A Family Succession Model Like No Other

By Prof. Enrique Soriano

 

I was privileged to have been part of an international webinar event a couple of weeks ago and could not help but reflect on several emails I received related to my topic on succession planning. Most of the inquiries were curious about a powerful succession model that I have been using in my governance work in Asia. The event was jointly organized by ICON Executive Asia and WB Family Advisory and my culminating topic centered on the unique Japanese model related to generational succession. Perhaps the greatest example of this is the backstory of Hoshi, a Japanese inn founded in Komatsu in 718. As the company’s story goes, in the year 717, a Buddhist monk named Taicho Daishi was visited in a dream by the god of Mount Haku, and told to open a hot spring. His pupil, Garyo Hoshi, founded Hoshi on a simple principle. Since then, Hoshi has been passed down through the hands of 47 generations spanning 1,300 years! What added flavor to the event was how my firm and our research team many years ago stumbled on a formula of blending together a mix of the East and West’s powerful succession attributes making this succession model W+B’s “silver bullet” in transforming family firms into resilient businesses programmed to reach 100 years.

 

So how did family businesses in Japan manage to navigate the enterprise amidst an emotion driven enterprise where family relationships always come first over business? And how did these firms overcome the 3rd generation curse as well as the grim statistics that only 3% of all family-owned corporations make it into the fourth generation? Most notably, it is a known fact that family owning businesses are dying younger and they are also more prone to collapse at any given time especially in this difficult period. In a Boston Consulting Group report, “one-tenth of all public companies fail each year, a fourfold increase since 1965.”

 

“Ie” Concept 

 

Unique only to Japanese family businesses, the “ie” concept of governance and succession immediately comes to life. Non-existent to the western world, the concept in a patrilineal household, is at the core of the traditional Japanese family and is based on a forefather or primogenitor model. In this ecosystem, only one child inherits. All of the other children in any generation are expected to eventually leave the family and go on to establish themselves in some other institution. The chosen successor, usually the eldest son, inherits the family and everything to do with the family, and the rest of the children have to find their own way in the world.

 

In theory, the “ie” should last forever and in principle never dies. Japanese culture plays down the role of the individual and places significance on the importance of conformity and the success of the group. The primary objective of an “ie” is to preserve the clan. Therefore, it entails: (1) long-term planning, (2) priority to market share, rather than profit, (3) weak shareholder position as opposed to the equal sharing concept introduced by the west to Asians, (4) resisting mergers and acquisitions, and (5) displaying, even more, strength in the face of adversity.

 

Since the company should last forever, a Japanese family business based on the “ie” principle will have very few disturbances from misalignment or possible friction between the different family circles. The head of the “ie” is usually in full control and the family is programmed to support him in any possible way.

 

To be continued…