How do you prepare for a transition between managing or leading owners to governing owners? The eldest members of the fifth generation have taken up leading governing roles. What does that leave for the younger members of the fifth generation? Is it fair? Does it have to be? What can be done to support the senior generations members to move out? What kind of education/training programs could be put in place to help groom the next generation?

case study: Lee kum kee's five generations of growth

subject: leadership and team management

In 2018 the Lee Kum Kee family firm, producer of LKK Oyster Sauce and a range of food and Infinitus International Company Ltd health products, reached its 130th year. Growth had been exceptionally rapid in the previous few decades. In 1980 it was a small Hong Kong-based business employing just 25 people. By 2019 it had become a multinational firm with a net worth of $17.1 billion. As the fourth generation began to prepare for succession, and the fifth generation began to take up important roles in the familys institutions, it was time to take stock of the Lee Kum Kee familys long entrepreneurial journey and reflect on its past and present opportunities and challenges. Origins and Early Growth The businesss founder, Lee Kam Sheung, invented oyster sauce by accident while running a tea house in the coastal town of Nanshui in Guongdong province, in southern China. He used to prepare oyster soup to accompany the teas, but one day left the soup on too long, only to discover that it had cooked down to a thick consistency with a rich flavor, and he decided to sell it as a new product. It soon became incredibly popular and the tea house was abandoned to focus on the sauce and its commercialization. The business thrived throughout the first half of the 20th century under the guidance of Lee Kam Sheung and later his son, Shiu Nam. The second generation took over in the 1920s, and oversaw further development, with the introduction of a shrimp paste product and the beginning of sales in the US, all supported by a professional approach to branding and marketing. In 1932, the firm moved to the larger city of Hong Kong. By the early 1970s, however, a major difference of opinion had emerged between Shiu Nam and his brothers. He was of the opinion that the company should develop aggressively and expand while other family members vehemently disagreed. His eldest son, Man Tat, shared the view and made the decision to buy out his relatives. Although this placed a heavy financial burden upon him, he was ultimately able to realize his vision and became chairman of the flourishing company at the age of 44. Although he was one of eight siblings, he inherited all company shares from his father. Global Expansion: 1970s and 1980s Man Tat was a shrewd observer of social and political trends. He noted, in the historic summit meeting between Mao Tse Tung and President Nixon in 1972, the significance of the Chinese leaders gift of two panda bears to the US Government. He recognized that pandas would become the symbol of China to the Western world; he was also aware that Chinese food was growing in popularity in the West, including among people not of Chinese heritage. The business launched Panda Oyster Sauce, a less expensive product than LKK oyster sauce, marketed to North America. Under the family policy of constant entrepreneurship, other new sauce products were subsequently introduced. Man Tat gave his five children Anglo-Saxon first names and encouraged them to learn English and study abroad. In 1980 he invited his eldest son, Eddy Lee to return to Hong Kong following his graduation from the University of California with a degree in food science and technology. He offered him a position at the family firm with a generous salary. Eddy had been looking for positions in the US but decided to accept his fathers offer. He recalled a comment made by his grandfather: Each generation of our family should look to the future of the business. It is each members duty to help and participate and make sure that what was started long ago lives on for the next generation of Lees. Later his brothers also took up posts in the firm: Eddy became chair of the Sauces Group. David, who had graduated in marketing at the University of Southern California, joined in 1982 and became head of US, South American and European operations. Charlie, with a major in chemical engineering, headed China operations. The youngest, Sammy, began his career outside the family firm. With a degree in finance and management, he worked for Citibank in Hong Kong, before joining LKK. He subsequently became head of the Health Products Group, which he started in the early 1990s. The four brothers received equal compensation. Their sister Elizabeth joined the Sauce Group as Director of Technical Services in Lee Kum Kee Company Limited from 1981 for two years. She rejoined the company as Technical Services Director in 1997 leading the technical services team in strategy and quality systems development, providing direction in food quality and safety assurance. One sequence of events showed the familys entrepreneurial flair, as well as the quality of its products. In the early 1980s, one of Davids earliest duties was to deal with a receivables crisis in the US business, at a time when it had only three staff, a warehouse full of inventory and $40,000 in cash. He made little progress with the offending clients, so decided to invest the $40,000 in a series of advertisements in trade publications, offering time-limited promotional deals to new customers. The high-risk investment worked, and business took off. In 1986 the family opened a New York office, followed by a manufacturing