company that fails, but the person; it's the leader who fails, and the company declines. **** Wahaha's "Princess" - Zong Fuli For Zong Qinghou, there is no "infighting" issue in the family. His only daughter, Zong Fuli, will not face the wealth and asset battles that many wealthy families with multiple children encounter in generational transition. On December 1-2, the 2018 (17th) China Business Leaders Annual Meeting was held in Beijing, with prominent entrepreneurs like Zong Qinghou and Dong Mingzhu attending and giving speeches. In his speech, Zong Qinghou, chairman and general manager of Hangzhou Wahaha Group, mentioned: Private entrepreneurs have passed the era of fighting for survival; now they should enter an era of fulfilling social responsibility. "We have the obligation to help the rich support the poor, achieve common prosperity, and make positive contributions to building a moderately prosperous society and creating a better life for humanity." Zong Qinghou also said: "We must be clear about our own wealth. Apart from what we can consume, the rest belongs to society." When asked about retirement, Zong Qinghou said: "I cannot retire. If I retire, life might lose its meaning." He said he is used to working and is now stepping back to the second line. On the issue of succession, Zong Qinghou said that taking over depends on whether his daughter is willing; but he then changed the subject: "It's not necessarily letting my daughter take over; it could also be letting managers take over." Zong Qinghou also revealed at the meeting that he is already preparing management succession: "We are conducting process reform, job responsibility systems, and delegated authorization. We hope our management can continue to run the enterprise." Zong Qinghou also predicted that China's professional manager class will soon form, and most enterprises will be managed by professional managers in the future. He believes: "The survival of the fittest in enterprises, with some rising and some falling, is normal. I don't think we need to worry about whether private enterprises will have someone to inherit." Zong Qinghou and daughter Zong Fuli How should we observe Wahaha's generational transition from Zong Qinghou's speech? In fact, some of his words have been repeated over the past few years, such as succession depending on his daughter's willingness. Additionally, he has expressed the idea of letting management take over as a fallback. In other words, at 73, Zong Qinghou is considering Wahaha's succession with "one heart and two preparations," still choosing between his daughter and professional managers, with no final conclusion. Months earlier, in an interview with Ta Kung Pao - Takung.com, Zong Qinghou gave more specific details about Wahaha's succession arrangements. He said: "I am currently giving my daughter one-third of the enterprise to manage. She is also developing other industries, and I am also cultivating management." In the interview, Zong Qinghou shared his views on professional managers: "China's professional managers have not truly formed yet. There are issues of professional ethics and business competence, but they are growing." Zong Qinghou introduced: "In recent years, I have been delegating authority in the enterprise. My enterprise was highly centralized, but now we are delegating authority. Second, we are conducting process reform, job responsibility systems, and further delegation. I want to let management handle some things, and I will just oversee. Train every employee to know what they should do and to what extent, so the enterprise remains stable." Zong Qinghou in an interview with Ta Kung Pao "An old steed in the stable still aspires to gallop a thousand miles." For a family business founder, nothing is more important than making the enterprise last long. Zong Qinghou, now in his seventies, has repeatedly said recently: "It's impossible for me to fully retire. I do so much every day; suddenly doing nothing would make me feel bored." In fact, like most "strongman" entrepreneurs, he has a mindset of not letting go. However, whether at the entrepreneurs' meeting or in media interviews, terms like "process reform," "delegated authorization," and "job responsibility system" are all part of internal institutionalization of corporate governance, not strictly succession plans or arrangements. Additionally, in interviews, Zong Qinghou, while praising "growth," still has concerns about the "ethics" and "competence" of Chinese professional managers. For this reason, in corporate governance, he is beginning to emphasize "institution first," striving to transform from "rule by man" to "rule by law," which aligns with modern corporate management principles. Some have said that "de-family-ization" is an inevitable choice for modern enterprises, unless you have a capable child. In fact, this statement is not absolute. The path of succession is thorny but not singular. The "handover" of a family business is determined by the natural law of metabolism and is a problem that must be faced for the enterprise to achieve long-term governance. Looking at the global Fortune 500, most have moved away from the traditional "father to son, son to grandson" inheritance model, but it's not about "abandoning family-ization." Instead, with globalization and the evolution of the modern enterprise environment, family business governance models have become diverse and pluralistic, entering a "pan-family-ization" governance model. He Xiangjian, founder of Midea For years, He Xiangjian