“IF THE family is in good shape, then the company picks up. If the company is in good shape, then the family picks up. So it’s like two wheels going together.” - Masakazu Kongo, the 40th generation successor, Kongo Gumi (578-2006)
This is a continuation of last week’s article entitled, “Will Your Family Business survive for Generations?” but with a twist. I decided to make a case study of family-owned businesses that are going through periods of internal strife happening among family members, where battle lines have been set and relationships scarred for life in an otherwise predictable and preventable disagreement.
I am citing a particular case study sourced from the collection of ICMR that focuses on Kongo Gumi Co., an Osaka, Japan-based construction company regaled and revered as the world’s oldest continuously operating family-owned business until the end of 2005. The business, run by the Kongo family since 578, had been engaged in the construction of Buddhist temples since its inception. In recent times, it had diversified into general construction works as well. However, factors such as risking its resources by over-extending its financial resources during the economic downturn and failure to effectively respond to social changes led to the company’s ultimate demise.
As the case study highlighted, in January 2006, Kongo Gumi was liquidated and became a wholly owned subsidiary of Takamatsu Construction Group Co. With this acquisition, the unbelievable run of Kongo Gumi as a family-owned business that spread across 39 generations ended. At 1,428 years old, it has done what 99.9999 percent of family-owned businesses in the world have miserably failed to achieve... extend the life of the business for as long as it takes.
Family-owned businesses must change to survive
What lessons can we learn from Kongo Gumi?
We can just narrow it down to value-based management and succession planning practices. As added learning, it pays to understand and compare the most pervasive and unacceptable practices currently affecting family relationships. After collaborating with leading family business learning institute ExCed Group, we have observed that the most common causes of conflict stems from old practices and traditions that are usually started by its founder and inherited by the next generation successor.
•Family first.
There is a huge difference between family- and non-family-run businesses. In family-controlled enterprises, family comes first. Family members, especially business leaders, follow certain altruistic behaviors to keep family members happy regardless of his or her contribution to the business. In typical patriarchal fashion, the owner stubbornly coddles the offspring and looks the other way despite the adult child being the least capable among siblings. This creates natural sibling rivalries and can escalate to real infighting when the next generation members assume leadership.
•The penchant to blindly follow tradition.
Most business leaders commit a grave mistake when they provide some form of financial entitlement to family members. These entitlements come in the form of gifts or cash during special occasions (birthdays, Christmas, anniversaries etc.). Expectedly, the children develop the habit of demanding a share of the profits each year. This expectation, when unmet, can become a major source of conflict.
•To keep the peace, family members avoid making changes that upset the traditional way the family does things.
As to employment, family members look at the business as a safe haven constantly prodded by the parents that the family business will always welcome them even if they are not qualified. In short, the thrust of the leader is to keep the company going so other family members can have jobs. This action is dangerous.