facility in Los Angeles in 1991. In 1988 the company celebrated its centenary with the opening of a larger production facility on the outskirts of Hong Kong. Key to these breakthroughs was the quality of the Do Not Copy or Post products, and confidence in that quality. David commented: Our biggest enemy is ourselves. Only if we let less than first-rate quality or poor teamwork creep into LKK will we be truly vulnerable to competition. In 1986 another fundamental disagreement emerged in the family. While Man Tat had inherited all of the companys shares from his father, he had awarded a significant shareholding to his brother, inviting him to help develop the company. However, following a long fight over a significant investment that the brothers could not resolve, Man Tat finally regained full ownership. Diversification under the Fourth Generation: The 1990s In the 1990s Sammy, the youngest of the fourth generation, successfully introduced a range of health care products, encompassing traditional Chinese medicines, supplements and skin care products, under the Infinitus brand. It was far from easy though. Early growth was promising, but regulations on direct selling were introduced which threatened the business model toward the end of the decade. Sales fell sharply, and the health business was making losses by 1999- 2000. Although the family wanted to sell the division, Sammy Lee was so committed that he considered selling his shares in the sauce group to buy out the health business. Instead, he begged for another chance: if the firm could meet agreed targets within a year, the family would keep the business, which they did. He set the exceptionally ambitious target of 12 times growth within five years and achieved it within four. Infinitus became one of the most successful business ventures of the region, including a chain of retail outlets. By 2018 it was of comparable scale to the Sauce Group, and was continuing to thrive (refer to Exhibit 1 for details on Lee Kum Kees business facts and figures). Other businesses were launched in the early 1990s: A small chain of restaurants was set up in Hong Kong but was later sold. And in 1991 the Lee Kum Kee Property Company was established. By 2005 LKK had sales in 80 countries and had grown to just under 4,000 employees. The company had the number one oyster sauce product in the world and produced around 200 sauce products in total. In 1995 LKK produced its first soy sauce product, in a mature and highly competitive market. Within eight years, it was awarded the 2003 China Top Brand. There was also diversification into non-traditional niche products, such as ketchups and marinades. The twin buyouts of family members in the 1980s and 1990s meant that Eddy, Elizabeth David, Charlie and Sammy, although of the fourth generation, had characteristics in common with a traditional family firms second generation, as the company remained under the control of their father. Man Tat had begun handing over shareholdings to his children in the 1990s. At the time, the shareholdings represented negative equity, however, owing to the groups level of debt. Both the third and fourth generations planned ahead, in line with the family policy of dealing with issues before they became problems. As the family tree and ownership patterns were about to become more complex, significant structural change at the governance level became necessary at the turn of the century (refer to Exhibit 2 for the family tree). Early 21st Century: The Enterprising Family Initiative After 20 years in executive positions, from 2000 onwards, the five siblings of the fourth generation began to step back from operations, retaining governing roles. During this period, they recognized that the firm would face a crisis if no one from the fifth generation were prepared Do Not Copy or Post for succession if not as executives, then as competent and responsible owner-governors. The fifth generation consisted of 14 cousins, who were children or very young adults in the early 21st century. By 2018, they ranged in age from 15 to 36. Their parents educated them in international boarding schools, so they were fluent in written and spoken English. They also encouraged them to be educated widely, to be self-reliant. The cousins had spent less time in the business than their parents had when they were children the fourth generation as children often accompanied their father Man Tat on business trips. While the fifth-generation cousins were free to choose their own careers, they were made to feel aware of the importance of the legacy of the family firm that had provided for them. The parents were astute in realizing that, in their strategy for ownership, governance and leadership, a narrow focus on the business was insufficient. So, they devised a broader plan, known as Enterprising Family. This initiative made relationships a central priority and placed equal emphasis on the family, its philanthropic activities and wealth management, as well as the business (refer to Exhibit 3 for the Enterprising Family Structure). They recommitted themselves to the core values of the family, modernized the constitution, and introduced new innovations in approaches to leadership and employee well-being. Guiding Principles Like all successful family firms, the Lee family had unchanging principles, and a policy of always seeking to adhere to them. This maintained the family and business culture, with the values instilled and passed on from generation to generation: Pragmatism, integrity and constant entrepreneurship. Benefitting the community sharing the fruits of success. Enlightened or autopilot leadership. Putting the needs of family, business and community ahead of ones