The longevity of family firms in Japan

The longevity of family firms in Japan

The Japanese family business landscape differs considerably from that of its Western counterparts according to The Handbook of Research on Family Business. This statement is based on research (Smyrnios, Poutsiouris and Goel, 2013) that indicates that family firms operating in Japan have been doing so for "two centuries or longer".

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 In the handbook, it's noted:

"The average age of family firms in Japan is 52 years (Goto, 2005), which more than doubles that of the USA, where the average life span of the family firm is 24 years (Landsberg, 1983)."

Understanding what drives longevity in family firms in Japan may offer valuable perspective for family businesses the world over, by providing insight into the key drivers of sustainability and long-term viability. Japan is home to some of the oldest family-run organizations in the world, and has a considerable number of well-seasoned businesses that have flourished and sustained under family leadership.

Family business governance in Japan

It's interesting to note the important role that the governance systems and value propositions play in the long-term sustainable growth of family firms in Japan. Notably, components such as the "family institution, philosophical background and business practices" have worked in unison to facilitate the achievement of longevity (Goto, 2005).

Time and again the difficulty of successfully transitioning family firms from one generation to the next has been discussed. One cannot deny the complexity involved in securing long-term and sustainable growth for a family-run organization. There are multiple factors and obstacles that stand in the way of securing longevity, and family businesses are often renowned for their somewhat transient lifespan.

Research indicates that the social and historical context, in which Japanese family businesses operate, has had considerable impact on driving "the strong commitment for the eternity of both the family and its business as described in the family constitution." It is noted that one of the key driving factors of longevity is a strong, family-wide understanding and continuation of the core values and vision (Goto, 2005).

Developing a family constitution

Many of the longest-standing family firms in Japan have a well-established constitution and code of conduct. In many of the constitutions there is an inherent emphasis on the "importance of honesty, diligence and morality to practice ethical conducts and build strong family structure" (Goto, 2005).

Key to the efficacy of these constitutions is an outline of critical elements such as the structure of the overall business, how family relationships are to be managed, "ownership concentration," how profit is to be distributed, as well as an outline on how any conflict should be resolved (Goto, 2005).

One of the more interesting components of family firm governance in Japan is the construct of the ie-institution. "ie" translates to house or household, but differs considerably from the traditional construct of a family unit. According to Toshio Gotto (2005), ie "is a group of persons bound together by obedience to the head, including not only the family members but also the clerk, servant and their relatives. [The family firm] attempted to ensure its prosperity and longevity by adopting non-kin outsiders as regular members."

Incorporation of non-family members

Often family businesses struggle with the management and incorporation of non-family members into the business structure. There is frequent dispute and conflict around the degree to which non-family members should hold managerial or senior decision-making positions.

It is interesting to note that the Japanese approach levels the playing field, by incorporating these non-family members into the family fold. The ie-institution calls for all members of the family firm to have the same level of commitment and dedication to the continuation and success of the business.

In the same way, it is important for all family businesses to consider options for creating employee buy-in and engagement. A committed and engaged employee is more likely to add higher levels of value to the business, and is more likely to facilitate and participate in successful transitions between generations.

The role of business ethics in family firm longevity

According to Gotto (2005) the business ethics of Japanese family firms is a key factor in fostering longevity. It is evident from Gotto’s research that there is a strong commitment from all business members to serving the household and family firm. In addition, Japanese family firms are dedicated to serving the customer, as the customer is seen as the sustaining force for business.

An interesting observation is that profit is seen as a "just reward" rather than a driver of business and service. Honesty is one of the key policies practiced, and the notions of loyalty and core values are central to Japanese family firm operation.

While Japanese historical and social context may differ from that of Western counterparts, there is much to be said about the lessons gleaned from the family firms. Longevity is a highly sought after trait for all family businesses and borrowing practices from successful, sustainable businesses is always a promising starting point.

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