A family company does not need rescuing from its family

Most of the generics companies I know in Southeast Asia were founded by one person, often a pharmacist, an importer or a salesman, and many are still controlled by that person's family. A growing number now hire chief executives from outside. When they do, the story told about the appointment is nearly always the same. The outsider arrives to professionalise. The relatives are moved aside. Systems replace instinct, and the company becomes, in the language investors use, institutional.

I am one of those outsiders. I became Lumaren's first chief executive from outside the Seah family in 2019, and I have now spent seven years in the job. I think the rescue story is mostly wrong, and that believing it does real damage. It encourages hired managers to treat the family as a problem to be contained, and it encourages families to hear every proposal about governance as an attempt to remove them.

The myth of the rescuing professional

Start with what a family owner gives a medicines manufacturer. Our plants take years to build and longer to qualify. A new product may need three or four years from development to its first approvals across the region, and a tender policy that refuses to bid below cost can lose revenue for a year before its logic is proved. Each of those decisions needs an owner who will tolerate a poor year for a better decade. Our founder approved the Binh Duong plant in 2007 knowing it would not earn its cost of capital for six years. I doubt an owner judged on quarterly results would have done the same.

Family owners also carry memory. The Seah family knows which hospital pharmacists stood by the company when a product failed in the 1990s, which distributors behaved well in a shortage and which officials have long memories of their own. None of that sits in a data room, and very little of it survives a change of control.

What the rescue story gets right is that families can make governance difficult. When I arrived, seven family members worked in the company, several in roles created for them. Relatives gave instructions to managers without telling me, and there were at least three different views of who would choose my successor. Those were real problems. They were problems of structure, though, not of the family's presence, and they could be solved without removing anyone.

Three rooms, three questions

The most useful idea I have found is that a family company needs three rooms, each for a different question. The family council asks what the family wants as owners: how much risk it will bear, what dividends it needs, which values it expects the company to keep and which of its members want to work in the business. The board asks whether the company is being run well for all its shareholders, minority investors included, and holds management to account. Management asks how to run the company.

Trouble comes when a question is asked in the wrong room. A family dinner is not the place to decide whether a son should run the Malaysian business, and a board meeting is not the place to settle a disagreement between siblings about dividends. Our family charter, signed in 2021, does little more than assign each question to its room. The council, chaired by the founder's daughter, decides the family's positions as owners. The board, with family directors, investor directors and independents, decides on management, including my own succession, through a committee chaired by an independent director. Family members may join the company if they meet the criteria any outside candidate would face, among them three years' experience elsewhere.

This did not sideline the family. The founder remains our chairman, now non-executive. His daughter sits on the board and chairs the council. His son leads a division with a clear mandate and a development plan, and he is one of the internal candidates for my role. What changed is that each of them now knows where their voice carries weight, and so do my colleagues, which matters at least as much.

What the hired chief executive owes

If the professional chief executive is not a rescuer, what is the job? I think it carries three obligations beyond running the business well.

The first is to give every constituency the same information. Our family directors, investor directors and independents receive one board pack at the same time. When a relative asks me something outside the board, I answer and share the answer with the board. Parity of information costs a little convenience and prevents a great deal of suspicion.

The second is to make yourself replaceable on criteria the family can see. My contract is fixed-term and runs to the end of 2027, and our nominating committee reviews the succession plan every year, with family and non-family candidates judged against the same expectations. A hired chief executive who makes himself indispensable has quietly taken a decision that belongs to the owners.

The third is to help the next generation understand the business as owners, whether or not they ever work in it. I spend a day each year with the family's younger members, walking through the accounts, a plant and a live tender. Some of them will never be employed by Lumaren. All of them will one day vote its shares, and an owner who has seen a laboratory asks better questions than one who has only seen a dividend.

There are limits to this argument. Some families genuinely damage the companies they own, and some founders cannot let go. An outside investor may have sound reasons to want a sharper separation than our charter provides, and ours pressed for one. Nor is a charter self-enforcing: it works only while the people who signed it keep choosing to honour it, and every few years it has to be reopened for a generation that did not write it. But the default assumption, that professionalisation means subtraction, gets the economics of a long-cycle industry backwards. The family's patience is part of what a hired chief executive manages, and the job is to protect it while giving it a structure that outlasts any one person, including him.