COSCO SHIPPING SUMMIT Keynote Speech by Angela A. Chao

Senior Vice President, Foremost Group World Shipping (China) Summit

Tianjin, China November 02, 2007

Good morning! It is a great honor and a great pleasure for me to

be with such a distinguished audience and among such

wonderful panelists here this morning. Thank you for having

me.

I have been asked to speak about “Family Business

Development in an Ever-Changing World”. I think it’s a great

topic, one that is actually quite interesting in today’s business

environment, and one which is of course, quite close to why I do

what I do, and why I enjoy so much what I do.

There is no doubt that our world is changing, and it is changing

faster than ever before. Technology has transformed the way we

communicate with each other and our ships and the pace at

which we do so. Globalization and international trade have

bound us to one another closer than ever before. International

regulations – whether they be with regards to safety, security or

environmental protection – are daily concerns which our

businesses must confront and address. New financing structures

and sources have provided liquidity and abundant cash in our

capital intensive business. Information flows have changed the

expectations people set for themselves, as well as for the

generations that will come afterwards. These are all incredible

changes to our businesses, our business environment, and the

entire world. Change – it is inevitable. So the question begs:

how does the old-fashioned, traditional model of the family

business fit into this brave, new world?

In the United States, most companies of all types and sizes fail

within 20 years of their creation. Even among family

companies—which are a heartier breed—less than 30% survive

into the second generation, barely 10% make it to the third, and

only about 4% to the fourth.

So what makes the family business special? Why are the

chances for longevity greater for a family business than

otherwise?

I believe that what the family business represents -

accountability, honor and pride in one’s work and one’s

company – has never been more relevant. These are ideals that

are embodied in family businesses that should be treasured and

transferred to all companies and businesses.

We live in an environment where governments around the world

are trying to legislate corporate responsibility and business

ethics, and we are being reminded time and time again how

woefully lacking the letter of the law can be if people want to

ignore the spirit of the law. In the United States in particular we

have had scandals like Enron and WorldCom that shook the

public’s faith in corporate America and our stock market and

resulted in Sarbanes-Oxley, a still very controversial piece of

legislation that is still met with skepticism as to whether it can

prevent the next Enron. The development of the family

business in this environment when the time honored traditions of

pride in one’s work and a sense of honor still mean something,

is indispensable.

This is especially true in shipping, especially ocean shipping.

Shipping is a highly cyclical business with huge upfront capital

investments, and we are inherently international. We were

global before the term became part of the common parlance.

We transact in a world that is cross-border, practically by

definition. Our industry moves too fast, even with the faster

modes of communication available to this generation, to wait for

legal papers to make it around the world. Our word is our bond.

Our reputation is what counts.

I consider it an honor to hail from a family business. My parents

started this company over 40 years ago as they embarked on a

new life in America. They faced hardship and difficulty in those

early years. Instead of surrendering to the fact that certain

career paths and job opportunities were closed to them, my

parents persevered to create their own reality and opportunities.

That they did so in a land whose language and culture were

completely new to them is awe-inspiring to me. The business

which they built provided security for their family while staying

true to their values and life philosophy – the bottom line was

never to make money for money’s sake. The goal was to

provide a service that was needed. My father would say, don’t

pursue something because it makes money – provide something

someone needs, and you will be compensated for it.

I work every day with the knowledge and the pride that this is a

company which my parents built. It gives me direction, strength

and inspiration.

So now how do we preserve these time-honored traditions and

ethics of the traditional family company to the world in which

we live. After all, there are downsides of family companies.

There are the succession issues and often a desire to “keep the

business in the family” whether or not there is someone capable

and competent within the family to do so.

And that is where I think the “development” part of the family

business topic comes into play. Family businesses can

So no matter how fast shipping changes, and in fact I would

argue, the faster that shipping does change, the more relevant the

values and ethics that a family business embodies remain. That

we work for something larger than ourselves and that we work

always mindful not to bring shame or dishonor to ourselves or

the company is an important ethic that cannot be underestimated

in today’s current environment.

Shipping has enjoyed the most extraordinary of markets in the

last few years. Everyone has prospered in ways unimaginable

for generations past. But that does not mean we have shifted

into a new paradigm and that loss-making spot rates will never

ail the industry ever again. Counter party risk has never been

higher. So who do you want on the other side of your table?

Someone who can walk away, who is simply a representative for

a faceless conglomerate, or someone whose name and reputation

is not just his or her own, but the hard work and sweat of

generations before.

Visiting the ships, knowing your captains, chief engineers and

crew, and keeping a hands-on approach is something that I think

is valuable and should be preserved, especially in a business

where ships are trading worldwide and

The shipping industry has a bit of what is often referred to as a

“public relations” problem. In the United States, when I say I

am in shipping, people often think I am referring to Federal

Express! Without strong domestic contingencies, our industry

is the scapegoat for government bureaucrats who face domestic

pressures to take quick action because of environmental

incidents or security breaches.

Of course, not all family businesses live up to this ideal. If you

surf the web and type in “family businesses”, most of the hits

that come up have to do with succession planning. But that’s

not what family businesses should be about.

Recent years have been kind to shipping, as have the public

equity markets. Using “other people’s money” has always given

rise to the so-called “agency cost”. How do you align the

interests of management with that of those who are putting up

the money?

It was not a public company with investor scrutiny or pressure to

deliver immediate and ever increasing earnings growth. Ours is

a company that can plan for the future, making short-term

sacrifices for long-term gains, and which has a heart and soul.

I am not saying that these values can only be preserved in a

family business – these values can and should be preserved in

whatever corporate form or ownership structure is chosen.