Jay: Today’s show guest is Dr. Roger King. Roger is an adjunct professor of finance at the Hong Kong University of Science and Technology. He’s one of the founding directors of the Tenato Center for Asian Family Business and Entrepreneurship Studies and the Thompson Center for Business Case Studies at the University as well.

Roger is currently Non-Executive Director of Orient Overseas International, which is listed on the Hong Kong Stock Exchange. And he’s also a supervisory board member of TNT Express, which is listed on the Amsterdam Exchange. Roger was the honorary counsel for the Republic of Latvia in Hong Kong SAR and has been a close friend and mentor of mine for a number of years.

Today’s discussion revolves around entrepreneurship, the Asian family office, and corporate and family governments. Please enjoy my conversation with Roger King.

Hi, Roger. How are you doing? Thank you for joining. For the audience tuning in around the globe, perhaps you can give a little introduction. Who is Roger King and what do you for a living?

Roger: Sure. Well, Jay, thank you very much for inviting me to participate. My name’s Roger King. I’m an American-born Chinese, now living in Hong Kong, and I’ve been here since 1975.

I grew up most of my life in the United States. I actually did spend a little bit of my childhood after World War II in Shanghai. That’s where my parents were originally from, and we went back to Shanghai immediately after the war.

And so, we actually stayed there until Communists came. And in fact, I had two brothers that lived in China. Myself and my sister were born in United States. My father went to school in United States to do his master’s degree in political science.

And so, during the war, he was working for Bank of China, and it’s interesting because my paternal grandfather was the first president of Bank of China for Sichuan province itself. And my maternal grandfather, he was actually the head of the savings division for the entire bank itself.

So naturally, my father was working for Bank of China after he finished school in New York. So, this is where I and my sister were born.

And we went back to Shanghai late—actually, December 1946. And my two older brothers, they were actually being taken care of by my grandparents and so, actually, I didn’t get to see them until 1946 after returning. And so, we actually stayed in Shanghai, and it was actually a typical Chinese family. We had lots of cousins living under the same household, and sometimes, being one of the younger ones, I was actually the punching log for all the cousins as well.

So when the Communists came, we actually stayed in Shanghai because my grandparents originally planned to move to Hong Kong. And actually, during the war, World War II, they went Chongqing, and after the war they came back to Shanghai and also Hangzhou and my maternal grandfather was Hangzhou and my maternal was Shanghai.

But they thought this thing would blow over, and so they decided not to move. In fact, they were in the process of moving to Hong Kong, and the household goods were on a ship on the way to Hong Kong. And actually, outside of the harbor of Shanghai, it hit a mine. So, the ship actually sank.  But we did recover everything, but obviously a lot of things were water damaged. So, we stayed in Shanghai.

So anyhow, it was very, very interesting. The Communists came. We saw them coming in. The Kuomintang (KMT) had already left anyway. So, we stayed and until, actually, about 1951, my older brother, who is actually four years older than I, for some reason he decided to join the PLA, People Liberation Army. And actually because of that, my father decided, well, he didn’t want all of us to join the PLA, necessarily, so we all left for New York, and my older brother stayed as a PLA soldier in China.

So, we went back to United States, and my father was trying his own business in import/export. And during that period of time, Korean War was actually very, very difficult to do any import/export, particularly from China. So, it was very difficult for ethnic Chinese to get a job in United States, especially if you have a degree in political science.

So, after his import/export business did not really work out, the only job he could find was working in a Chinese restaurant as a waiter. It’s interesting because, obviously, when he went United States there were very, very few Chinese studying in United States. And he’s, I suppose, considered from a privileged background. And so, to be not able to find a job and can only work as a waiter, that was quite an eye opener. But I think it was okay.

Even for my brother and I, for our summer jobs, I was a dishwasher. My brother was a busboy in a restaurant. And I actually tell my children and grandchildren about these things, so I want them to understand life isn’t always as you see today. I’m actually very, very grateful to have that experience.

