Passing down the family business
For family-owned businesses, the succession of ownership represents a pivotal moment in company history. Recently, Sankyo of Japan joined a growing list of companies that have undergone generational transition, with the CEO’s son assuming corporate control from his father. The successful passage of power between generations will be crucial to the global economy in coming years, as family enterprises make up a significant portion of the world’s businesses.
^ Former Sankyo President and CEO Mr. Johnnie Morikawa (right) recently passed the business on to his son Mr. Hiromichi Morikawa.
Article by Daniel Sweet and Lucien Joppen
It has been a summer of change for Japan. On May 1, the former Emperor Akihito abdicated the throne, passing the royal title to his eldest son Naruhito and initiating the beginning of a new era. One month after the royal ceremony, another succession took place at the company headquarters of Sankyo & Co. Ltd. when Mr. Johnnie (Jun-Ichi) Morikawa handed over the business to his son Hiromichi (Hiro). The company is an assigned exporter for many steel manufacturers, who utilize Sankyo’s flexible outsourcing in financing and shipping to provide reliable, high-quality service to their customers. Mr. Morikawa is confident in his son’s abilities to take command of the firm, and he is hopeful for the future of Sankyo, as well as Japan. As he puts it, “succession in family business—and in life—is the only way forward.”
Mr. Morikawa began the interview by reflecting on the necessity of succession. “At a certain point in time, a new leader becomes necessary. New leaders bring fresh ideas, designs, policies, and strategies. When I started my career, the climate of Japan required a fresh perspective, and so my generation was given a chance to solve the problems of our era. Today we have the same situation. We live in uncertain global circumstances and in an uncertain global world. It is time for new leaders, like my son Hiro, to address the problems of this period on their own terms, just as their elders did.”
“Of course, I don’t mean to imply that sons or daughters of CEOs should automatically take over from their parents,” Mr. Morikawa clarified. “That would be very against the Japanese mentality. Here, we believe that you must earn succession through your own merits. Hiro began earning his current position some time ago. His first job was with an IT company, and he advanced through the ranks there to gain management experience. So when he joined Sankyo
12 years ago, he already had demonstrated his abilities. And even before he started at Sankyo, it was never certain he would take over the business. We had many discussions to ensure that he understood the company culture and history. New leaders should establish their own thinking about the direction of their company, but the basic culture should not be changed. In transferring the company to Hiro, I am transferring the company’s vision. He fully understands that, and he knows how to maintain the vision while making his own changes.”
Despite his certainty that Hiro is ready to take over, Mr. Morikawa emphasized that total succession takes time and that he will still be involved with Sankyo’s operations, when needed. “Hiro has assumed control of the company, but transferring every responsibility to my son will take about 5-6 years. During that time I will mostly be providing background assistance.
The important thing to remember about succession is that it is a process.
There is no hard cut-off date. When the older generation steps away, they should do so gradually, not all at once. I imagine that when our company celebrates its 50th anniversary in a few years time, I will be ready to fully pull away.”
When asked about the kinds of tasks he might still be involved with, Mr. Morikawa said that his main role will be to use his personal connections. “In business, senior company figures have a quality that only develops with time. Essentially, it comes down to networks and relationships. I have an influence in the stainless steel industry all over the world, especially on the EU side and in the United States. This is an influence that I have cultivated over many years of working in the industry. You may describe this position as one of an ‘elder statesman.’ In the day-to-day operations of the company, Hiro is more than capable. But if there is some emergency, I might be called in for support. I can use my connections to expedite certain things, like arranging meetings and getting past hurdles that less established businesspeople might face. That is one of the main benefits of a family-owned business. The relationship between leaders—in this case, father and son—is for life, and Hiro can always call upon my help when it is needed.”
The story of a succession like Sankyo’s is becoming more and more common. As CEOs from the baby boomer generation age, they are looking to their children to assume control of the boardroom. Notably, much of the global economy depends on the success of these family-owned businesses. According to a comprehensive research report published by McKinsey in 2014, roughly a third of Fortune 500 companies are family-owned, and in Europe 40 per cent of all companies that are listed on the stock exchange are family-owned. In between 70 to 90 per cent of the global GDP is generated by family-owned businesses, and with projected growth in emerging economies, family-owned companies will only become more important in the next decade.
Key to success
For Sankyo and all the other family-owned businesses undergoing succession, one of the keys to a positive transition is shared company values. As Mr. Morikawa wisely indicated, confidence in a son or daughter’s ability to assume the leadership of a business comes down to their understanding of the corporate vision. This way of viewing an heir’s readiness for leadership is supported by numerous studies into succession, including a recent piece published by the International Institute for Management Development. In that article, Denise Kenyon-Rouvinez argues that the most successful family-owned businesses exhibit shared values that are transmitted from one generation to the next. In this way, when Mr. Morikawa discusses the importance of maintaining Sankyo’s business culture, he is describing more than his own wishes. For family-owned businesses, the preservation of company values is a strategy for survival into the future. Without this kind of continuity, succession becomes a threat rather than a chance for growth.
Top 20 family-owned businesses
- Walmart Inc.
- Volkswagen AG
- Berkshire Hathaway Inc.
- Exor NV
- Ford Motor Company
- Schwarz Gruppe
- BMW AG
- Cargill, Incorporated
- Tata Sons Ltd
- Koch Industries, Inc.
- Comcast Corporation
- Pacific Construction Group Company Ltd
- Dell Technologies Inc.
- Aldi GroupAlbrecht
- Amer International Group Company Ltd
- Auchan Holding SA
- Gunvor Group Ltd
- Reliance Industries Ltd
- LG Electronics Inc.
Source: Family Capital