Our succession and innovation decisions were decided simultaneously to keep the company competitive and to make sure it continues to be fit for the future.
Universal Cement is a family business within a family of businesses and it reveals a unique system of ownership and management in the family business model. The company’s origins began with capital from the Hou family in 1960, followed by investments from 40 additional families and community shareholders shortly thereafter. Four founding family leaders from the Hou, Wu, Yan and Kao families came from nearby locations in Tainan City in southern Taiwan. They, along with their relatives and villagers in nearby communities, not only helped to establish Universal Cement, they also helped to finance the creation of several companies in their communities.
All of the families are from the Beimen District of Tainan. They are business partners, good friends and the primary leaders of what has become known as the “Tainan clan”, a group of families that brought together their capital and human resources to build significant commercial enterprises during a vigorous period of industrialization following the recovery of Taiwan. They invested in each other’s companies and gradually developed a unique system of corporate governance for overseeing them collectively.
Unlike many family businesses that are controlled by a single family, ownership and management rights of each company in the Tainan clan are not controlled by individual families. While the four core families have a significant ownership stake in their individual businesses, there are also numerous minority shareholders from several families in local communities.
In order to keep the management and operation of each company running smoothly, the founding members of the Tainan clan decided to maintain the autonomy of each company’s management team by appointing non-family CEOs who had full responsibility for each company’s operations. Ownership remained among the families within the Tainan clan. However, family members typically did not participate in the regular operations of their own companies.
The Hou family originally followed this non-family management protocol, even though the family owns the majority of Universal Cement’s shares. The commitment to non-family management began to change, however, in 2008.
Demand in the cement industry was beginning to decline rapidly and growing environmental protection issues were on the horizon. Universal Cement was under the management of a very conservative non-family CEO at the time and without any innovation or diversification plans, the company was beginning to operate at a loss. It became clear that a new, transformational strategy was required for the company to survive. And, so, 48 years following the formation of the business, the third-generation chair and CEO of Universal Cement, Mr. B.-Y. Hou, purchased all the shares of the company and assumed management control.
Unlike some family leaders who have concerns that their children may not be interested in the family business, Mr. B.-Y. Hou was one step ahead. Not only did he take control of the family business, he also created a development map for his two fourth-generation sons who had strong attachments to the business. They also had the talent and willingness to introduce innovations that would be necessary for the family enterprise to evolve and survive.
Along with their father, the two sons entered the family business to apply what they had previously learned while working outside the company. They revamped the company’s operations and fulfilled their father’s succession plan.
C.-S. Hou, the elder brother, is currently Universal Cement’s executive deputy general manager. Early in his career, he was a member of the research team of the Industrial Technology Research Institute in Taiwan, where he was engaged in the research of thin pressure sensors. His expertise in the electronics industry and his creative vision became a source of diversification for Universal Cement.
C.-Y. Hou, the younger brother, is the deputy general manager. During his studies abroad, he once served as the President of the Harvard Taiwan Student Association and interned in a US financial institution.
The succession and innovation decisions made by Mr. B.-Y. Hou have worked hand-in-hand to keep the company competitive and for family members to continue their professional development.
The next-generation family leaders have changed the conservative culture of the company and managed to preserve its revenue and profits in a mature industry. One of the first steps that the Hou brothers took was to increase the performance of gypsum board construction material, which added profits to the core business of Universal Cement.
The second step was a transformational investment in the production of value-added products, including the development and commercialization of high-tech materials, such as thin-pressure sensors.
In 2010, Universal Cement signed a contract with the Industrial Technology Research Institute to transfer the patented technology of novel pressure sensor and collaborate on its application to computer, communication and consumer electronics products and establish the production line of novel pressure sensors.
The brothers also introduced strict controls in the business, reduced excessive costs and conducted a deep analysis of the cement industry to proceed in a new direction with building materials, such as gypsum board. By 2014, the performance of gypsum board surpassed cement and ready-mixed concrete as the most profitable division of Universal Cement.
The Universal Cement example illustrates some of the potential challenges in monitoring and motivating the performance of non-family leaders. In particular, if the family owns the equity but does not have adequate mechanisms for overseeing the company’s performance, non-family management control may not be a good governance choice for the long-term development and sustainability of the company.
The return of family members to assume management duties at Universal Cement not only shows the value of family management and leadership, it also highlights the potential for continued trans-generational entrepreneurship in a mature company and industry when innovations and potential areas of diversification are not only encouraged but expected.
In this case, the succession and innovation decisions were decided simultaneously, making the company competitive once again and providing the family oversight necessary for ensuring that it continues to be fit for the future.