FBN chapter formation

Changing the perception of family business in Japan

This is an exciting moment in Japanese business history – the establishment of the FBN Japan pioneers the long-avoided acknowledgment and reassessment of businesses that are family controlled. And, as a result, it contributes in progressing an already large but weary family business sector. Prerequisites for such evolution, however, is for family businesses to rediscover their identity, to recognise their unique characteristics, and to learn more about managing them.

Ever since the dismantling of zaibatsu (one type of large family enterprise) following World War II, Japanese public opinion has been prejudiced against businesses that are family controlled. As a result, family business owners have had the tendency to mask their family colour. On the other hand, principles of American-style corporate governance marked the business fashion of the past decade. The recent economic slump, however, elucidated the gloom and limitation of American-style corporate governance dogma and caused Japan to be in search for a new framework. Advancement of the family business sector sector is key in vitalising the economy in a long run. The objective of FBN Japan is to deliver better understandings of family business, its values, its possibilities and its contributions both to society and the economy.

Sonia Totten (ST): Let's introduce our founding members and origins of the chapter establishment.

Satoshi Koga (SK): Among the five founding members of the Japanese chapter, Mr Takanashi is the only person from the family side. Other members have wide experiences in family business as outside advisor, outside manager, as well as consultant. We attained, through our experience, deep knowledge of the needs and problems that are unique to family business.

Ichiro Takanashi (IT): For me, simple questions such as "how do you design a good business strategy?" and "how do you achieve smooth business succession?" were the starting point. Since family business embraces unique characteristics, complex problems and multifaceted issues, a wide range of knowledge and information are required. I immediately faced a wall during the search for solutions to the fore-mentioned questions: neither adequate information nor professionals with deep insight on family business exist in Japan. Our family had no choice but to rely on information and brainpower from overseas.

ST: Tell us more about your experience abroad. What was your impression?

IT: Our family's experience abroad only emphasised how far Japan was left behind in this field. Visiting some well-known British families and their family offices in 1998 gave us the opportunity to observe many aspects of family business. The following year, we visited the USA in order to extend our knowledge on Family Office and attended the FOX (Family Office Exchange) global conference, where we learned a considerable amount about asset management and business strategies. Both visits were extremely useful. However, something was missing: we were searching more for fundamental and philosophical aspects of family business as a whole.

SK: We wanted more of a family-oriented, not profession-oriented, discussion on business and succession issues. When we attended the 2000 FBN world conference in London, we immediately felt this was what we were seeking.

Jun Kawada (JK): The best thing about this organisation is that it doesn't lead with a single conclusion. It puts considerable emphasis on networking allowing candid discussions. Also, the quality of the FBN comes with a strong academic backbone.

ST: What do you think is the significance of building a Japanese chapter?

JK: The formation of FBN Japan is like drawing something completely new on a blank piece of paper. Now that the prevalent American-style corporate governance has come to a standstill, reassessing the strengths of family businesses and the secret for succession could contribute in the search for a new governance system.

ST: Why do you think there is a negative perception of family business in Japan?

JK: The irony is that Japanese people love family business brands. It's obvious when you walk around Japanese cities: everyone has Italian and French brand bags. Japan is the biggest consumer of top European and American family business brands. However, we don't have the same admiration for Japanese family business brands. We think this is because Japanese culture is based on jealousy, unlike Western society. For example, if someone achieves success in business and/or earns vast wealth, people immediately assume something negative such as, "he/she must have deceived someone or done something illegal", instead of congratulating him/her.

IT: Exactly, and as a result of that, family business owners have kept their lifestyle as simple as possible throughout history, although they possessed great wealth.

SK: But prior to Japan's defeat in World War II, people looked up to family businesses. It changed after American occupation: enforced revision of the Constitution and dismantling of zaibatsu modified the way people look at family business; its role in society declined.

ST: Do you think that is reflected in the tax system?

IT: Absolutely. Politicians show little understanding about business succession and that impedes family business' longevity. Inheritance tax could become as high as 70%!

SK: And on top of that, it's becoming harder to unify nuclear families, and to discuss business succession and inheritance issues as one big family. In addition, there are very few professionals and advisors who encourage families to hold such discussions.

ST: Is it true that family businesses occupy a majority of the Japanese economy?

IT: Yes. The family business sector comprises over 90% of the economy: Japan is the treasury of family businesses. The oldest family business in the world is in Japan, and top-class global corporations such as Toyota, Honda, Matsushita and Sony have family business backgrounds. Many of these companies still preserve philosophies and values of their founding family, even after they became public. Honda is a great example of that.

ST: What is the biggest issue family businesses face today?

IT: The issue of business succession is the biggest challenge and educating the next generation is crucial. However, it's not possible unless the present generation is well informed/educated. Japanese parents tend to decide the future of their children authoritatively, but children should be included in discussions that shape the future of the family. Japanese families have a lot to learn from FBN members abroad.

JK: Most of today's entrepreneurs are from family business backgrounds. What distinguishes successful entrepreneurs from others, is their love and affection for their product/service: the very foundation of family business. Young entrepreneurs can learn a lot from family business.

ST: What do you think are the conditions of a good family business and what is the role of FBN Japan in promoting good family businesses?

IT: What we see as a good family business is an open, transparent and accountable one. We want to eliminate the negative image of family businesses, and uncovering and disclosing weaknesses of family business is one of our missions.

JK: Usually family business with more than one founding family outperforms that of a single family because a higher level of transparency/accountability is naturally required, just like public companies. Kikkoman is a great example: it is co-founded by six neighbouring families.

SK: Not discussing family issues openly prevents attainment of useful external information. Our aim is to construct a framework in which family businesses are more open and accountable. Both family businesses themselves and their employees can gain from encouraging this.

ST: What kind of services in particular do you plan to provide?

SK: There are three pillars to our service. The first pillar is an academic one: we deliver useful knowledge and information through seminars and forums. We plan to invite speakers and researchers from overseas to improve the quality of these academic gatherings. The second pillar is network building. We encourage members to attend as many gatherings as possible in order to network with each other and to stimulate interesting discussions. The third pillar functions as a clearing-house for professional services. Consulting services required for educational programs as well as for the establishment of family offices will be the core of the service. We also introduce appropriate professionals, such as lawyers or accountants, on requests from members.

JK: In addition, we plan to organise enthusiastic family business owners who are willing to give management advice and to invest in young entrepreneurs. Preserving and succeeding the culture to the next generation is an important responsibility of family businesses. Family business owners should take advantage of the cultural heritage they possess as a tool to promote networks with domestic and international members. Beautiful art collections as well as conserved sake and soy-sauce cellars are a few examples of their possessions.

ST: What is the biggest challenge of FBN Japan and what is your vision?

IT: The fact that too many family business owners lack self-confidence. It's inevitable due to the kind of public opinion Japan has on family business. Moreover, there is a misconception that only large corporations are seen as models of success and small- and mid-sized companies are ranked as second rate. In reality, however, these companies are powerful and enduring contributors not only to their own communities, but to the overall economy.

SK: The mission of the FBN Japan is to improve the position of family business sector by reassessing and re-evaluating their contributions both in the overall society and economy. We hope family business owners gain tools and knowledge to achieve that goal through activities and information we offer.