Why do 88 percent of family-run businesses not run last for three generations? Why do a whopping 96 percent of these enterprises disappear by the time they reach four generations? And why in one fell swoop, disintegrate into small parts? Definitely, it is not an act of God, nor external upheavals. Nor is it some sort of tsunami that made them disappear in one blow.
Family enterprises predictably collapse because shareholders/siblings fight, in-laws join the fray, extended family members also jump in, emotions takes center stage, lawyers litigate, conflict shifts to money and ownership, practically dealing the business the coup de grace!
What is causing all these to happen?
Unclear and confusing values
Total ignorance of family governance and the family members’ penchant to embrace a fundamentally flawed culture of unjust and unfair hand-me-down traditions (anointing the eldest son by reason of birth and not based on credentials) is one example. Adding to these discredited family rules passed on by previous generations is the wrong interpretation of values that embraces western ethos, providing equal ownership among heirs, whether lazy, troublemaker on one hand or talented, committed offspring on the other hand.
For parents, there is really no difference, but for the unfortunate but deserving sibling, the statement “Fair is equal, equal is never fair” comes to light! When you mix all these injurious practices together, the end of days of the family business inches nearer.
To quote JG Summit founder John Gokongwei, the country’s second wealthiest individual whose disciplined approach on family governance transformed the once small tindahan (store) on Martinez Street in Cebu City in the late ‘50s (where the siblings acted as bodegeros (warehouse personnel), clerks, all-around handymen to a diversified conglomerate with a workforce of more than 60,000 spread all over Asia and Oceania and a market cap of P700 billion or US$14 billion), “our conglomerate’s longevity is premised on its core values and long-term vision even as we went public and reached out to global markets.”
Mr. John concluded by saying, “Just a few years ago, the conventional wisdom was that family-run businesses could not be as well-managed as non-family-run businesses. But research has shifted, and our experience as a group shows that a hybrid of family-led publicly-listed businesses works.”
The 500-year-old longevity secret
This leads me back to sharing the Toraya Confectionary Company’s core philosophy. Their 500-year-old existence points to the importance of real focus. “It’s mere hindsight for us to ponder why Toraya has been around for so long. What’s important is not the past or even the future, but the present. It comes down to doing what needs to be done to create the sort of sweets that customers will like,”according to its 17th generation successor Kurokawa Mitsuhiro.
This flexibility may have something to do with the fact that there are no set-in-stone Kurokawa “family precepts” to be passed down from father to son. When Kurokawa took over from his own father, back in 1991, he realized the freedom and responsibility that came with the position: “Since there were no precepts, it was basically: Do what you like—it’s all up to you now.”
Thus, Kurokawa asserts that choice, not circumstances, determines success. It might sound overly simplistic, but if you’re going to sell something successfully, it better be worth the price tag. This is another longevity formula for success that the Toraya Company holds on to. In formulating a longevity plan for family-owned businesses, the real secret is designing an authentic governance model wholeheartedly embraced by family members.
To be continued...