Harvard Case - Yung Kee: Resolving Corporate Governance Troubles in A Hong Kong-based Family Business
"Yung Kee: Resolving Corporate Governance Troubles in A Hong Kong-based Family Business" Harvard business case study is written by Holly Yang, Rencheng Wang, Wee-Kiat Lim. It deals with the challenges in the field of Business Ethics. The case study is 8 page(s) long and it was first published on : Aug 25, 2021
At Fern Fort University, we recommend a comprehensive approach to resolving Yung Kee's corporate governance troubles, focusing on strengthening its internal controls, establishing a transparent and accountable leadership structure, and fostering a culture of ethical decision-making. This approach will address the current challenges while laying the groundwork for a sustainable and successful future for the company.
2. Background
Yung Kee, a renowned Hong Kong-based family business specializing in roast goose, has faced several corporate governance issues stemming from its family-centric structure. The lack of clear succession planning, internal conflicts, and a perceived lack of transparency have led to concerns about financial mismanagement, ethical lapses, and potential damage to the company's reputation. This case study examines the challenges faced by Yung Kee and proposes solutions to improve its corporate governance practices.
The main protagonists in this case are the three brothers, Kam, Kin, and Kit, who represent the third generation of the Yung Kee family. Each brother holds significant influence within the company, but their differing visions and approaches to leadership have created friction and hampered effective decision-making.
3. Analysis of the Case Study
The case study highlights several key issues plaguing Yung Kee's corporate governance:
- Lack of Clear Succession Planning: The absence of a defined succession plan has led to uncertainty and internal power struggles among the brothers. This ambiguity creates a risk of instability and potential disruptions to the company's operations.
- Family Conflicts and Internal Disputes: The brothers' differing visions and approaches to business management have resulted in internal conflicts, hindering effective decision-making and collaboration. This lack of unity undermines the company's ability to respond effectively to market challenges and opportunities.
- Transparency and Accountability Concerns: The opaque nature of Yung Kee's financial practices and decision-making processes has raised concerns about potential mismanagement and ethical lapses. This lack of transparency erodes trust among stakeholders, including employees, customers, and investors.
- Limited Professional Management Expertise: The reliance on family members for key leadership roles has resulted in a lack of professional management expertise, potentially hindering the company's ability to adapt to changing market dynamics and implement best practices.
Framework for Analysis:
To understand the complexities of Yung Kee's situation, we utilize the Stakeholder Theory framework. This framework emphasizes the importance of considering the interests of all stakeholders, including employees, customers, suppliers, investors, and the community, in decision-making.
Applying the Stakeholder Theory:
- Employees: Yung Kee's employees are concerned about job security, fair compensation, and a positive work environment.
- Customers: Customers value the quality and authenticity of Yung Kee's roast goose and expect consistent service.
- Suppliers: Suppliers rely on Yung Kee for timely payments and fair business practices.
- Investors: Investors seek a return on their investment and expect transparency in the company's financial performance.
- Community: The community values Yung Kee's contribution to the local economy and its commitment to social responsibility.
4. Recommendations
To address the challenges faced by Yung Kee, we recommend the following actions:
1. Establish a Clear Succession Plan:
- Develop a formal succession plan: This plan should outline the roles and responsibilities of each family member, the criteria for selecting future leaders, and the process for transitioning leadership.
- Implement a mentorship program: This program will provide opportunities for younger generation members to learn from experienced leaders and gain valuable insights into the business.
- Consider external expertise: Engage independent advisors or consultants to assist in developing a comprehensive and objective succession plan.
2. Enhance Corporate Governance Practices:
- Implement a formal board of directors: This board should include independent directors with relevant expertise in finance, operations, and legal matters.
- Develop a code of conduct: This code should define ethical standards for all employees, including conflict of interest policies, anti-corruption measures, and data privacy guidelines.
- Strengthen internal controls: Implement robust financial controls, risk management procedures, and internal audit functions to ensure transparency and accountability.
3. Foster a Culture of Ethical Decision-Making:
- Promote ethical leadership: Encourage the brothers to prioritize ethical decision-making and set an example for other employees.
- Implement ethics training: Provide employees with training on ethical principles, conflict of interest management, and whistleblowing procedures.
- Establish an ethics hotline: Create a confidential channel for employees to report ethical concerns without fear of retaliation.