own always consider the welfare of others. Structuring conversations around the Three Perspectives model: ones own perspective, someone elses, and the overall picture, or helicopter view. This was based on the principle that We is bigger than I, as Sammy Lee said in a 2018 interview. Tackling issues before they become problems. The family made a distinction between the family and the business. The theme of entrepreneurship is common to both. The most important principles are: Business Family Autopilot Leadership WE. LOVE. FUN. Constant entrepreneurship Considering others (Si Li Ji Ren) A Holistic Governance System In the new governance system, the Family Council was established as the key decision-making forum. It met four times a year, along with an annual Family Assembly, at which a quorum of 75% of shareholders would be needed to secure a change to the constitution. Only immediate family members would be entitled to company shares and the chairman would be a Lee family member. The members of the Family Council initially were Man Tat, his wife May Ling, and the five children of the fourth generation. The board comprised Man Tat, his four sons and two non-executive members from outside the family, with plans to increase the board to nine with two more external appointments. The group chair was a position that rotated every two years. The Council appointed the group chair every two years. The Councils membership had been capped at nine, but with some rotation. Every two years, by consensus, the Council appointed new members from the bloodline for a term of two years. Three years direct experience was a minimum qualification for next-generation members to join the Council. The length of Family Council meetings was reduced from four to two days, plus a family workshop, in 2014. The Family Office The Family Office had a non-investing role; it was a support and administrative center to provide assistance to the family, sometimes dubbed the concierge, although this term understated its role; for example, it offered conflict resolution services. It was staffed by long- serving, non-family members of staff. Family Investments A separate wealth management office, Family Investments, prepared proposals for consideration to the Family Council. The family decided during this period to restrict entrepreneurial initiatives by family members to the LKK business, as there were difficulties in assessing opportunities in other sectors. The family adopted a 70-20-10 investment policy: 70% reinvested into the core business; 20% in related businesses, and 10% for something completely new. The Family Learning and Development Center The Family Learning & Development Center (FLDC) was set up for family members, with programs both for business roles and for leadership positions in family institutions. While there was significant emphasis on governance roles, executive positions were also open to fifth- generation members. Together with a Family HR Committee, it helped devise career plans. There was awareness that fifth-generation members, having typically not risen through the ranks through promotion, needed to acquire sufficient ability and authority to be credible owner-governors. To counter the risk, the firms HR function established a Board Training Program. The program was comprehensive, running over a period of one or two years. It involved attending executive education courses on family business; attending Family Council meetings and business unit meetings. Kevin Lee, who in 2018 was head of the Family Learning & Development Center, commented: The governance trainee program ... is basically a framework for a family member to attain what we think are necessary education or skills, or [ability to] participate in certain meetings; its what we feel is a framework for getting involved. In addition to conventional training, the centers purpose was to strengthen soft links between the different governance institutions of the family and the business. The Family Foundation The Family Foundation sought to sustain and improve relationships within the family while helping communities through philanthropic endeavors, and to promote family business as a business model in Asia. LKK built schools and other facilities in local communities and provided ophthalmologic services across China. Share Ownership The family was keen to avoid a repeat of the splits over business direction and ownership that had affected earlier generations. Shares had previously been passed down to the eldest male child, but this was changed to a gender-neutral policy alongside a policy of allocation of shares commensurate to involvement, evolving gradually toward the principle of equality of ownership for family members. Elizabeth, the only sister in the fourth generation, initially declined an allocation of shares since she was wealthy in her own right through her marriage., She later decided to accept her share of ownership to enable her children to take part in the family venture. A One Family policy for shares replaced a focus on branches. Relationships: Importance of the Human Touch In addition, as part of the Enterprising Family initiative, leading family members always placed an emphasis upon healthy relationships. This was helped through family-wide social activities, such as vacations for all fourth and fifth generation members. Visits to family business production units were arranged. These activities also helped strengthen bonds among the fifth generation and deepened their knowledge of the family values. The Family Council set up an education fund to cover the costs of post-secondary schooling that any of the fifth-generation cousins wished to pursue. The family also organized