The scandal pages coming out of Hong Kong this month are full of intrigue about disputes among family members and various other possible “significant others” over the estate of tycoon Stanley Ho. The Financial Times’ story on all this basically suggested that mixing family and company was an Asian characteristic, and not a particularly good one at that. The point was that Asian companies need to separate business from family matters, and to separate the economic interests of each family member from the other if they are to succeed.
You hear this conventional wisdom from European and American experts all the time. In order to succeed, Asian companies need to make their companies look and function just like Euro-American ones.
Really? Now that two out of the three largest economies in the world are in Asia, perhaps it is time to consider European conventional wisdom on what a good company looks like. First, it is not as though shareholder governance always works out so great, as the recent financial debacles in the West have taught us.
But more importantly, writing from Tokyo at the moment, I am repeatedly struck by how much energy, creativity and real economic productivity resides in family-owned companies in this country (what the government euphemistically refers to as small and medium sized enterprises, even though some are actually enormous–as if it were an embarrassment that these companies are also families). The open secret is that more than 90% of Japanese companies have the majority of their stock held by relatives. More than 70% of Japanese employees work for such a company, and this does not count the unpaid labor of family members–the spouse who keeps the books, the son who manages the factory floor and so on.
I personally think this is a good thing, not an embarrassment at all. When I get depressed about the lack of innovation in large Japanese institutions–universities, companies, government–I have only to turn to the local restaurant or convenience store or florist to see examples of truly awe-inspiring creativity, intelligence, and perseverence under very difficult economic conditions. When I get furious at the lack of women and young people in leadership positions in this country, I only have to go around the corner to see how the mom and pop owners of my local stationery store work side by side with their daughter and son-in-law with dignity and mutual respect (and of course the occasional screaming match).
What worries me, rather, is the way all this talk about needing to turn your family business into a “real” company with fancy financial investments and complex ownership structures is having disastrous effects on those who listen. One of the saddest chapters in the recent financial crisis in Japan has been the bankruptcy of so many such family businesses due not at all to poor performance in their business but to their investment in complicated financial instruments that the large banks convinced them they needed.
These companies do have very different economic challenges–one of the principal ones being what to do about succession when the founder or chairperson dies or retires, leaving behind either too many possible heirs or no heirs interested in the family business at all. But what about the problem that worries the Financial Times so much, about people’s interests being mixed up with each other? Well, this is a problem in Euro-American shareholder governance as well, of course. And there is no denying that in life in general, and not just in economic life, Chinese and Japanese people sometimes complain about the burdens that come with being so intimately connected with other people. But there are advantages as well as disadvantages. The Financial Times does not seem to recognize that the same sense of mutual connection that makes dividing assets difficult at death makes funding a startup relatively easy. And many of the problems that plague Western companies–problems about how to align managers’ interests with the interests of shareholders–are hardly problems at all when the manager is the daughter of the founder.
And we might query whether Euro-American capitalism is really all that different, or whether the difference is rather one of degree. Many very successful public and private companies in the US and Europe are also largely family owned–from major newspapers to leading automobile manufacturers.
There are real issues here for policy: these companies are largely neglected by government policies long aimed at supporting the big industrial players. It may also be that too many bureaucrats, trained in the West, are enamored with the Western model and not all that interested in how things work in their own country. The company laws on the books in Japan for example–borrowed largely from American and European corporate law–don’t fit these companies’ needs or challenges very well. Thinking about the economy as basically a bunch of household enterprises, incorporated formally as corporations, should cause us to think differently about a whole range of regulatory problems, from labor rights to the promotion of innovation to access to capital and taxation policy. It also suggests the need for lots more research–we know surprisingly little about how these families/companies work, what role gender, and marriage, and inheritance tax, and social class, and immigration play in their fortunes and strategies. We know too little also about how they globalize–how they set up operations overseas, and what contributes to success or failure. And this all suggests the need for a much broader range of methodologies and specialities–notably anthropology and sociology, which have long traditions of expertise in kinship and social organization. But the first step may be simply to recognize the obvious: so much of markets is really about households and families.