Institutional investors need to hold family businesses in Asia more often to account, governance expert Professor Mak Yuen Teen says
At the annual general meeting of Singapore property developer City Developments Ltd (CDL) in April 2025, shareholders had to decide whether to re-elect two independent directors who had been appointed under controversial circumstances.
In the midst of a feud between the company’s executive chairman and his son – also the company’s chief executive – the father alleged that the directors were inappropriately appointed as part of an attempt by the son to take control of the boardroom.
CDL acknowledged that the directors had been appointed in a manner that deviated from the nominating committee’s terms of reference and provisions under Singapore’s Code of Corporate Governance, but said that there was a formal and deliberate process undertaken for those appointments, and that the process was consistent with the intent of the governance code.
While the family feud had been resolved by the time of the shareholders’ meeting – and father and son remained in their roles at the company – the independent directors still needed shareholders’ approval to remain on the board. Shareholders re-elected them with more than 99 per cent approval.
Corporate governance expert Mak Yuen Teen, Professor, Accounting at the National University of Singapore, takes issue with that level of support for such irregular appointments, especially from institutional investors who held shares of CDL, an index stock.
“I expected a stronger reaction from the institutional investors, that they wouldn’t just support management,” Professor Mak says. “Those were exactly the directors that management wanted re-elected, by and large. Everything just sailed through, despite so much noise being made and so public a case.”
“Institutional investors just don’t pay enough attention [to corporate governance lapses in Asia, especially among family-controlled businesses],” he says.
But with families controlling many of the most prominent businesses in Asia, institutional investors in the region leave themselves exposed to entrenchment and expropriation if they don’t demand better governance from such companies, Professor Mak says.
Family-owned Businesses Dominate Asian Markets
Institutional investors need to gauge the level of influence they can have in these investments, understand the family’s governance and ensure that there are safeguards, says the National University of Singapore academic. When the red flags are too many, institutional investors may need to walk away.
Family firms are a common sight among the largest businesses in the world. Analyses undertaken in the early 2000s estimated that family companies made up almost half of the largest publicly listed companies in Western Europe at the time, and more than two-thirds in East Asia. More current research estimates that more than 75 per cent of businesses in South-east Asia are family firms.
I sometimes wonder if it’s a sense of: ‘Oh, there’s really nothing much we can do because the family still holds the controlling stake’
But governance of family firms in Asia is still developing. The 2025 edition of KPMG’s annual poll of family businesses showed that the percentage of family businesses in Asia that had formal boards was only 58 per cent. That was below the global average of 61 per cent, behind 89 per cent in Africa and the Middle East and 62 per cent in Europe but ahead of 54 per cent in the Americas.
Professor Mak says institutional investors should spur the development of better governance among Asian family businesses by being firmer against bad performance. Even passive investors with mandates bound to indices should not be so passive that they just blindly vote in support of management or rely totally on proxy advisors, especially if there are performance issues, he adds.
For example, he notes that the family feud was not the first issue faced by CDL’s current chief executive officer (CEO). In 2021, the company incurred a S$1.8 billion write-down of an acquisition that he previously led. Professor Mak argues that institutional investors in more developed markets would have taken management and board to task by now.
“You’ve got to ask why,” he says. “Why are they not holding the CEO and board accountable? I sometimes wonder if it’s a sense of: ‘Oh, there’s really nothing much we can do because the family still holds the controlling stake’.”
Risking Entrenchment and Expropriation Through Leniency
But Professor Mak warns that being too lenient exposes investors to two major risks. The first is of entrenchment, which occurs when family members are able to retain positions in the business despite underperformance, and the second is of expropriation, where the family inappropriately extracts money from the business.
He highlights the example of Sheng Siong Group, a Singapore-listed grocery chain led by three founding brothers. Each of the three brothers receive the same variable bonus every year, which Professor Mak says raises concerns about how much of that variability is performance-based and how much of it is purely profit sharing.
“Watch out for pure profit-sharing type of arrangements and very high profit shares, because generally that’s a risk,” he says. “You’re just incentivised to increase absolute profits, and you may not be worried about return on equity or shareholder returns, which may not be the same as an increase in absolute profits.”
Watch out for pure profit-sharing type of arrangements and very high profit shares, because generally that’s a risk
The institutional investors’ ability to influence a family business through engagement may also be limited because of how the family’s control is concentrated, Professor Mak says. It’s therefore important to consider how the family governs itself and the business to gauge alignment on key issues.
“The institutional investors just don’t have enough stake, right?” he says. “You can have conversations with the families, but it’s very much the mindset. These are where conversations with the owners and management will give you an idea of how open they are.”
Positive Examples in the Philippines
One positive example is Ayala Corp in the Philippines, a family-controlled conglomerate with a formal constitution that lays out rules on how the family runs its businesses, he says. That framework has helped the family to manage succession through several generations.
In 2022, when then-president and CEO Fernando Zobel de Ayala stepped down for health reasons, the family elevated non-family member Cezar P Consing as his replacement instead of appointing another family member.
“They are quite institutionalised in terms of their family governance and how they bring family members into the business,” he says.
Many family businesses in Asia do not have formalised governance mechanisms because the controlling families have overly optimistic expectations of harmony in the house.
But disputes are common and inevitable, and some form of constitution is important to formalise how the family makes decisions regarding the business, Professor Mak explains. This helps to mitigate the extent to which disputes within the family can spill over to the company.
“That’s why you need family governance mechanisms like family councils and so on,” he says. “So that family-type issues are resolved on the family side, in the family meetings or councils. But unfortunately often it boils over to the listed company side, because you don’t have the proper mechanism on the family side.”
Information about how the families govern themselves is not always easily available, which is where institutional investors need to engage with the company to fill in the gaps. Through these engagements, investors should gauge the family’s openness to both professional managers and to feedback from non-family stakeholders.
Professor Mak recalls running a workshop on governance for the scions from a group of family offices, who were in line to take over their family businesses. By the end of the workshop, the young participants had become fast friends.
“I told them, all of you get along so well now, but you should assume that you’re all going to be fighting in the future,” he says. “Unfortunately, they don’t think about that and therefore they don’t prepare for it.”
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