Monday, Feb. 16, 2004

The families that own Asia: The Lis

By Michael Schuman

"Wealth will not pass beyond three generations," warns a Chinese proverb. Genes, the thinking goes, don't always carry the entrepreneurial DNA of the empire's founder to his sons and grandsons, who inevitably dissipate the ancestral fortune. That quaint admonition must be weighing on the mind of Hong Kong-based alpha tycoon Li Ka-shing. Though he has given no indication that he is contemplating retiring, Asia's richest man (estimated net worth: $7.8 billion) is 75 years old. Which of his two sons will be taking over the family businesses, including property giant Cheung Kong Holdings and ports-and-retailing-and-telecom conglomerate Hutchison Whampoa? That's a question that Li, as well as investors in his publicly traded companies, which have a market value of $74 billion, must inevitably confront in coming years as he attempts to safeguard his immense legacy.

Succession is always a thorny topic, but Li's case is especially sensitive because of his reputation as a brilliant dealmaker whose instincts may be impossible to duplicate. Li is also considered one of Asia's most forward-thinking and global-minded businessmen. Hutchison Whampoa operates mobile-phone networks on three continents, has major retail holdings in Europe and Hong Kong, and owns ports from those in Indonesia to the Panama Canal. Unlike many Asian tycoons, Li relies upon seasoned nonfamily professionals to run his complex empire. Despite his modern management approach, company watchers don't expect him to choose someone outside the bloodline to take his place, no matter how qualified that person may be. The odds-on bet is that Li will pass his scepter to his eldest son, Victor, a 39-year-old Stanford-trained engineer and deputy chairman of Cheung Kong.

The choice would certainly be in keeping with Chinese tradition. Victor has been the classic filial understudy. He shares a house with his dad, living with his wife and three daughters on one floor, while Li occupies the other. In a rare interview, Victor declined to tell TIME if he'll definitely take his father's throne, but was at pains to stress how much he is like his legendary dad. "We're good partners working together," Victor says. "When we reach decisions, we almost always arrive at similar conclusions." Victor adds that he has already taken on much of the day-to-day operations of the business. At company headquarters in the Cheung Kong Center in downtown Hong Kong, Victor says he toils away with middle managers in his 9th-floor office, which he calls "the engine room," while dad plots big-picture strategy from the palatial 70th floor.

Still, surprisingly little is known about the heir apparent. "There hasn't been a huge amount of visibility into him or what he's doing," notes Steven Li, an analyst at J.P. Morgan. The biggest worry is that Victor might lack his father's flair for sniffing out deals. (One classic example: Li off-loaded mobile-phone operator Orange in 1999 for a $15 billion profit.) Li is called "Superman" in Hong Kong. Victor is called "enigmatic" and "nondescript" by local market watchers. Lately, though, he seems to be coming out of his shell. In November, Victor, a Canadian citizen, won control of Air Canada with a $500 million bid—his first major foray outside the family businesses—which in January received Canadian court approval. How successful he is in resurrecting the bankrupt airline could boost—or sink—his reputation.

His brother, Richard, on the other hand, went his own way 14 years ago. The unconventional 37-year-old lives in a town house near Hong Kong's Victoria Peak, an enclave for the superwealthy, zips around Victoria Harbor in imposing yachts, and keeps the territory's tabloids busy with his amorous liaisons. He once flew Whitney Houston out to Hong Kong to perform at a party. Although Victor really did earn a degree from Stanford, in 2001 Richard was publicly embarrassed when his company Pacific Century CyberWorks (PCCW) was forced to admit that he never graduated from the élite university in California, as the firm's website had claimed.

What Victor might lack—entrepreneurial sass—Richard has in spades. But that's been a source of trouble, too. In 2000, Richard deftly used inflated stock in PCCW, then an Internet firm, to buy Hong Kong's dominant phone company for $28 billion. But his grandiose vision of transforming the staid blue chip into the world's largest broadband Internet business went kaput with the pop of the tech bubble. At its worst, last August, the stock had plunged 97% from its peak, and Richard's reputation lay in tatters. Indeed, the hit Cantonese movie Golden Chicken featured an embittered prostitute watching Richard's stumbling explanation on TV and yelling, "Shut up before you can remember what you want to say! I've lost everything on your stock! Give me my money back or I'll call the cops!"

Though Richard remains chairman of PCCW, last July he turned over the chief executive job to the former CEO of Hong Kong's subway system. But the PCCW saga hasn't dulled Richard's love of deals. Last year he partnered with investment-fund Ripplewood in its takeover of Japan Telecom.

Both sons still have time for some more practice at empire building, as Li insists that he has no plans to step down anytime soon. "I am busy at work, as always," he said plainly last March. "I have not considered this issue [of retirement]." With shares in Hutchison and Cheung Kong climbing sharply in recent months, investors won't mind if the two boys wait in the wings for a while longer and quietly observe the ways of the grand master of Asian business.