Well-established companies are Japanese treasures Toshio Goto Specially appointed Professor to Japan University of Economics, postgraduate course Striving to research and pass information about 100 year-old Japanese companies which are viewed highly around the world

In general family businesses in Japan have a negative image.However, some scholars believe otherwise.According to long term research “Most companies that have survived for over 100 years are family businesses and they achieve good results.They are renowned worldwide for their management skills and so, we should call them national treasures.

I interviewed Mr Toshio Goto who is a director of “Research Institute for Centennial Management”, a non-profit organisation which has been conducting research about well-established companies both inside and outside Japan and pass this knowledge on to others. I asked him about the secrets of these 100 year-old companies.

Interviewer – Minoru Sengoku, CEO of Minamiaoyama group, certified public accountant, licensed tax accountant and official internal auditor/editor-floor corporation

Starting The First Ever Count Of 100-year-old Companies in Japan

Sengoku(S): The theme of your research is regarding company’s life spans and what is necessary to achieve survival.What triggered your interest in this area of research?

Goto(G): The main issue in general management is how both big companies and listed companies should conduct business, which I used to analyse.However, when I spoke with contacts from overseas, I realised that most well-established companies in Japan are actually family businesses.Since then I have been researching “What is a family business?What are the pros and cons of a family business? What is necessary for survival?”

For around the past 100 years there has been research into this area (well-established companies) within Japan.However, my research is particularly unique, in that I have been researching how many companies have been running for over 100 years.No other scholastic research has been conducted which looks at this and compares it to companies internationally.

S: Can you tell me about “Research Institute for Centennial Management”of which you are the director?

G: Our primary activity is to gather data about 100 year-old companies both inside and outside Japan, which I have been doing myself, and utilise it.We are now in our second year, and I have been updating the research and feeding it back into society.This is done, first of all, by holding around 6 seminars per year in Tokyo, telling people about the necessary components of a 100 year-old company and summarising what they are.My other activities include looking at places such as Shiga Prefecture where Omishonin come from known as Sanboyoshi.

2.5 million Of Japanese100-year old Companies Account For 40% Of the World

S: What is the difference between family businesses, well-established companies and shinisekigyo?

G: The definition of a family business is one in which a company is controlled by relatives, whereas a well-established company is one that has been running for over 100 years.Most well-established Japanese companies are also family businesses, which is why the definition tends to be mixed up. 25,000 businesses are well established, 2,500,000 are family businesses.This makes up around 97% of Japanese incorporated companies.

The purpose of most companies is to continue doing business into the next generation and in family businesses that focus tends to be stronger.The goal of these 2,500,000 family businesses is to become one of these 25,000 well-established corporations.Also, the percentage of companies which were established over 200 years ago is around 40% while companies which have been doing business for 100 years is 35%, both of which are the highest in the world.

S: I have heard that “Shinise means lasting for more than 100 years” when I have been to Kyoto.Is that correct for the definition?

G: The word Shinise includes an image of an exceptional background as well.It’s not just time but also trust and wealth.It is difficult to continue business for more than 3 generations, however, if a business does there is a very high possibility that it will continue into the 4^th generation.That is why I decided on a definition of 100 years.

The ideas of Baigan Ishida filter through generations

S: Shinise is a kind of wealth which can’t be seen and continues through generations, a kind of “brand”, right?I sometimes have an opportunity to talk to some Shinise Company’s CEOs and the thoughts of Baigan Ishida, an Edo period thinker, often crop up.

G: This is because “Sekimonshingaku”, the supporting thought behind Japanese well-established companies, was put forward by Baigan Ishida.He was born in the time of the 8^th general Yoshimune Tokugawa.This was after the bubble (called Genroku bubble) and in the middle of a period of deflation.General Yoshimune stopped “kyohonokaikaku” and many wealthy merchants were being forced out of business to make a point.In that kind of environment, these merchants were looking into how they might continue their businesses into the next generation.

At this time the thoughts of Baigan Ishida appeared.Business should not be for your own benefit and should focus on the public.This assertion was the answer that was needed at the time.The thought spread quickly all over Japan and each family made a motto based upon that style of thinking.Many owners today talk about Baigan Ishida because of that background.

S: So, the bubble collapsed and through deflation many unnecessary companies disappeared leaving only those companies which society found necessary.This is also true in recent times, right?

Only companies that are needed by society survive

G: That’s right.I would like to say three things about this.Firstly, now in the USA – for example Harvard Business School – public minded capitalism is an important theme.It's a reflection of the conventional American market style of capitalism or “Wall-Street Capitalism”.

Next, the teachings of a Bangladeshi economist called Prof. Mohammed Yunus.As you know, Prof. Yunus received the 2006 Nobel Peace Prize.He advocates 7 basic principles about social businesses.Simply speaking, he states that businesses need to make a profit.On the other hand, he also says that they need to be accepted by society. This means that both business and social matters are necessary.

Actually I insist a similar thing.When companies which have continued to do business for more than 100 years are appraised they are seen to have contributed to society and are loved by the people.Japan has the highest rate of these kinds of 100-year old companies.In the future I hope that I can work closely on a project with Dr. Yunus.

Ex Vice President Gore also agreed

G: Lastly, I’ll tell you about my meeting with Al Gore (ex-vice president of the USA) in 2014, who also received a Nobel Peace Prize in 2007.I told him about 5 view points that well-established companies care about.

Firstly, the management considers their contribution to society.

Secondly, because of this the general public applaud them and highly appraise their business.

