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Many family-owned companies may have survived the global financial crisis, but business experts identify succession as the biggest threat to their existence. Only 30 per cent of family businesses survive to their third generation, according to a recent report from McKinsey, the consultancy. As well as determining which of their family should run the company, owners are increasingly thinking about the values they want their successor to uphold.
Family-controlled companies comprise 19 per cent of the world’s largest groups. Fast-growing markets are set to increase this share to more than half of Fortune Global 500 companies by 2025.
Peter Englisch, global leader of EY Family Business Centre of Excellence, which specialises in helping businesses plan succession, says the process can be “extremely challenging”.
“To manage the business and family dynamics requires special skills and talents. This is why succession planning is so complex,” he says.
Englisch says the dynastic aspirations of the next generation of European family companies have lessened over the past few years, leading many owners to sell.
But even for leaders of the growing number of family businesses in emerging markets in their first and second generations, succession planning remains one the biggest challenges, Englisch says. “If the current strong generation of family owners fails in successfully transitioning the business for the next generation, it might have a massive impact on many countries in Asia.”
According to McKinsey, two-thirds of the next generation are willing to take on more responsibility in running the family business, yet only 30 per cent feel confident to do so. And only a third feel they display active ownership compared with 94 per cent of family members at work in the business.
But it can work. FT Wealth takes a look at three success stories from around the world.
For Janine Diagou, moving into the family business in 1999 actually meant taking a step down the hierarchy. Now deputy director at NSIA, the Ivory Coast Banking and Insurance group founded in 1995 by her father Jean Kacou Diagou, now the group’s president. Diagou, 41, gave up a top position at Citibank Mobil CI to fill the relatively modest role of NSIA’s internal audit officer.
“I joined at a lower position because insurance was a new business for me and I needed to learn the basics,” she says.
Part of her reason for joining the family company, she says, was simply “to learn a new job”.
Diagou’s family connection to the group’s president inevitably provided a wall of scepticism to dismantle. Her success in doing so, she says, is partly a victory for women.
“Convincing men in industry of your competence is not simple in Africa,” she says. “The main challenge was to prove again and again that I was capable of doing the job at least at the same level as men — and even better.
“It was not easy but I found my way ahead with a lot of work, efficiency in the job and much rigour.”
On top of that, she adds, “you have to be smart as well to gain their confidence”.
Smart or not, every son or daughter of a successful entrepreneur stands in the shade of their parent’s success. Diagou was no different. She calls her father “Mr President”.
“Calling him this is more a habit than [what we should do]. Even his grandchildren, call him ‘Grandpa president’. For all of us it is a kind of respect.”
But to succeed, every generation needs to forge their own identity; Diagou says her name was a “major handicap”.
“You always walk in the shadow of your father,” she adds.
“The other challenge was mainly to be a role model for the younger generation, to boost them to work hard and achieve their dream. This seems to me much more important than promoting only gender. Today, NSIA has reached a very good level of development but there is still a lot to do. This year, we are celebrating our 20th anniversary and I’m really proud to say I’ve been part of this success.”
Koji Endo is the third generation chief executive of Kai group, the Japanese cutlery, razor and folding knife company founded by his grandfather in 1908.
Under Endo’s leadership, Kai group last year became the first Japanese winner of the Leonardo da Vinci prize, an international award given to family businesses for demonstrating an exceptional capacity to pass down knowledge and values.
After graduating from Waseda University in Tokyo and completing his MBA at Loyola Marymount University in Los Angeles, Endo joined the group in 1980, succeeding as chief executive on the death of his father in 1989.
Twenty-six years on, he says his biggest achievement has been to expand the company’s main focus from Japan to markets worldwide such as India, China and the US.
Risk management has been critical, he says. “It is important to not take on too much risk and focus instead on the core business and core competence of the organisation. My management style is to always ask myself am I doing the right thing or am I going too far?”
Lessons learnt from watching his father and grandfather at work proved invaluable. “It was my destiny to succeed the family business,” he says. “I grew up with that idea of my father being my mentor and my parents being like priests of the family business.”
Though Endo is gearing up to pass on the baton at Kai Group to his son, Hiroaki, he has strong beliefs on what constitutes real leadership in a family-run business.
“When a family member is not humble and is arrogant and takes his entitlement for granted, that is the beginning of a tragedy,” he says. “The next generation has to have a sense of responsibility and humbleness.”
Respecting cultural differences is also important, Endo says, something he learned from his MBA.
“The top challenge for me is how to localise the management of our company operations abroad while sustaining the Japanese management style in spirit.”
Endo turns 60 this year and now feels ready to shift gears. “The CEO has to be active and forward-thinking and be at the customer’s service but I am getting old now and not as nimble as before. It is time for me to retire as CEO.”
But despite his desire to make room for the next generation, Endo stresses this is not the end. “After I retire from Kai Group, I plan to open up a new business which has nothing to do with Kai,” he says.
Despite being an avid globetrotter all his life, it is behind the corner office desk of the Cinepolis headquarters in Mexico that the 42-year-old chief executive Alejandro Ramirez feels most at home.
With degrees from Harvard and Oxford University, followed by an MBA from Harvard Business School and stints at the World Bank, the Mexico government, the OECD and the UNDP, Ramirez took over his family’s multiplex and movie entertainment business in 2004.
“Of all the places I have worked, I enjoy working at Cinepolis the most,” he says. “Being born in a family that was always into movie theatres, I grew up watching films in a cineplex that was right behind my house. This love for movies continues to remain closest to my heart.”
Ramirez sees his biggest contribution to the family business as the consolidation of the company’s involvement in the Mexican home market and beginning its expansion into new markets including further into North and South America as well as India.
Combining business with philanthropy has also influenced Ramirez’s leadership. “Knowing that we employ 28,000 people in 12 countries, many of whom are youngsters who are able to finance their way to college using our flexible work schedules is a rewarding thought for me.”
He can point to many successes, but what is it that keeps him up at night?
“I believe that movies are an important cultural expression which can also be used to educate and raise awareness about different issues. But the challenge is to keep the movie-going business relevant and appealing in the face of home theatre entertainment technology, streaming services and video and internet piracy.”
Ramirez credits his father with instilling in him a work ethic and discipline and the need always to take account of the long-term care of employees.
“He is a big believer in the power of formal education and enrolled himself for an executive MBA at Harvard Business School after he came to visit me once on campus.”
Ramirez is keen to stress that family businesses should not be complacent and must create a culture of good corporate practice.
“There should be clear rules of the game in terms of family versus non-family employees,” he says, “and everyone should know it.”
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