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Soriano: Defying the Third Generation Curse: The Japanese Way Part 2

Inside Family Business

WHY are so many of the world’s oldest family-run businesses Japanese? Based on what I highlighted in my last column, the question that begs to be answered is this...what makes Japanese companies unique? Why do they thrive for centuries while next door powerhouse neighbors Korean, Chinese and the Indians located further to the west rarely extend their longevity streak? What is the Japanese secret for a long corporate life? Does culture play a huge factor in creating 100-year-old family enterprises?

In an article written by Zachary Crockett, he highlighted that “In Silicon Valley, any company that survives for more than a decade is considered a wise old grandfather. This is indicative of a larger trend: in the modern business world, longevity is increasingly rare.”

The Japanese model of longevity

For the record, Crockett points to Japan as having eight of the world’s 10 longest-running businesses (all founded prior to the year 800), including the world’s oldest hotel, Nisiyama Onsen Keiunkan, a hot spring that has been in continuous operation since 705.

The country also houses the world’s oldest sake brewer (Sudo Honke, 1141), religious goods company (Tanaka Iga, 885), confectionary (Ichimojiya Wasuke, 1000) and, until recently, construction company (Kongo Gumi, 578) — all of which have been verified by the Guinness Book of World Records.

Just like any other groups of people, these centuries-old family-run businesses and their family members were not totally exempted from conflicts. As members, they have their own set of beliefs, perceptions, diverse ideas and varying personalities. However, there are several major compelling factors both universally accepted governance principles and some very unusual characteristics that are unique to Japan.

Being an advocate for global best practices, let me start with the 10 universally accepted principles that every business leader must pursue regardless of the size of the business:

1. The founder must start by having a powerful vision and philosophy.

2. That vision must be complemented by a very strong sense of shared values among family members.

3. Aligning the interest of every family member must be given priority so the business can move forward in one direction.

4. Investing on human and intellectual assets is a must especially for blood members who are planning to join the business.

5. The creation of a family forum to address family and business issues that may lead to future conflict.

6. The creation of a Code of Behavior/conduct/charter to institutionalize control and impose accountability on erring family members.

7. Every offspring must be mindful of their stewardship roles as this value is key to nourishing perpetual growth.

8. Ownership and leadership transition is a process and must be initiated based on timing, readiness and maturity of the next generation leaders.

9. Handing down inheritance requires a delicate balance between tax efficiency and legal ownership and compliance of all the initiatives. It should never be handed down carelessly and on a whim.

10. Successor must be the most qualified and does not necessarily have to be the eldest son.

For a good number of Japanese family-owned businesses that have breached 200 years, these cardinal virtues are further reinforced by having the most qualified and deserving family member at the helm of the organization.

In the end, the organization’s ultimate purpose is not primarily for profit, but its continuation and longevity.

For most naysayers, they would always argue that the attributes mentioned may only apply in one, two, three or even four generation family enterprises but the complexity can invariably take its toll on the family.

To be continued...


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