Thirdly, the management not only thinks about the expansion of their own business

Fourth, because he is well-known for trying to protect the earth’s environment, I wanted to tell him that the management in these businesses highly value and conserve limited natural resources.

Finally, from the above points, a businesses model for well-established companies needs to think globally.

Mr Gore told me that he agreed completely with my opinion, and that he was amazed at the sheer number of well-established companies in Japan.

Many of the aspects that are needed to do business in the 21^st century are already in place here.This is why some foreigners have been paying close attention to Japan, especially many people from China who are coming here to learn.

What is creation and innovation for companies?

S: I see, what you are saying indicates clearly how companies should do business. By the way you have written about creation and innovation. Can tell me about it?

G: I believe if a company continues for 100 years, there are some things that should change and others that should not.The former includes a change in generations, change of consumers, of environment around the company and adapting to new technology.This is a form of marketing.

The latter are the values and philosophies, or family mottoes to put into the old vernacular. “Kakun” is the teachings of the house, while “Kahou” is the law of the house.Combining these we get “Kaken”, something which should not change so often.

Traditions, which should be protected and innovations, which should be changed is a balance that is so important.On the other hand, there are some owners of well-established companies who believe that tradition is a series of innovations.These businesses constantly adapt, which is why they have continued to do business for over 100 years.In any case, the one thing that should not change is the core belief.

The 6 principles upon which even venture companies can last long

S: In recent times, many venture companies have appeared.There are a lot of companies aiming for short term profit.However, is there any advice for them to last a long time?

G: There are 6 principles which make up the formula for a 100-year old company.

First, in management there is a view of the short-term (10 years), mid-term (30 years) and long-term (100 years).Short term is for educating the successor and handing over the reigns. Mid term is for the president leading management as a person of responsibility.Long term is used for making plans 3 generations ahead, not limited to grandchildren.

The 2^nd principle about understands whether it's possible to continue growing.You should not over-extend yourself and adjust to suit your abilities.

The 3^rd principle is the structure of the company. If the company that has lasted for 100 years continues to do business in the same way, it will have difficulties.Of course, it is important to protect the way the business started but diversification will be needed to get over difficulties. The style of diversification should be linked to the original business, not to something unrelated.

The 4^th principle, businesses should care about the relationship with stakeholders, such as employees, consumers, business partners, communities and so on in the long term.That will create trust.

The 5^th principle is management of risk. It’s important to ensure financial safety and an independent management, not only to concentrate on the family motto.

The final principle is to have a strong will to pass the business on to the next generation.This feeling is strong within Japan compared to other countries.

The strength of family business is responsibility passed on through generations

S: There are roughly two ways of handing over the business to the next generation: to relatives or to someone outside the family.What do you think about this process?

G: My position is that business should be handed over to members within the family as much as possible. I was surprised when I saw the results of our overseas research that most companies around the world are family businesses and 97% of companies in Japan are family businesses as well.

53% of 3,500 major companies are family businesses and we get a similar result from data in other countries such as America, England, Germany, France and so on.

Also, comparing the achievements between family-businesses and non-family businesses, the results of the former are greater in profit, safety, growth and so on.If this many companies, which are achieving well, give up using family-members to continue their business, however, this is the same as giving up their major strength.This is a grave error, is it not?

S: What is the strength of family businesses?

G:It is most important that the management is handled by a person of responsibility, to continue this using family-members is the biggest strength.On the opposite side is the boss who came from outside – they tend to think simplistically, that is, their view focuses on the short-term.The same word, “responsibility”, has a very different meaning, it runs much deeper, when a leader continues from generation to generation.

Also, if the management focus only on short-term plans they lose their uniqueness.Dividends and stock price indexes are important in the short term.However, in the long term, usefulness to society is paramount.And so, continuing the business using relatives secures this.

I recommend that owners always consider as their long term mission, why the company exists.97% of companies are family-owned and the number of employees accounts for more than 70% of the workforce in Japan.This means they play a major role in the Japanese economy.

The world studies Japanese management techniques because Japan has the highest rate of well-established companies globally. I would like as many people as possible to understand this importance – well-established companies are a Japanese National Treasure.

【Profile】
Toshio Goto specially appointed Professor to Japan University of Economics, postgraduate course.
1966 graduate of Economics at Tokyo University
1974 graduate of Harvard Business School (MBA)
After graduation, worked at NEC Corporation for 33 years.
In 1999 became a Professor at Shizuoka Sangyo University.
After that he became a professor at The Graduate School for the Creation of New Photonics Industries.
2011, April  became head of department at Japan University of Economics, where he is currently working.
Part-time lecturer at Tokyo Institute of Technology, Aoyama Gakuin University, Tokyo City University (postgraduate course), Japan University Global Business School and now consultant of Kinki University Economic Innovation Laboratory.At the same time he is also a special researcher at Renmin University of China and Nankai University and so on.He majors in strategies of management and is known as a rare expert on Family Business in Japan.Director of Research Institute for Centennial Management. President of Japanese Civilization Institute.

【Main published works】
Chojukigyono Risk Manegement: IkinokorutamenoDNA (Editorial Supervisor)
Family Business Hakusho2015: 100nenkeieiwo Mezashite (Editorial Supervisor)
100nenkigyo100sen Miraininokoshitaishinisekigyo (Editorial Supervisor)
Handbook of Research on Family Business, Second Edition (Co-writer)
Shinisekigyonokenkyu Kaiteishinpan (Co-writer)
Family Business  Shirarezarusonochikaratokanousei (Writer / Editor)
Sandai, 100nentuburenaikaishano-rule
Along with various other works.