And I, of course, received my education in the United States. I want to University of Michigan for my undergraduate and after that, I actually was in the NROTC program, which is Naval Reserve Officer Training Corps. And after I graduated from Michigan, I actually was a commissioned officer in the US Navy.

But it was also very, very interesting thinking back, Jay, in those days, whilst I was signing up for the NROTC program, the interviewer, he kept saying many, many different things. In fact, I thought he was really trying to talk me out of joining.

And what he was really trying to tell me is that, and I only realized that much later, there are no Asian commissioned officers on a ship. And the only Asians in those days on a ship were Filipinos working in a galley. So, this is the background. I wanted to fly. I always had a passion for flying. Unfortunately, my eyesight was not good enough, so I actually served on an aircraft carrier for a number of years.

That’s also a very, very interesting experience because my undergraduate was in electrical engineering, and so naturally, when I got on the aircraft carrier, I was assigned to the electronics division. And a lot of our equipment in those days required a secret clearance or top-secret clearance to have access to.

But, I had declared my brother was a PLA soldier, and so the only clearance I could get was secret clearance, and the space — or we call a space the rooms on board the ship — was classified top secret. So, the people that reported to me, they can hide in the room and I couldn’t even go into those rooms because it was top secret.

Again, all of these — I wouldn’t call it prejudice, necessarily, but clearly, I wasn’t necessarily being treated as any other normal American was. So that’s sort of the background.

After I finished the navy, I went back to school. Then I got a job with a company called Bell Telephone Laboratories. Then I worked for them in military research, and again, I was only able to get secret clearance, but many of the projects were so-called top-secret projects. And I actually worked for them for five years.

And at that time, I was also pursuing my Ph.D. in electrical engineering. I think, for some reason, when I was young, I was very entrepreneurial, and I always wanted to do my own thing. So, after six years at Bell Labs, I actually started my own company, and I had the opportunity to come to Asia.

So in 1975, I actually came to Hong Kong and with the help of a number of people, including my father-in-law. And so, I started my business in electronic and computer distribution. And I was very, very happy.

And that business actually grew very, very nicely. I represented quite a number of brand names. And in fact, it became one of the largest, if not the largest, distributor of computer products. This company, ultimately, I sold it to a company called Jardines. And so, it was very, very interesting, and I also had many, many other businesses in between.

So, to a lot of people, number one is I’m a serial entrepreneur, and also I tend to buy businesses that have a little bit of problem, and I try to resurrect those things. So, I’ve been written up as a “company doctor” in that sense. Having said that, I did not finish my Ph.D. program, unfortunately, which I ultimately did after retirement.

So anyway, this gives you a little bit of background. I used to run offshore oil companies. In fact, I’m one of the first ones to sign an agreement with CNOOC, which is China National Offshore Oil Company, to drill offshore oil in the South China Sea.

We’re also the first ones to build jackup rigs in Hong Kong. Again, that was under my responsibility. And so I have had a very, very interesting life, including investing in companies like Pacific Coffee. And in fact, I was one of the largest shareholders for Pacific Coffee when we finally exited.

Jay:  Really? Wow.

Roger:  Yeah. In terms of return, this is one of the good investments. In Pacific Coffee, I think I invested something like $75,000 US. And ultimately, I was an angel investor when I exited. This was worth $8 million. My $75,000 became $8 million.

Jay:  That’s a nice return.

Roger: Yeah, so I haven’t really calculated the IRR on that. So, I’ve done quite a number of different things. So that just to give you a little bit of background.

And, of course, into my retirement, I continue to serve on the board of the company called OOIL. Orient Overseas contained a line itself, which is a company founded by my father-in-law.

And he’s also a very, very interesting fellow. He was one of the largest ship owners in the world. And he never finished secondary school. And he was able to…at one time, he had amassed over 150 ships. So, he’s done very, very well for himself. And so, I was on the board, and during a very difficult period of time. I also was involved as a COO of the company itself.

