The Formosa Advantage
Prof Joseph Fan, of the Chinese University of Hong Kong, and his team, conducted research on more than 200 Chinese family owned businesses in Taiwan, Hong Kong and Singapore. They found that in a five year succession period, succession performance declined by 60%. That is to say that for every 100 dollars owners’ value or investors’ value, by the time the succession is complete, the business is now only worth 40 dollars.
However, they found an exception to this occurrence; Formosa Plastics in Taiwan. Formosa is the largest manufacturing group in Taiwan. Their founder Wang Yung-ching passed away in 2008 at the age of 92. Just before and after his death the stock price did not decrease but actually increased. This went against all their findings of a 60% decline in value at the succession stage of a family business.
What did Wang Yung-ching do different? According to Prof Fan it is because Wang Yung-ching did not focus on passing down tangible assets. In fact he decided not to leave any shares of his business to his children. Instead he transferred all the controlling shares of Formosa Plastics to a charitable foundation. That meant that none of the children were able to own shares and were not entitled to the dividends. On the surface he left his children with nothing. However, while alive, he spent a lot of time trying to educate and coach his children in entrepreneurship. It was more important for him leave his children intangible wealth than tangible assets.
How did his children turn-out? Off course it was not without its family feuds but in the end it turned out for the best. Wang Yung-ching’s daughter, Wang Xuehong, is the wealthiest businesswoman in Taiwan today. She is also the president of VIA Technologies and High Tech Computer Cooperation.
Sometimes nothing…. can mean everything.