Corporate Governance Report Released on Asian Publicly Listed Family-Controlled Firms

CFA Institute, the global association of investment management professionals, today released a 112-page report which identifies the strengths and challenges of the publicly listed family firm model in Asia. The report is aimed at institutional and retail investors and outlines areas to focus due diligence when investing in family-controlled companies in Asia. The report is also a guide that can help family-controlled listed companies in the region maintain financial and economic success following a generational change.

Co-authors Tony Tan, DBA, CFA and head, Ethics, Standards & Professional Conduct, CFA Institute and Fianna Jurdant, Senior Policy Manager, OECD, have published Corporate Governance for Asian Publicly Listed Family-Controlled Firms. The new report is a holistic analysis of current developments of the family firms in Asia based on a wide spectrum of literature, discussions and analysis. The report, the most recent of its kind, also features case studies on 56 family-controlled publicly listed companies in 14 major jurisdictions in Asia.

Asian family firms have played a pivotal role in fueling the region’s economic growth in the last few decades, and their significance is set to rise. It is predicted that by 2025, the number of firms in Asia with revenue exceeding USD 1 billion will be nearly equivalent to that of developed economies globally. Family firms will represent 75% to 80% of those entities.

Mary Leung, CFA, head, Advocacy Asia Pacific, CFA Institute, said “Sound corporate governance plays a pivotal role for all listed companies. For family-owned firms in particular, the unique model that has made them successful in Asia has also brought about challenges as these companies expand. We believe that effective corporate governance is key for these firms to tackle these challenges and to ensure their long-term competitiveness.”

As presented in the report, listed family firms have been a driving force in the economic development and success of Asia. However, as first generation entrepreneurs retire, many firms are facing headwinds, including succession planning, globalization, and need to institutionalize management, among others.

To remain competitive, Asian family firms must innovate, expand outside of traditional markets, and professionalize, which will necessitate tapping global talent and capital. A robust corporate governance structure will help the family firms meet international standards and investor expectations.

By analyzing the featured Asian family-controlled firms in the context of jurisdictional traditions and market conditions, the report provides new insights and a solid basis for future analysis. “Leveraging on our research expertise, the report provides pragmatic recommendations and helpful regional references for business owners in enhancing their corporate governance frameworks. For investors and advisers, the findings are also useful in deriving benchmarks for assessing and evaluating their investments in family-controlled firms” Dr. Tan said.

The report highlights relevant assessments investors should make in evaluating a listed family-controlled company, such as: Stability of senior management:

• Addition of new family members may dilute collective values and vision, leading to decline in performance;
• Adaptability: A desire to preserve the founder’s legacy could place the firm at a competitive disadvantage in rapidly changing markets;
• Information risk and transparency: Lack of transparency, or secrecy among insiders, can lead to missed investment opportunities;
• Branding and reputational risks: Any misconduct by a family member may give rise to branding and reputational risks on the family firm; and
• Composition of nomination committee: A truly independent nomination committee that nominates qualified board candidates is preferred.

“This report is a useful handbook for both family business owners and investors when analyzing such investments. Going forward, CFA Institute will continue to contribute to the global investment community through comprehensive, high quality and relevant research.” Leung concluded.