So that gives you a little background. After my retirement, I did go back to finish off my Ph.D., but instead of finishing it off in electrical engineering, what I did was actually finish it off in finance at Hong Kong University of Science and Technology, of which afterwards I became an adjunct professor of finance. But the area I’m very, very interested in and that I focus on is family business. So, I am the founder of the Tanoto Asian Family Business and Entrepreneurship Studies at HKUST.

So that gives you a little background.

Jay:  Thank you for the introduction–

Roger: It’s a long one. Sorry about that.

Jay:  No, no, no. This was actually abbreviated because I know you’re a modest guy. There’s a lot of holes in there. I know that you did a lot more other very interesting and memorable things in your career.

I remember hearing stories about you telling me when you were working at various listed companies, on their board, and helping them turn their businesses around as well, doing the old company doctor thing. But thank you for the introduction.

One of the reasons why I asked you to join is, like you said, because of your expertise in Asian families and sort of the Asian family office, which is a notion that is actually quite different from Western family offices.

When you think about Western family offices, you think about people like the Rockefellers or the Kennedys or some of these very old, traditional, very wealthy families. And the concept of the Asian family office is, I feel, is much younger. Not to say that it’s less wealthy by any means, because there’s a lot of wealth that’s been generated over the last couple of generations in Asia.

But I wanted to ask you maybe for a broad strokes overview of what the differences are between the Asian families and the Asian family office, if you will, and your traditional Western families and family offices.

Roger:  Okay, Jay, now thank you for asking that question because, well, first of all, there’s no clear definition of what a family office is. And the interesting thing is that it’s a Western concept that’s gradually coming to Asia. And, you know, in reality, a lot of families do have a family office, but it’s an informal structure.

As far as the investment aspect is concerned, very often it’s part of their operating company’s treasury function that does the investment arm. So what…and the other thing about Asian families, they tend not to trust outsiders very, very much. They prefer to have things kept to themselves.

And, of course, the idea of a hierarchical, matriarchal society, they want to make all decisions themselves. And of course, many of them are very, very successful businessmen, but in terms of investment, they’re not necessarily that skillful. So yet, at the same time, they want to make those decisions.

What’s really very, very interesting is that if you ask these very, very successful Asian businesspersons, especially ethnic Chinese, what is more important to you, family or business? Inevitably, most of them will say the family’s more important than their business itself.

And then, you dig one level deeper, and what are things that are of interest to you and are important?

And this is where the notion of what I call three P’s is very, very important. The first P is wealth preservation itself. And, of course, the idea of preserving wealth is hoping that the next generation actually will have a better life than the earlier generation because many of the successful entrepreneurs in Asia in recent years, many of them do not have formal education.

The Chinese and many others have the Confucianism concept itself. Education is something that’s extremely important. So, if you see these wealthy people, they put a lot of emphasis on making sure that that next generation are well-educated. So, this is very, very important. So,  the idea is they have a better life and opportunity to have the best education possible.

The second what I call P is that harmony preservation. And a lot of families, unfortunately, when they become wealthy, they have all kinds of family problems. And it doesn’t make sense to create wealth, then all you see is the subsequent generation fighting over the wealth itself. So, the notion of wealth preservation is very, very important.

The third is what they call legacy and value preservation. Every family should have its own value system. And of course, the ethnic Chinese families tend to follow the Confucianism structure.

So, what I see is that those that are willing to form their own family offices, they should really think about these three P’s. And it’s not just wealth preservation or investment. They should go beyond that and talk about harmony as well as legacy. Legacy very often is families form charitable foundations in the name of ancestors, and this is one way to preserve their legacy. And harmony, of course, again, how do you maintain harmony if financial is the only thing? So, you actually have to beyond financial issues.

So, the way I see most ethnic Chinese families is what they really want is, and what they consider important, are the three P’s– wealth preservation, harmony preservation, and legacy and value preservation. So that’s the way it should be structured.