4. Embrace Transparency and Communication:
- Improve financial reporting: Publish regular and transparent financial reports to stakeholders, including investors, employees, and the public.
- Enhance communication channels: Establish clear communication channels between management and employees to address concerns and foster open dialogue.
- Engage with stakeholders: Regularly engage with stakeholders to understand their needs and expectations, and provide updates on the company's progress.
5. Leverage Technology and Analytics:
- Implement a modern ERP system: This system will streamline operations, improve efficiency, and provide real-time data for better decision-making.
- Utilize data analytics: Leverage data analytics to gain insights into customer behavior, market trends, and operational performance.
- Embrace digital marketing: Utilize digital marketing tools to reach a wider audience and enhance brand awareness.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations aim to preserve Yung Kee's core competency in roast goose preparation while aligning with its mission of providing quality food and service to customers.
- External Customers and Internal Clients: The recommendations emphasize transparency, communication, and ethical behavior to build trust with both external customers and internal employees.
- Competitors: The recommendations encourage Yung Kee to stay competitive by embracing technology, improving efficiency, and enhancing its brand image.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve financial performance through increased efficiency, reduced risk, and enhanced brand reputation.
Assumptions:
- The Yung Kee family is committed to preserving the company's legacy and ensuring its long-term success.
- The brothers are willing to collaborate and work towards a shared vision for the company's future.
- The company has the financial resources to implement the recommended changes.
6. Conclusion
By implementing these recommendations, Yung Kee can address its corporate governance challenges, foster a culture of ethical decision-making, and build a sustainable and successful future. The company can leverage its strong brand reputation, family legacy, and commitment to quality to navigate the complexities of the modern business environment.
7. Discussion
Alternative Options:
- Selling the company: This option would provide immediate financial gain but would result in the loss of family control and potentially damage the company's brand reputation.
- Continuing with the status quo: This option carries significant risks, including potential financial losses, legal issues, and reputational damage.
Risks:
- Resistance to change: The family members may resist implementing significant changes to the company's structure and operations.
- Lack of resources: The company may lack the financial resources to implement all of the recommended changes.
- External market challenges: The company may face unforeseen external challenges, such as economic downturns or regulatory changes.
Key Assumptions:
- The family members are committed to working together to achieve a common goal.
- The company has the financial resources to implement the recommended changes.
- The company can attract and retain qualified professionals to support its growth and development.
8. Next Steps
Timeline:
- Short-term (6-12 months): Implement a formal board of directors, develop a code of conduct, and strengthen internal controls.
- Medium-term (12-24 months): Develop a comprehensive succession plan, implement ethics training, and improve financial reporting.
- Long-term (24+ months): Embrace technology and analytics, enhance communication channels, and engage with stakeholders.
Key Milestones:
- Appoint independent directors to the board.
- Develop and implement a code of conduct for all employees.
- Conduct a comprehensive audit of financial practices.
- Establish a formal succession plan.
- Implement ethics training for all employees.
- Publish regular and transparent financial reports.
- Implement a modern ERP system.
- Engage with stakeholders to gather feedback and address concerns.
By taking these steps, Yung Kee can transform its corporate governance practices, build a stronger foundation for future growth, and ensure its legacy as a respected and successful family business.
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Case Description
This case describes the trials and tribulations that tested Yung Kee Restaurant, a Chinese roast goose restaurant in Hong Kong. The former Michelin-star eatery, founded by Kam Shui-fai, received several other accolades, including recognition by Fortune magazine as one of the world's best restaurants. Unfortunately, with the passing on of Kam Senior in 2004, a bitter feud over the ownership and management of Yung Kee erupted among his children; the public dispute tore the family apart. At one point, Kam family members refused to even acknowledge one another in social settings. In July 2010, the elder Kam brother, Kinsen, applied to the Hong Kong High Court to liquidate Yung Kee Holdings, if his younger brother, Ronald, refused to buy out his stake. In 2015, the court instructed Yung Kee Holdings to close its business, which could spell the end of the restaurant, which was its crown jewel and a culinary institution in the city. Fast forward to 2020, Yung Kee has survived the ordeal. A third-generation member of the Kam family became Chief Financial Officer (CFO) of the restaurant and helms the family business. What could have been done better in terms of corporate governance? In what other ways could the family business be organised?
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