learning events for the fifth generation, such as Oyster Sauce 101 which was about the businesss core processes, and a course on Chinese culture at Tsinghua University, Beijing. Fifth-generation members were encouraged to do public speaking from a young age. David Lee commented: We start with cultivating a good human being. From there on, a good family, and from there, a good family business. Two other innovations from this period were the practice of Autopilot Leadership and the launch of the Happiness Center at Harvard University in 2016. Autopilot Leadership LKK always emphasized the importance of employee engagement and had won several Best Employers awards. In the first two decades of the 21st century, the family took this approach to new levels by developing the Taoist concept of invisible leadership, which ultimately became LKKs approach of Autopilot Leadership. This was derived from a concept of four levels of leaders: the ones people hated, those they feared, those who were motivational and visible, and the highest level, those who were inspirational through indirectly imparted wisdom, who become almost invisible. Sammy Lee, in particular, dedicated years of application and study, learning empirically from the practices and styles that were effective. He noted that Taoist teaching was strong on the value of invisible leadership, but less clear on the practices that supported it. Based on his years of learning, he was able to distil the findings in his 2016 book The Autopilot Do Not Copy or Post Leadership Model. He identified the following six core disciplines: Selecting the right talent A high-trust environment Highly effective teams Common goals Effective empowerment Coaching and developing talent. The Happiness Center: In 2016 the family established the Lee Kum Sheung Center for Health and Happiness at Harvard University, with a $21 million bequest. The Center was eclectic in its academic background, covering psychology, nutrition, biology, physiology and population sciences. It defined a Happiness Index, comprising 190 attributes of happiness under five headings: Health, Family, Work, Friends and Leisure. It was not only a philanthropic exercise, but also a tool used pragmatically by managers in the business to monitor and improve employee engagement, recognizing that this was key to success in a competitive environment. It made involvement in the family enterprise more engaging for members of the incoming generation. According to fifth generation member Kevin Lee: The Harvard Center really put happiness and fulfillment more on the forefront, whereas before it [involvement in the family business] was [seen as] more of a duty. At Lee family meetings, such as the Family Council, members would often open by checking in their self-reported Happiness Index, and also noting it at the end of the meeting. As such it was both an ice-breaker and a useful barometer of engagement. The Happiness Center also looked well equipped to provide findings that would be of wider benefit to society. Reforms Showed Rewards as Fifth Generation Matured some 15 years after its introduction, the Enterprising Family model was in full swing, and many benefits began to appear, in terms of preparing the fifth generation, and identifying and balancing the interests of family, ownership and the business. In a 2018 interview, Sammy Lee said of the approach that it was one of extreme balance. He added: When you are at a family dinner, it feels like there is no business. When you go into the business, it feels like there is no family. Maintaining the balance was a challenge, however, and family members noted the importance of the bridge between the two. Above all, however, they understood that strong family relationships lay at the heart of continued success; that their closeness, and continuation of the entrepreneurial spirit, were more important than any individual business. The family had continually recommitted itself to the core values of pragmatism, entrepreneurship and commitment to the communities the family served. Another key feature was the principle of taking the helicopter view, part of the practice of considering issues from Three Perspectives, based on the familys principle that We are bigger than I. You build up the trust first. Then you talk about common goals. The family also created the concept of the 1,000 year vision; not that there could be a tangible plan for a business over such a huge timespan, but to encourage a concept of lasting value and legacy. Combined with the Three Perspectives, this helped create space for strategic discussions. Kevin Lee of the fifth generation observed: What we get from this approach is not: What is our path? Rather, we create a system that allows us to be flexible, to be able to respond. With G3 and G4, even though they disagreed, the Three Perspectives model was the thing that kept them together. Andrea Lee of the fifth generation described the delicacy of the gradual transfer of roles and responsibility from one generation to the next, while acknowledging the progress made: The older generation is waiting for us to take the lead, but at the same time also expecting us to do more, either in the family governance structure or in business or outside on our own . and so we're talking about it now, going in the right direction. The business continued to thrive in the second decade of the 21st century. In 2012 it received the honor of the companys products being selected for Chinas Shenzhou IX spacecraft, and the company was appointed Official Partner of the China Space Industry. Toward the end of the decade, combined sales in sauces and health products continued to grow, with the net worth of the company