A Family Succession Model Like No Other Part 2

By Prof. Enrique Soriano

 

Why is Japan’s succession model effective? What is their family business longevity secret? Is there a Japanese way? Does culture and their “ie” principle play a huge influence? In my last article, authors Hendrik Schwartz and Prof. Dr. Marc-Michael H. Bergfeld demonstrated how the “ie” model worked. Even in generational succession, the  principle offers a solution. “In case there are no children or the offspring of the owning family is not  willing or capable to fill the position, the head of the “ie” can rope in an outsider via adoption. This centuries-old adult adoption practice in Japan was developed as a mechanism for families to extend their family name, estate and ancestry without an unwieldy reliance on bloodlines.  The head of the “ie” can substitute his own bloodline with a competent person that he likes.”

 

The authors added that “by choosing a “mini-me” he can ensure the survival of the business and bar incompetent heirs from ruining the family lineage. The effect is twofold:  Firstly, his own children will be much more aligned to the overall business goals and second, he signals to his employees or talent pool that they also have a theoretical chance to make it big. It is the unwritten spirit of “ie” and truly lived unity that is powerful.” In the west and in most countries in Asia, this “ie” can be likened to the values handed down by the founders but in a deeper context and belief system. “Ie” is a way of life placed over individuals that composed it. Effectively, it is the source of family power that eliminates individual interest and aligns the family business towards perpetual existence. This addresses the question why Japan has 7 out of the 10 oldest companies on the planet.

 

However, for most non-Japanese family owning businesses, “ie” appears strange with some founders feeling ill at ease especially on the very sensitive matter related to adoption and the inclusion of in-laws as future successors.

 

The Chinese Way

According to author Thomas Metcalf, in China and most Asian countries, “Confucian influence pervades over family and business. Although not a religion, the standards it promotes are similar to those espoused by the world’s great religions. Ethics were an important part of business decisions. Spiritual values and the good of the group outweighed the needs of the individual and his material desires. Profit was less important than spirituality and Confucian values — goodness, benevolence, harmony and respect for tradition — dominated business life. For the collective good to be attained, there had to be a guiding leader, and in the traditional business it was a patriarchal family member.”

 

Notably, these two models are excellent, packed with authenticity and a deep understanding of the founder’s philosophy. Making this work on the ground is another matter. The real challenge for Asian family owning businesses is whether they can be true to their forefather’s values and beliefs including a disciplined mindset that goes beyond self. Additionally, how embedded these values are ingrained and embraced by the next generation will define the future of the enterprise.

 

Espousing my Model of Longevity

I strongly encourage business leaders to commence the governance journey immediately. No doubt there will be many bumps along the way, but when collectively initiated between and among generations, coupled with a strong commitment to move forward with renewed energy and fortitude, there is no doubt that the family and the business will transition well. Being a strong advocate of family governance best practices, I will share in my next column eleven fundamental principles that every business leader must pursue regardless of the size of the enterprise.

 

To be continued…