Li Ka-shing opts for succession China-style
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Li Ka-shing is taking the Chinese approach to succession. After years of leaving investors guessing, Hong Kong‚Äôs richest man named his eldest son Victor as heir to his business empire. That should prevent a power scramble, and assures him a loyal follower who shares his values. The newcomer will even be surrounded by a coterie of long-time Li acolytes. It‚Äôs not dissimilar to the leadership transition happening in Beijing.
First, consider the careful choreography. Victor‚Äôs succession was widely telegraphed: he has been number two at Cheung Kong Holdings and Hutchison Whampoa since the 1990s. There‚Äôs much to be said for removing the element of surprise. Similarly, since Deng Xiaoping wrested power in 1978, China‚Äôs leadership transitions have mostly been meticulously planned. Probable next president Xi Jinping has held several of the same Party posts as incumbent Hu Jintao.
Then there‚Äôs the insurance policy. Hu and outgoing premier Wen Jiabao will help stock the Politburo‚Äôs top standing committee with loyal forces before they stand down in 2013. They‚Äôll probably also join former leaders like Jiang Zemin, who continue to influence events behind the scenes. It‚Äôs not much different for Victor Li. He will head a board stocked with long-time allies of his father. Cheung Kong‚Äôs directors have served for an average of 21 years. Even the independent directors have notched up an average 19 years each.
Continuity alone doesn‚Äôt make a legacy, though. In both the People‚Äôs Republic and the Li empire, the new brooms will need new tactics. China‚Äôs growth is slowing, and its returns on investment falling. Xi and likely premier Li Keqiang will need to create a more sustainable, and environmentally less destructive, model. Li Ka-shing‚Äôs conglomerates tell a similar story. Cheung Kong and Hutchison Whampoa have delivered almost flat returns over the past five years, according to Eikon data.
Li‚Äôs challenge may be that his model is outdated. Hutchison trades at a discount of 37 percent to its component parts, according to Credit Suisse, suggesting it might be worth two-thirds more if it were broken up. For China, there‚Äôs still strength in scale. But while Victor Li, Xi Jinping and Li Keqiang are there in large part to ensure continuity, they may create most value by deviating from their predecessors‚Äô grand plans.