In Hong Kong today, there are not that many formal family offices, but gradually that issue is increasing. In China today, actually, to our knowledge, there is no single-family office in existence. There are a number of different organizations that are forming what we call multi-family offices. This is, again, you’re sharing resources to reduce your cost. But basically, it doesn’t address the harmony as well as the legacy issue very, very much.

Jay:  Interesting overview. Thank you for that. I think that was pretty comprehensive.

Now, I want to drill down a little bit more on not the investment side but some of the other two pillars of what Asian family offices basically value and prioritize as well for successful family union.

So you read about a lot of some of these wealthier families, particularly in Hong Kong, and you read about them in the news, sadly, because when the succession happens, the brothers or the next generation often squabble and fight over the inheritance or the shares of the family business that was owned.

And this goes from everything at the very top levels of property and the richest to even the second layer down below, to like restaurant businesses that were once owned by decent-sized families, but then as soon as that first generation passes that down, the brothers squabble over that.

So what are some things that can be put into place to prevent this sort of squabbling amongst siblings because it’s very sad when you see a large family like this destroy all the hard work that the first generation has put into building up this wealth and this family. And you yourself, coming from quite a large and very successful harmonious family, what are some of the tools that you can use as a patriarch of this sort of large family to keep your family together?

Roger:  Right. Well, it’s a very, very good question, and it’s very, very appropriate. You know, where you see the squabbling or disagreements, it usually is surrounded by financial issues. And it’s unfortunately that these people, their value in their family, it seems like it’s all financially related. And in reality, this is…of course, financial is important, but for most of these families, honestly, how many meals a day can you eat?

Even if you add, tack on an additional zero to their net worth, it doesn’t change their lifestyle. A lifestyle should not be changed because of financial things. These, again, comes around in terms of the value system itself.

Like on my father-in-law’s side, he was very, very frugal. And he leaves that legacy to all of us. And so, my children as well as my grandchildren, we understand the notion of frugality. We don’t tend to waste things.

And we also have frequent events for the family members. We get together once a year, at least collectively as a family, and usually we have 80 people together. And we actually spend three days physically in Hong Kong Disneyland. And it’s quite, quite interesting, and everybody’s enjoying it. Hong Kong Disneyland’s a little bit small, so for the senior generation, it’s actually quite good. We don’t have to walk so much.

And also, the next generation, I would say the third generation, they actually have their own social website. And almost every day, there are new photos being posted and this and that and so forth. And when we talk about these gatherings, we’re talking about people from all over the world coming to Hong Kong. Today, the next generation is spread all over the place. And this is also very, very important.

So, if you use pure financial means to keep everybody together, that’s not going to work. So, for example, even in our in-law’s family, where it’s a reasonable-sized shipping company, it’s a listed company, they’re basically full-time third generation. There are only three people physically working on a full-time basis. Yet, everybody else is somehow contributing to the overall welfare, including business, including investments, including charitable organizations as well as family historians writing books, so forth about the family itself. And these are things that are very, very important.

So, the idea is stay connected but not because of financial things. And you want to stay together because you enjoy each other, not because somebody’s holding a big party and we are attending a party. So that’s very, very important.

And I know on my in-law’s side, it’s a very, very close-knit family. And even on my own family side, most of them are in China itself, so we do not meet frequently. But my aunt, who is 99 years old, every time I visit Shanghai, I make sure I give her a call. And, of course, I like to bring her some presents as well. And I keep track of my cousins and so forth.

So, the thing is the focus on the family should be family itself rather than the financial thing.

Jay:  Right. That’s very, very interesting, and I think that some of the older notions and family values that get passed down from some of the older generations, especially within Asian culture, are important to pass down to future generations. And it’s sad when you see those things lost.

Now here’s another question I have for you, Roger, is that oftentimes, when it gets down to the second or third generation, not all of the dependents or descendants, if you will, are interested in perhaps what was once the core family business.