reaching $17.1 billion by 2019. Future Innovations and the Fifth Generation: The reforms of the early 2000s were devised with the fifth generation in mind, but as the cousins matured, the need for future reform was a constant concern. The approach was always one of continual adaptation and evolution of the governance system and the businesses. The Family Council was effectively the apex decision-making forum for the enterprise and for the family; in that respect it was closer to an Owners Board seen in other family firms. While the set of reforms from 2002-03 was serving the family members well, they were never complacent. They were aware that ownership and family may not always be the same and were considering the creation of a separate Owners Board. The groundwork preparing the fifth generation for leadership roles, anchored around the FLDCs Board Training Program, was starting to show results. In 2014 the first members of the fifth generation began serving on the Family Council Charles, Brian and Jason clearly signaling a substantial progress in their development. By 2018 Andrea from the fifth generation had also begun serving on the Council. Charles commented: Before I joined, I always thought that the Family Council was like a secret society, like, hooded and with candles! So they plan things for the family and for the business. Its a very mysterious thing; they didnt really talk about what they really do. Theres no newsletter When [it was] first opened up [to us], there was an introduction video. Then, a job description not very detailed! The three cousins found that they were gently eased into their roles, and that gradually their influence increased. The family was aware of striking the right balance, so there was sufficient overlap between the generations to allow for transmission of knowledge and expertise, but not so much as to inhibit the succession. By 2018 the fifth generation was starting to take on leadership responsibilities, while the sixth-generation members were just being born. Individuals in the fifth generation were thoughtful, respectful of their ancestors, yet also tentatively starting to assert their own vision, for example considering a more radical approach to environmental sustainability. They appeared to be well prepared for senior roles and, like their predecessors, to achieve a blend of respect for tradition with commitment to adaptation and innovation. David Lee, of the fourth generation, recalled an exchange at a meeting between different members of the generations in 2018: We asked them, OK, share with us your dreams, and your passions for your future. They turned around and said, Share with us your retirement plans! The inheritance of the fifth generation was set to be more lucrative than that of the fourth, who had inherited negative equity on their shares in the 1990s. By 2018 LKK was a large and highly profitable company, diversified to the extent that the Health Group had become larger and faster-growing than the original Sauces Group. While it was set to be an easier transition in some respects, without immediate financial concerns, there was added complexity. The net worth was $17.1 billion, there were over 10,000 employees, and hundreds of product lines in two distinct business groups, operating in a volatile political world with a trade war developing between the familys two most important nations: China and the US. The responsibility was immense. Next Steps: Major decisions were emerging for the Lee family toward the end of the second decade of the 21st century on succession of ownership, and governance and potential executive roles for fifth-generation members. Some of the key questions were: The Family Council served well as the Owners Board when there were five siblings in control. What structural reform at the governance level should be considered in preparation for transfer to the fifth generation, and over what timescale? Should there be a separate Owners Board? Andrea, Kevin, Jason, Brian and Charles, the older members of the fifth generation, were in their late 20s and early 30s. They were highly intelligent and educated and had served the minimum time necessary for senior roles, as well as on the Family Council. What type of roles would be most suitable? Members of the fourth generation were each holding chairmanships within the group and were nearing retirement. Their ages ranged from 54 to 64 years old; the retirement ages were 65 for executive positions and the board, and 70 for the Family Council. How should they best plan their retirement, and the succession of leading roles to the next generation? What timetable and procedures should be considered for transferring shareholdings to the fifth-generation members? Should there be equality between members, or weighting given to those who had spent more time in the business and in training programs? The age range among the 14 cousins was considerable, adding to the complexity and sensitivity of the issue. Exhibit 1 Lee Kum Kee Business Facts and Figures Year established: 1888 Locations: Headquartered in Hong Kong. Production facilities in: Xinhui, Huangpu, Hong Kong, Malaysia and Los Angeles. Divisions: Sauces over 200 branded sauces and condiments, sales to over 100 countries. Health Products Chinese herbal treatments. Infinitus subsidiary of health products has production bases in north and southern China, and 145 products. There are 7,000 stores, mostly in China. By 2018 there were four divisions within the health group: Infinitus, Tian Fang Jian [Upstream], Property Investment and Happiness Capital. Financial results: Net worth: $17.1 billion (Forbes, February 2019)

please answer

take your time but answer within 2 hours please