I attended a Japan Society talk last month on shinise (Japanese family firms) – given by academics Innan Sasaki and Davide Ravasi. Sasaki and Ravasi argued that shinise have survived over 100 years, by keeping small and focused on traditional crafts like sweet making, sake brewing, and textiles. They are very much embedded in the society and community in which they operate – the highest concentration is in Japan’s old capital, Kyoto. In return for their commitment to the local community, they gain a social status and support from the community. They are meant to have a higher moral purpose than pure profit and therefore do not seek to take risks and grow much beyond their current geography and sector – which means they are more resilient to external economic shocks. When downturns happen locally, they survive through the strength of local support. This contrasts with what Sasaki and Ravasi call “instrumental” firms, who exist for a purely economic purpose.
Even large Japanese multinationals behave like Kyoto shinise
Listening to their descriptions of shinise‘s motivations and behaviours, I realised they were very similar to the way I describe bigger, multinational Japanese firms in my seminars. Even though Japanese multinationals have taken the risk to expand overseas, and are often no longer owned by the founding family, the ethos of having a higher moral purpose than shareholder value, of corporate contribution to society and strong risk aversion to ensure longevity still endures.
And like the shinise, the darker side is the sacrifices needed to be regarded as a proper member of the family firm and the difficulty of becoming a senior manager if you were not born into it – or at least recruited straight from university like Japanese headquarter permanent staff.
Nikkei Business magazine had a feature last month on family firms in Japan showcasing research that family owned firms in Japan perform better than non-family owned firms in terms of Return on Assets. “They don’t hold on to unnecessary assets” says Professor Yasuhiro Ochiai of Shizuoka University.
Japanese family owned multinationals that have performed well
DMG Mori is still owned by the Mori family and has been particularly active recently in M&A overseas since the current Mori took over as President in 1999, most notably in their merger with German machine tool manufacturer DMG. Apparently quite a few of DMG Mori’s employees come from the wider “family” of customers and suppliers.
Of course the most famous Japanese company still managed by a founding family member is Toyota. However the current President Akio Toyoda is adamant that the company name is Toyota, the family name is Toyoda, and Toyota is not a Toyoda family company, “it’s everyone’s company.”
Those that are listed on the Tokyo Stock Exchange and also active in Europe were:
- Suntory (Torii family – founded by Shinjiro Torii in 1899) – chairman is from the founding family.
- Aisin (automotive parts maker in the Toyota group founded in 1949 – chairman is part of the Toyoda founding family)
- Shimano (Founded 1921, president is a Shimano)
- DIC (Dainippon Ink) founded in 1908 by Kijiro Kawamura, a Kawamura is on the board of directors
And how to avoid toxic family rows
It’s not all joy in a family of course. Nikkei Business also looks at the family rows that have affected the performance of companies like Idemitsu (petroleum company) founding family shareholders fighting a merger with Showa Shell and the rebellion against founding family member Yoichiro Ushioda and chairman by executives of LIXIL (owners of German bathroom fittings company Grohe).
Nikkei Business’s prescription for avoiding trouble is:
- Frequent communication between family members
- Treat family members who are employees the same way as other employees in terms of company regulations
- Don’t withhold information for family only, be transparent in management
- Don’t appoint a successor from the family if there is noone suitable
- Keep family assets and company assets separate
- When there is a generation changeover, keep criticisms to yourself
- Avoid too many family members as employees
- Ensure a structure is in place to stop family members going rogue
For more on what being a “family” means for Japanese firms and the non-Japanese employees that work for them, this was one of my most popular articles in recent years.
For more content like this, subscribe to the free Rudlin Consulting Newsletter.