Can family businesses ever be meritocratic? Banyan Tree chairman Ho Kwon Ping thinks it's possible.

Lessons on Leadership: Ho Kwon Ping explains why family businesses can and should have meritocratic intent even though they aren't meritocracies.

Mothership | November 06, 2021, 10:33 AM

COMMENTARY: "I think one has to be open and honest enough to acknowledge that if you have a family business, you can have meritocracy within the family business, but a family business by itself is not a meritocracy."

Ho Kwon Ping, the founder and executive chairman of Banyan Tree Holdings, is no stranger to discussing his views on meritocracy, an oft-discussed issue in Singapore. 

As the the 2014 Inaugural SR Nathan Fellow for the Institute of Policy Studies, Ho gave a series of lectures about Singapore's next 50 years. His final lecture was about the issue of meritocracy and the ossification of class boundaries.

Speaking to Mothership as part of Lessons on Leadership, Ho revisited the topic, sharing with us his views on meritocracy in the business world. 

Lessons on Leadership is a series hoping to inspire the next generation of Singaporeans through the stories of Singapore’s many successful business leaders and entrepreneurs.

By Ho Kwon Ping, as told to Jane Zhang

I don't think there's anything at all wrong about the concept of meritocracy.

What's wrong with meritocracy? It can only be wrong if you are racist, and you believe race, or class, or the aristocratic system, are the proper basis for upward mobility.

Positive discrimination on the basis of racial superiority has been discredited. Aristocratic superiority has been discredited. So superiority purely on the basis of performance is the one thing that everybody's accepting today. And that, of course, is simple meritocracy.

However, in Michael Sandel's book The Tyranny of Merit, he points out that the inherent flaw to the system of meritocracy is how a meritocracy can become so entrenched that it does not allow the diversity which you actually need, because meritocracy can become very narrowly determined.

Particularly in East Asia, we’re strong on the idea of a meritocracy based on Confucian values of academic achievement versus simply wealth. That has helped to create civil services built on academic meritocracy rather than money influence or other factors. That is no bad legacy.

Meritocracy in the business world

On the other hand, in the world of business, academic performance doesn’t matter as much as financial performance, because if you’re bringing in a lot of revenue or profits, then, of course, that is grounds for promotion. Profitability is the measure of merit.

I think one could argue that in the business world, it has gone too much that way, and that now, only the biggest financial performers get ahead, which is one criticism of capitalism’s obsession only with maximising profits.

Within my own company, we try to practice diversity, because we see the strength of it. We have over 50 nationalities in our company, because we are pretty global, although we're small. And we recognise that in order to be able to function well, globally, we need to have people who are familiar with every country that we're in.

For example, we have four hotels in Mexico, so we have a lot of Mexican colleagues. We actually promote quite a number of those middle executives to our hotels in Asia, and the other way around, because we think that through exposure, they're going to be stronger.

Attitude and aptitude more important than academics

A lot of people are also now beginning to recognise that in the service economy, attitude and aptitude are more important than academic achievement.

In the service industry — and particularly in hospitality, which is so front-facing and pretty intuitive in terms of the skills that you need to have — EQ is probably more important than IQ.

One of the things that companies are doing nowadays is having 360 degree reviews, to see how people – your associates, underlings, and superiors – feel about you. That's one way of determining promotions, rather than pure financial performance.

When it comes to hiring, we hire people based on their attitude and aptitude. Through interviews, we don't just look at past records; we try to use role play and situational problems. When we talk to prospective associates, we don't just look at their scores in school. Instead, we look at, for example, how extroverted or empathetic they seem to be.

Of course, you must promote people on the basis of merit. Meritocracy is still important and is the only basis of promotion. You don't promote them on the basis of race, and so on and so forth.

But you have to see, how is merit defined? It's not just academic achievement, or other narrow criteria — it has to be a broader, more holistic criteria for achievement and for merit and for performance.

Practicing meritocracy in a family business

My eldest son is the CEO of one of our listed companies involved in agribusiness and bioplastics. It's a food tech and agriculture company listed in Thailand that my father started. My daughter is a senior executive in Banyan Tree. And my youngest son is currently a lawyer in the UK. He's only 28 years old, but he's interested in the family investments and family office and so on.

Family businesses — and inheritance based on family businesses — are not a meritocracy.

The fact that I pass ownership to my children and so on doesn't mean that they're the best people to own it.

There is no logical reason why I should be able to pass the ownership of my company to my offspring. But it is something I aspire to do, because of a separate set of reasons — the continuance of the family, family companies being quite stable due to the provision of long-term leadership.

It is a quirk and reality of capitalism. And I openly accept that it’s a fact but not necessarily fair.

However, there are a few other things you can do to try to ensure that the company, having been passed on from one generation to another not based on merit, can still have as much of a meritocratic value as possible.

The first is within the family itself. A lot of Asian families, even today, do not allow the the women in the company to ever run the companies. It's always the sons and the sons-in-law, even — the women are not allowed to.

So obviously, that is not the case for us in Banyan Tree, for my companies.

And I believe that it has to be a meritocracy within the family. It's not as if all family members should get to be automatic employees of the company. You have to, within the family itself, demonstrate your ability.

Ownership doesn't necessarily mean best at management

Even within the company itself, you should separate management from ownership. As I mentioned earlier, because it's capitalism and I created the company and I own the company — well, it might not be fair, but I'm going to pass it on to my kids.

I hope that with that reality, they will be responsible owners. But whether they are the best people to manage the company or not, should be decided on a meritocratic criteria.

I do not believe that in a family business, top management should always be reserved only for the family owners. The family owners themselves should recognise that they will always be owners, but do they always need to be the CEO and the top dogs of management?

Ownership may be based on a birthright, but management should be based on ability. Unless they really do think they can provide something so special that they are well-placed to lead the company, or have a passion and commitment more than anyone else, family members should not automatically be the top managers of a family business.

They should themselves look at it and say, "We should be responsible custodians to pass on the family business to future generations. But am I the best person to actually run this business? Or should somebody else manage it, based on their greater ability to manage it, and I will be a responsible owner, but not necessarily the manager?"

I have always inculcated my children with this idea about ownership and management.

I think one has to be open and honest enough to acknowledge that if you have a family business, you can have meritocracy within the family business, but a family business by itself is not a meritocracy.

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Top photo courtesy of Ho Kwon Ping. Quotes have been edited for clarity.