Quotes of the Day

Name a Japanese corporate colossus and chances are it started as a family firm: Kikkoman, Mitsubishi, Sumitomo, Toyota. If you go shopping or catch a movie in Manila, you'll doubtless enter a leisure palace decreed by the megawealthy Sy or Ayala clans. Hundreds of millions of Indians garb themselves daily in cloth made by the Ambanis or Wadias. Residents of Hong Kong can barely avoid contributing to the coffers of billionaire Li Ka-shing and his sons, who control office towers, supermarkets, electronics outlets and telephone companies.

Business in Asia is a family affair, and the most accurate picture of an Asian economy remains a diagram of an extended family tree connecting clans that make things to those that finance them, with dotted lines sometimes leading to the government (which often has an incestuous structure of its own). The payoff for decades of consanguinity has varied, of course, from nation to nation. For more than 30 years, the impoverished Indonesian archipelago was run as a mom-and-pop operation called Suharto Inc. In contrast, South Korea's economic miracle was engineered by some 30 ambitious conglomerates called chaebols, almost all family controlled, while the commercial drive of industrious Hong Kong and Taiwan emanated from anthills of small, adroit family shops that promiscuously abandoned products and premises whenever better opportunities came along.

Today, the majority of Asia's publicly owned companies are still family controlled—and the manner in which control is exercised can often be boiled down to one sentiment: a family business is the family's business. For decades, boardroom positions and top jobs at such companies have been passed down from fathers to sons and daughters, not to professional managers outside the clan. Profits have been used to shore up a sister (or cousin) company, instead of going to shareholders. A banker eager to lend to family concerns from Kuala Lumpur to Kyoto has been happily able to dispense with the borrower's balance sheet and P&L statement, which often concealed more than they disclosed. But he ignored at his peril the current blood pressure of the "Old Man" or the risk of antagonizing Wife No. 2 by getting too chummy with No. 1 Son.

But if you talk to the patriarchs and scions of the families that own Asia, they'll tell you that it is no longer business as usual. For the past several years, they have increasingly come under fire for inefficient, outmoded and nepotistic practices. One of the outcomes of the 1997 Asian economic crisis was that the once revered taipan became closely associated with crony capitalism, and crony capitalists—that cloistered business-government cabal that parcels out national economic spoils to a privileged few—got a heavy dose of blame for the region's collapse. Today, free trade, looser controls of capital flows, the information explosion and global competition are making it harder for family businesses to carry on like secret societies. Asians are more suspicious of concentrated economic power, no longer willing to take on faith the wisdom of their socioeconomic superiors. Shareholders are demanding "transparency" and genuine financial data, and that publicly owned companies be run for the benefit of all stakeholders, not just those who share genes. "The rules of the game have changed," says Jamie Allen, secretary general of the Asian Corporate Governance Association in Hong Kong, a nonprofit organization that monitors the behavior of Asia's company managers.

For proof, look to South Korea, where conglomerates have for so long been "run like ancient tribes to maximize political power for the leading families, rather than as normal businesses to maximize profits," says Morgan Stanley economist Andy Xie. That all changed with the '97 crisis, which caused the breakup of powerful conglomerates like Ssangyong and Hyundai and fostered in the public a persistent antichaebol backlash. Politicians today win office by crusading for chaebol reform. Business life in South Korea is marked by a steady stream of special investigations into chaebol-related bribery, stock manipulation, illegal campaign contributions, tax evasion and fraud. Chey Tae Won, nephew of the founder of SK Group, spent seven months in jail last year for accounting and stock fraud. Chung Mong Hun, the favorite son of the Hyundai Group founder, killed himself last year after being accused of illegally passing money to North Korean dictator Kim Jong Il. And corporate-reform activists successfully pressed tax authorities to slap additional tax on Lee Jae Yong, son of the Samsung Group chairman, for gains made on a controversial Samsung bond deal (though the chaebol is contesting the tax in court).

Even with the pressure rising, many family empires have yet to change their ways. "A small percentage of leaders is open and willing to face the challenge," says Harvey Chang, who is president of Taiwan Cellular Corp., Taiwan's largest mobile-service provider, and a corporate-reform advocate. "The rest just don't understand it." In the following report, Time looks up close at six immensely wealthy families who recognize that Asia's time-honored ways of doing business may no longer be tenable. These venerable houses, from the Lis of Hong Kong to the Moris of Japan, are to varying degrees expanding in China, battling foreign competition, coping with sibling rivalries and tackling internal change, even to the point of considering the ultimate sacrifice: delegating top management to professionals from outside the circle of kinship. "The public perception," concedes Daniel Tsai, 47-year-old scion of one of Taiwan's richest families, which controls Fubon Financial Holding Co., the country's second-largest financial-services company, "is that there should be no family members in the team of a professionally managed company." Individuals know they can only mature by breaking the grip of their families. Asian businessmen are now taking that lesson into the executive suite.

• Anthony Spaeth
• As a new generation takes over, Asia's richest business families are being forced to change their cloistered, Confucian ways