And so, what would you suggest that a larger family do in a situation such as this? Maybe they’re not inspired, or they’re not motivated to contribute in that particular way, whether it’s running their grandfather’s manufacturing business, shipping company, property development company. What are some creative ways that you can keep the family gelled together and still be able to provide a role for some of the younger generation?

Roger:  Okay. That’s a very, very good question. We recently, together with my colleague at the HKUST, we actually did a study on ethnic Chinese families that survive more than 100 years. And what we saw that one of the key components and common among all those family firms that survive more than 100 years is that the ownership issue, this notion of pruning of ownership. So, you simplify the ownership itself. This is very, very important because you say some are not interested. So why not kick them out? They still can be part of the family. They can take it out.

The other thing is that the notion that I talked about in terms of family office planning succession — and we do this ourselves — is to create an equivalent to an angel fund and provide that for a younger generation to pursue their passion. And if they want to be in business, you can fund those. You become the angel fund for the young people that want to do things.

Another thing is that if look our center, the center name is Asian Family Business and Entrepreneurship Study. What do I mean by entrepreneurship? I really mean entrepreneurship within a family itself. Let them…businesses today, if you stick with the same business model, it’s inevitable, you’re going to be in some sort of sunset industry.

So, the idea is why not encourage people to actually expand on their existing business with new ideas or whatever? And those family firms that did survive more than 100 years, the ethnic Chinese family firms, actually they diversified, both the geographic as well as businesses.

So, they used the leverage off of their existing business. They move into related businesses, and also geographically expanding.

So that’s very, very important and the pruning of ownership is also, if someone’s not interested, why force them to just be a coupon clipper? And you’re always going to run into conflicts because those that are running the business and own part of the business, they’re interested in keeping the money in the business itself to expand, whereas those that only have shareholding, they’re interested in dividend stream.

So, this a basic conflict. So why not just come up with a reasonable scheme to buy those that are not interested in the business and let them exit? And you still can pool your money together to invest in new things.

And on a personal basis, for example, I have one—one of my grandson, he is actually very, very interested in music. So, he’s already expressed to me he wants to be a musician. Now in the olden days, for a Chinese to suggest he wants to be a musician, you’re going to say, “What is that?” To be a musician is not something you strive for. In fact, he went to his other grandfather and he said the same thing, he wants to be a musician. And the other grandfather said, “Oh, that’s a very, very good hobby.”

So, I’m more of a person, let people pursue their passions. In fact, when I’m teaching in class, I’ve often been asked by people how do you select the successor to your family business? Of course, in this part of the world, we very often practice the notion of primogeniture, meaning the first-born son usually takes over the business itself.

This, actually, sometimes people say actually, the first-born son should not be the successor. The reason is the first-born son tends to be very strict, very disciplined, but they have one flaw, is that they tend to be risk averse. And so, if you’re risk averse today, how do you continue your business?

And in fact, I always tell people there are four key characteristics for selecting successors. And I say what are these? CCKP. The first C is commitment. Are they committed? Very often, I’ve run into people that are in a family business. They are there because it’s an obligation. They’re not…their mind is really not committeed.

Second C is what I call self-confidence. Very, very often nowadays life-expectancy is longer. You go to the office. The father that’s maybe 80 years old, he’s also in the office. Every single day, he’s telling them, “Why did you do it that way? You should have done it this way.” His 55-year-old, 60-year-old son, he doesn’t have confidence.

K is knowledge. Of course, you have to be very knowledgeable about your existing business. But the key about knowledge today is what are the disruptors to your business? You have to look into, what are the disruptors? Five years from now, ten years from now, what’s going to replace your existing business? So this is very, very important.

So, P of the CCKP is passion. Without passion, forget it. So, this is what I tell people. If you want to select someone, forget about the birth order issue. Why not think about CCKP?

