NAIROBI, KENYA. We have all heard about the 3rd generation curse and are familiar with the grim statistics that only 3% of all family-owned corporations make it into the fourth generation.
I am in Nairobi now for a week-long World Bank/IFC mission to promote corporate governance amongst East Africa’s aggressive family owned enterprises and I would frequently challenge business leaders to ponder on the unique Japanese approach to longevity especially for the Toraya Group.
Five hundred years later, Toraya continues to stand tall above other family owned enterprises with the current proprietor belonging to the 17th generation, ably supported by the next in line successor-son Kurokawa Mitsuharu.
How did the family business managed to navigate the business amidst an emotion-driven enterprise where family relationships always come first over business?
The “ie” concept, unique only to Japanese family business community 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, (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 frictions between the different family circles.
The Chairman/CEO and head of the “ie” is usually in full control and the family is programmed to support him in any possible way.
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 Chairman/ CEO of the “ie” can substitute his own bloodline with a competent person that he likes.
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: (1) his own children will be much more aligned to the overall business goals; (2) 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. Written agreements are important, but worthless if the core “ie” does not exist.
This addresses the question why Japan has 7 out of the 10 oldest companies on the planet and also has the highest concentration of old family businesses by any measure such as GDP, population, and land mass.