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From Japan, with love

Family firms and their adopted sons
05:02 AM March 19, 2018

The saying “It is better to have daughters than having sons as you can choose your sons” suggests that for many Japanese business families, daughters provide a great opportunity for business families to cherry pick a successor.

Graduates from top universities who are star employees of the family business or other elite companies are prime candidates. The unique Japanese practice of mukoyoshi dictates that after marrying the patriarch’s daughter, the star employee will be legally adopted to carry the new family’s name.

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The adopted son voluntarily cuts most ties to his birth parents and swears fealty to his new parents. Nowadays, the modern version of mukoyoshi often involves love marriages.

Suzuki Motors is one such family business that practiced mukoyoshi. Its current chair, Osamu Suzuki, was born Osamu Matsuda. He married the first daughter of patriarch Shunzou Suzuki, adopted and took the Suzuki name at 28. Then he joined the company and was quickly promoted at 33 years old to Suzuki’s board. He rose to become the president at 48 in 1978.

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Osamu, who is the fourth mukoyoshi of this family, followed the family’s norm by choosing his son-in-law as the heir, bypassing his biological son.

How effective is mukoyoshi to family businesses? Together with my co-researchers, we investigated this issue by analyzing the performance variables such as return on assets, sales growth and employee growth of all publicly listed companies in Japan for four decades.

We found family businesses that are run by adopted heirs performed better when compared with others, namely companies run by natural heirs and professional CEOs as well as nonfamily companies. The only leader group that adopted heirs could not surpass were founders. This is not surprising as founders are often regarded as having a superior leadership style.

What makes adopted heirs better performers than biological or natural heirs? Our research demonstrated that adopted heirs are twice as likely as natural heirs to have degrees from elite universities known for merit-based admissions.

In addition, adopted heirs are chosen from a larger pool of talent who tend to be more ambitious and driven to prove their worth, while natural heirs tend to feel more entitled.

The Japanese practice could offer a lesson for family businesses in the Philippines.

While John Gokongwei set up a commandment to his heirs that there should be no in-laws in the family business, sons-in-law (without any legal adoption) could be an alternative solution to recruit smart heirs.

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A Filipino example is Joseph Yap of the Gotianun clan.

The Harvard-trained Yap forged his reputation in the financial industry before joining the Gotianun family and becoming a leading official at the family-run Filinvest Group.

Family businesses may also be professionalized by looking beyond family members as leaders. SM Investments is an excellent case.

The ruling Sy family handed the leadership of the business empire to Frederic DyBunico, a move that it said professionalizes the group for the future.

Leadership succession can be a challenge for family businesses, but sometimes the answer can be found outside of the family. —CONTRIBUTED

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