handing over to Fang Hongbo and Midea's de-family-ization has been a hot topic in succession discussions. Is entrusting his billion-yuan enterprise to professional managers "de-family-ization"? Will He Xiangjian's son return in the future and pass the baton back to the He family? On the path of succession, time will tell. Whether Midea is completely "de-family-ized" is still up for debate. For example, in the upcoming listing of "Midea Real Estate," the only substantial shareholder is Lu Deyan, He Xiangjian's daughter-in-law (wife of his son He Jianfeng). The He family controls Midea Real Estate through a unanimous action agreement between He Xiangjian and Lu Deyan. He Xiangjian, the family patriarch, is 76 this year, and his son He Jianfeng is 50, having gradually inherited the family business. Additionally, He Xiangjian has two daughters, He Qianchang and He Qianxing. Once Midea Real Estate lists, the He family will control six listed companies, including the actually controlled "Midea Group," indirectly holding Little Swan and German listed company KUKA Group; the second generation He Jianfeng also actually controls two listed companies, Yingfeng Environment and Hualu Baina, through his "Yingfeng Investment"; the NEEQ company Midea Property is also a family enterprise. In other words, only part of Midea is managed by outsiders; the second generation still controls the family business through "division of labor and industry." It's worth noting that in Midea Group, where Fang Hongbo is chairman, although the professional manager team operates it, He Jianfeng currently serves as a director of Midea Group. Essentially, Midea's "de-family-ization" is a transformation from absolute family governance to relative family governance. The family's role focuses on the governance of the corporate legal structure, i.e., ownership, while operational rights are handed to professional managers. Additionally, through "partnership systems," the He family also transfers some equity to the professional manager team. In other words, it shifts from "family management" to "family operation" mode. Walmart is regarded as a global benchmark for "de-family-ization," but it is still a family business in nature, only with separation of control, ownership, and management rights. There is still no solid evidence to prove that family businesses directly managed by family members will necessarily perform worse than those managed by professional managers. It must be analyzed case by case, and whether to choose insiders or outsiders for succession should be based on the actual situation and growth stage of each enterprise. 02 How much expectation is there for the Wahaha princess to take over? Zong Fuli, chairman of Hongsheng Beverage Group Zong Qinghou, founder of Wahaha, can be considered a "late bloomer." When he founded Wahaha, he was already 42. Before that, the first half of his life was spent on farms in Zhoushan and tea plantations in Shaoxing. It wasn't until 1987, when he replaced his mother at a school factory, that he truly ended his "going to the countryside" youth. Compared to her father, Zong Fuli, born in 1982, is much luckier. Zong Fuli once said that she didn't grow up drinking Wahaha. When she was young, her parents were busy with their business and couldn't spare time to take care of her. In 1996, the "Dawa" joint venture, which Zong Qinghou called Wahaha's "second entrepreneurship" strategy, saw Wahaha introduce a one-time foreign investment of $43 million (from France's Danone Group) to establish five joint ventures. At the end of 1995, through the introduction of Xu Xin, the person in charge of direct investment at Hong Kong's Peregrine, Zong Qinghou signed a joint venture intention with Danone. In 1996, a critical strategic turning point for Wahaha, Zong Fuli, who had just finished her second year of junior high, became a "little overseas student" and went to study in the United States. She attended Pepperdine University in Los Angeles, majoring in international business, until she returned to Hangzhou in 2004. Like many "second-generation entrepreneurs," Zong Fuli joined the family business Wahaha. Perhaps this is the fate of the "Wahaha princess." Zong Qinghou has been the richest person in mainland China three times in four years. Eight years ago, in 2010, Wahaha ranked 12th among China's top 500 private enterprises. That same year, Zong Qinghou became Forbes' richest person in China, and then the Zong family also won the 2010 Hurun Rich List. For Zong Fuli, during this period, her famous title was "the richest man's daughter." Zong Fuli Zong Fuli is currently the chairman of Hongsheng Beverage Group, with Xie Haobo as general manager. Among the company's four main personnel are her mother, Shi Youzhen, known as Wahaha's "behind-the-scenes hero," and director Shi Lijuan. Hongsheng Beverage Group was established on October 22, 2003. Currently, the major shareholder is Hengfeng Trading (holding 98%), and the second shareholder is Hengfeng Investment, holding 2%. That is, when the company was founded, Zong Fuli was still in the United States. Recently, in an interview, Zong Qinghou mentioned that his daughter controls one-third of Wahaha's business, and Zong Fuli's role in Wahaha has already taken up one-third of the territory. In 2016, Zong Fuli registered a new company and launched KELLYONE, a fruit and vegetable juice brand with a shelf life of only seven days. Zong Fuli's English name is "Kelly." Her father, Zong Qinghou, did not approve of her self-created