Inside Asian Gaming

September 2010 | INSIDE ASIAN GAMING 13 3 (3) Stanley Ho Hung-sun Chairman and Managing Director Sociedade de Jogos de Macau (SJM) Dr Stanley Ho is a survivor in business and in life. But at 88 years of age, his hospital stay during the final five months of last year— after being taken ill at home—has thrown into focus the leadership succession issue at his casino operating company, Sociedade de Jogos de Macau (SJM), and his investment holding company, Sociedade de Turismo e Diversões de Macau (STDM). SJM amounts to more than just one man. In Dr Ambrose So, SJM’s Chief Executive, Dr Ho has a very able lieutenant with a strong grasp of strategic issues in the Macau gaming market. But Dr So is not family, and family still counts for a lot in Chinese culture in general and Chinese business culture in particular— despite the fact that SJM is now a listed company with some of its stock publicly held and traded. Inside Asian Gaming won’t take up too many more column inches here repeating the speculation and possible succession scenarios for SJM. The wider point to consider is how much of SJM’s market strengths and political capital, both with the Macau government and the central government in Beijing, depends on Dr Ho’s personal connections, and howmuch of the political capital is due to tradition and the SJM ‘brand’ and can survive without him. Any institutional investors will not want the succession question left to chance. They will want indications of some sense of process and formula applied to it, rather than waiting for smoke to emerge from an SJM corporate office ‘chimney’ in the manner of a new pope being elected by cardinals meeting in the Vatican. There is some debate about exactly how much of SJM’s stock is held by Ho family interests or associates. There were reports at the time of SJM’s initial public offering in Hong Kong during July 2008 that a significant portion of the offered stock had actually been purchased by the family in small parcels. Under local stock exchange rules, any individual or entity holding a block of less than 5% of publicly issued share capital does not have to be publicly identified. But even if it’s the case that family interests are holding much of the issued stock, it doesn’t help much in understanding the dynamics of the business, given that theHo family is divided intomany competing factions. It’s difficult to predict, therefore, how shareholders would vote if there were to be a fight over the SJM succession. Litigation via the Hong Kong courts could potentially be one way for institutional shareholders to exert some influence, but it is expensive and by no means guaranteed to succeed. This was seen when Winnie Ho, one of Dr Ho’s sisters and a minority shareholder in Dr Ho’s investment holding company STDM, filed a lawsuit over the flotation of SJM. In any case, opacity has served Ho family businesses well in the past in dealings with what some Western regulators have described as organised crime elements historically linked to Macau junket operations. Why change the habit of nearly five decades? Unlike most public companies in the West, there are no SJM corporate statutes indicating publicly the protocols for succession. Many assume that the two main candidates are Pansy Ho and Lawrence Ho, because of their experience in running joint venture gaming projects with Western partners in Macau. Ms Ho was certainly being treated like the anointed successor by a procession of would be ‘courtiers’ at a recent society party in Macau. But that could have been as much about the locals being polite (and hedging their bets) as about having any supposed inside knowledge. There is certainly plenty to be gained from calling the succession issue correctly, and, by implication, plenty to be lost by calling it incorrectly. That’s both in terms of short term profits or losses on SJM shares, and in terms of understanding the company’s future strategy. SJM announced its interim results on 30th August, with profit in the first half of 2010 more than quadrupling from the same period a year ago to HK$1.57 billion (US$202 million). The profit spike was largely driven by soaring revenue from high rollers—SJM said its VIP Asian Gaming 50 – 2010