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Soriano: Comparing your business with Kongo Gumi

Inside Family Business

FOR 1,400 years, Kongo Gumi was a successful Japanese company involved with the construction of spectacular Buddhist temples. Until its fall in 2006, it was the world’s oldest continuously operating family business, surviving 14 centuries of political upheavals, economic crises and world wars. Over the centuries, Kongo Gumi constructed hundreds of Buddhist temples and buildings, including Osaka Castle, one of Japan’s most famous landmarks.

How did the Kongo Gumi group manage to survive for 1,428 years? And how come most family-owned businesses ended up a total failure only after 30 years?

The answer primarily points to the leader who unknowingly falls into the trap of embracing two roles (parent and business leader) and compromises the organization’s growth culture by breeding ego, entitlement and poor succession programs.

Let me continue sharing the harmful practices of modern-day business founders, so readers/owners can reflect on their roles as legacy builders:

* For family members, qualified or not, it has been ingrained during their formative years that the business was such an important part of the family fabric and that if you were not part of the business, you were not part of the family.

* Regardless of sibling differences, the leader pushes his luck to maintain family relationships at all costs and be loyal to each other.

* Family members must realize that family system goals and business system goals are fundamentally different. Even if both systems have short- and long-term goals, they form different sets of expectations.

* For example, as a family goal, parents may want their children to lead the business and hand them the best opportunities. However, for that parental aspiration to classify as a business goal, business needs to operate based on meritocracy. When the children do not have the qualities to lead the company in the next cycle, the senior leader is forced into a dilemma by setting aside performance standards, offering concessions just to accommodate the unqualified offspring.

* On top of these entitlements, the family also expects high dividends to maintain its lifestyle. But on the flipside, the business needs capital reinvested to grow the enterprise.

When family and business needs collide, you can expect meritocracy to play second fiddle to birthright. As governance colleague Henry Foley remarked in the Harvard article he co-authored, “Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.”

To escape the trap, Foley suggests intervention on proper training and screening. He continues: “It’s natural for a family business to welcome members of the next generation, and it’s healthy to expose them to the company at an early age, so that they can make an informed decision about whether to pursue a career there. But a job with the company shouldn’t be an entitlement. Those who want to join deserve no special accommodation.”

A recent Harvard Business article identified traps that can hamper generational success. These are:

* The mindset that there is always a place for a family member, qualified or unqualified;

* That the business can’t grow fast enough to support everyone;

* Family members stay in silos according to bloodline;

* This also means that the senior family business owner can have wrong expectations as far as business succession planning is concerned.

Finally, what is happening in a conflicted family business is clearly an indication that the challenge facing family businesses is universal and cuts across all countries.

The key is for everyone to realize that it does not follow that belonging to a family business entitles the children to continue running the family business.

The impetus for survival, growth and generational success is to relentlessly pursue proper training, skills and shared values that seek to promote legacy rather than short-term comfort.


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