Buried in the WSJ last week was a fascinating piece of research about to be published on family businesses in Japan. As we know family businesses often decline at the hands of a founder’s less talented or motivated next generation of family entrepreneurs. According to the article – “But in Japan, family firms are more typically robust and competitive across the generations.” And the article goes to say – “A new study points to adult adoptions as the reason. Roughly 98% of adoptions in Japan are of adults, mostly young men. When chosen for their potential to take over a family business, as is often the case, they take on their new family’s name and often marry into it. If necessary, biological children are elbowed aside to make way for a more talented outsider. Promising daughters traditionally don’t rate.”
Now I’m not sure the western world is ready to embrace this style of adoption but it does make you wonder if a twist on this approach might work. My friend Tom Deans might argue – don’t pass on the family business to less talented family members, sell it. Crystalize some wealth and build another business or use the cash for another investment opportunity but don’t pass it on to see the inevitable decline.
Perhaps the Japanese have another option worth looking at. Bring in a new son. Or at least a smart professional to scale the business to help fulfill it’s potential. Warning this person will need the diplomatic skills of Tony Blair, the patience and humility of Gandhi, the courage of Winston Churchill and the debating skills of Bill Clinton. But they do exist and adopting a new member of the family just might be the right move for fulfilling the potential of your family business!
“Adoptive Expectations: Rising Sons in Japanese Family Firms,” Vikas Mehrotra, Randall Morck, Jungwook Shim and Yupana Wiwattanakantang, Journal of Financial Economics (forthcoming)