Jay:  I think that makes perfect sense, CCKP. Sometimes what’s tradition and what’s always been the way doesn’t necessarily mean it’s the right way or the best way, potentially, to carry forward.

Well, Roger, thank you so much for that overview of the Asian family office. We appreciate that. I’m sure the audience really was fascinated to hear your views and you outlining how the Asian family office is actually structured and the challenges and some of the headwinds that we face every year.

As sort of a final question, where do you see the China…you mentioned earlier the China family offices, there weren’t hardly any. Do you see that situation changing as the wealth starts to create and generate on a more broad basis across China?

Hong Kong, obviously, has quite a longer history and a lot more wealth development historically, but now we’re seeing a shift. And so a lot of the mainland Chinese are earning a lot more money and there will be more family offices, or at least families that have wealth. Do you see them going down the same path that you described earlier that you were referring to the Hong Kong family offices?

Roger:  Well, it’s a very interesting thing. Today in mainland China, for those people that started a business, it’s basically about 30-some-odd years ago, and they’re now thinking of succession, succession planning issue.

Of course, one of the challenges with a single-child policy of the early years, they only have one person to pass it on to. So, they don’t have the luxury of selecting if they want to pass it to somebody, their direct descendent.

But recently, it was very, very interesting, the Shanghai Jiao Tong University as well as Beijing University did some survey on the next gen, and it turned out that 80% of the next generation do not want to join the family business. So that creates a major, major issue.

In fact, we are now structuring a course specifically for family wealth creators. It’s how do you exit from a family business, which requires something. So incidentally, of the 80% of the people who do not want to join family businesses, most of them actually want to start their own business, which is totally unrelated to the family itself.

So, the question is…if you think about it, and I always tell the younger generation because many of these are Western educated, and they come back. They also have some Western concept, so I said, you guys are very, very lucky guys and gals. First, actually, you have the ability to absorb the best of both cultures, the Western culture as well as the Asian culture. That’s very, very important.

The second is that instead of thinking about your family business when you don’t have a passion to enter into, but in Asia social relationship is so very, very important. Why not capitalize on family relationship or family financial capital? These are two things that you can use to start your own business, or this is one way to do it.

And, of course, you need to help your father or mother, how do they exit the business as well? So, you can actually maximize the wealth of the business that they started many, many years ago.

Jay:  Very interesting. Thank you for sharing that. Is there any exciting projects or speeches or talks that you’re working on right now? Or your center, your team there at the university is working on that we can look forward to?

Roger:  Yeah. Our center is, we have basically three major objectives. One is, of course, education, and we continue that process. The second is research. And I just mentioned one research that we did was the 100 year-plus ethnic Chinese family businesses. What are the key characteristics and so forth.

So, we recently also did a research of comparing overseas Chinese family businesses to Jewish diaspora family businesses. There are many, many similarities. And, of course, some differences. The culture comparison is very, very important. And how do we learn from other cultures, the best parts of them? And we continue to do that.

I also mentioned this issue of birth order, and we’re doing some research on birth order. And we have tried to do this on a quantitative basis, to have some key statistics there. So, we have many, many other things.

The third objective our center is actually—I think this is also one of my missions — to bring academics together with practitioners. Very, very often academics tend to be very quantitative in their research, yet they have very little exposure to practical issues on family, family business issues itself. And, of course, practitioners do not actually understand how academics can help them.

So, we actually have events. We bring people from both sides to meet and understand each other, and hopefully not just ourselves, but other people can carry on what we have done. So, this is very, very important. So, the idea is bridging the gap between academics and practitioners.

Jay:  Well, it sounds like you have your hands full, Roger.

Roger:  Well, I dye my hair gray to gain respectability.

Jay:  Well, thank you so much, again, for sharing your insights on the Asian family offices and obviously, your very diverse and interesting, fascinating history and the work you’re doing at the university. So, we appreciate your time and thanks for joining us.

Roger:  Well, thank you for inviting me. It’s been an honor. Thank you.

Jay:  All right. Take care.