brand. He said he couldn't understand the product and predicted it wouldn't grow big because of the short shelf life. However, he did not interfere with his daughter's exploration: "She doesn't need to ask me for anything she does." To train a successor, one must first let her "try her hand" to see her capabilities. Regarding his beloved daughter, Zong Qinghou once commented that Zong Fuli is "diligent, having studied in the U.S. since childhood, and very independent in doing things," but also pointed out her "acclimatization" issues. Zong Qinghou feels that American culture may not be suitable for China. He said that in the U.S., the boss is the boss, and the employee is the employee. "I hire you for how much money, and you do the work accordingly; if you don't perform, you're fired." Second, in the U.S., there's no need to deal with the government. But after Zong Fuli returned, she treated her employees in an "American way," firing them if they didn't perform well. Zong Qinghou and Zong Fuli, father and daughter In her father's view, treating employees is different in China and the U.S. He said, China emphasizes people-oriented management. To truly make employees obey you, they must be convinced in their hearts, and then they will treat the enterprise as their own and work hard. In an interview with Jiemian, Zong Qinghou said: Although we don't need government support, we were born and grew up in a market economy and solve problems ourselves, but some issues still require government approval, so it's impossible not to deal with the government. He believes that even in a market economy, we still need to interact with the government; we can't do everything alone. Regarding communication with his daughter, Zong Qinghou said: "We don't communicate much. She prefers not to have me interfere and wants to work independently. Maybe young people are all the same, wanting to show their talents and thinking too much paternal interference is bad. Unless she has a problem and needs my help, she comes back to talk to me." In the interview, Zong Qinghou revealed that he gave his daughter some factories to manage, and Zong Fuli is also developing new industries, such as printing and flavors, but she is relatively independent. In an interview two years ago, Zong Fuli admitted that she was not good at socializing and delegated communication responsibilities entirely to HR managers and other management talents. Regarding her initial "mistake," Zong Fuli said: "Some things still need to be faced personally. Whether it's a big group like Wahaha or a small startup, individual communication is very important." She also said: "I've had obstacles in management and have suffered. I still don't like it and am not good at it, but I'm learning to be open, direct, and matter-of-fact: where my expectations are, where your performance is, and what to do about it. So far, the employees I've chosen are straightforward in personality, with the ability and willingness to work, so we have more tacit understanding. I'm not a friendly boss; I don't chat casually with employees and usually keep my distance." In an interview two years ago, Zong Fuli expressed her views on why she created the custom beverage brand KellyOne. As the successor of the family business, she has a higher goal: "To be the industry leader and inherit my father's business under the premise of innovation." Zong Fuli We know that when an elderly "strongman" continues to serve as the company's decision-maker, it's often because of succession difficulties. From Zong Fuli's growth path, her parents invested too much in their careers and sent her abroad for education, preparing her to take over upon return. On the other hand, due to the estranged family relationships, there are communication difficulties between generations, and the development within the enterprise is vastly different from what she saw abroad, leading to "acclimatization" issues, which naturally become obstacles to the succession process. Her attempt to take over the Hong Kong GEM-listed "China Candy" ended in "offer lapse." The "Wahaha princess" had her first try in the capital market, but the results were far from ideal. From a certain perspective, Zong Fuli still needs more practice. Her "candy buying" process in the capital market shows she is still a bit impulsive, at least in business tactics she is still immature. Unlike some "rich second generation," Zong Fuli, like her father, has a strong interest in the beverage industry the family is in, even a special fondness. For the first-generation entrepreneur Zong Qinghou, this is undoubtedly the best. The reason he is building an internal institutional system is that he understands that not every generation of enterprise leaders can be a "strongman." The enterprise's management must eventually return to institutions, and this is also paving the way for the second generation to take over. The future "post-Zong Qinghou era" of Wahaha is highly likely to be a mixed operation model of "Zong Fuli + professional manager management team." For Zong Qinghou, he still has considerable expectations for his daughter to take over. The rest is left to time to temper the successor, such as overcoming "acclimatization" issues, especially in mastering key resource capabilities, interpersonal skills, and leadership. It can be expected that in the next three years, the "Wahaha princess" may enter the "help her mount the horse and see her off" stage, and the "Zong Fuli era" of Wahaha is not far off. Source: Yibo Shuo (ID: yangyibotcc)