THU 20TH FEB 2020


Bringing the family business community together

Every Family Business Needs A Mukoyoshi

25th October 2015 Jeremy Hazlehurst, Business Family

Check out some of the most noted outsiders who have become part of the wider family and made a big difference as a result.

For people who are interested in the long-term stability of businesses it is a depressing fact, but the one-day 10% fall in Walmart’s stock price earlier this month was entirely triggered by an announcement that the business is to invest in its future.

In February the retailer said that it is to raise wages for its lowest-paid workers from the American minimum wage of $7.25 to $9, and then $10 per hour. In addition to this, they are going to train more staff to take on front-of-house roles. That’s because they’ve realised that in a world where people are happy to shop online they’ll only go to a store for the personal touch.

At the same time, Walmart is investing in online, aiming to become a multi-channel business, so that you can shop on their website, then pick up in a physical store. They say that customers who shop both online and store spend on average $2,500 a year, compared to $1,500 for store-only customers. Margins will suffer in the short-term, but are projected to return to current levels in 2019, and set Walmart up for some massive growth afterwards.

This has been widely reported. What hasn’t been mentioned, though, is that these long-term investments are the first ones announced since Greg Penner became chairman in June. Penner is the husband of Carrie E Walton Penner, one of Walmart founder Sam Walton’s granddaughters. He is not a blood relative, but pretty close. The timing can’t be a coincidence and is a signal of intent: the family is in this for the long-haul.

As you might expect, Penner’s appointment was not universally welcomed. “Perpetuating family control and promoting an insider to the chair position is a missed opportunity,” said one shareholder representative. Outgoing chairman Rob Walton’s joke at the 2014 AGM that Penner’s qualifications include the fact that “he was smart enough to marry my daughter,” might not have lightened sceptical shareholders’ moods.

However, Penner is no dummy. A former Goldman Sachs analyst, he has been investing Walton money in Silicon Valley for the past decade, which may have influenced the pivot to online shopping. The new investments suggest that under his chairmanship the family will look to move with the time and stay at the forefront of retail.

Penner he follows in a grand tradition of in-laws joining the family business. (Not least in the Walton family – Stan Kroenke, the sports industry billionaire, is married to Ann Walton, the founder’s niece.)

A great example in continental Europe is Henry Racamier, who became very wealthy in the steel industry. He married the granddaughter of Louis Vuitton, Odile, and in the 70s was asked to help out at her family firm. It was far from the global giant it is today, with just two stores – and it was fading fast.

Racamier’s brilliant solution was to vertically integrate the business, a tactic later copied by all the big luxury groups. He also recognised the power of the company’s logo and made sure it featured on products. When he left the business in a bloody coup led by Bernard Arnault, Racamier had grown revenues to over $1 billion.

In the UK perhaps the most famous example was Roger Pedder, the witty, formidable ex-chairman of family-owned Clarks shoes who sadly died a couple of weeks ago. He joined Clarks as a trainee in 1963 and worked there for six years including a time as the chairman’s personal assistant – and fell for his daughter Sibella.

They married and in 1993 Pedder returned as chairman, persuaded the family not to sell, and more than tripled profits in his 12 years at the helm, turning Clarks into the world’s fourth-biggest shoe company.

But the real home of the son-in-law is Japan, where for centuries there has been a tradition of bringing in-laws into the family business. If a family does not have a male heir who can or will take over the family business they find a suitably business-minded man for one of their daughters to marry, and then adopt him so that he takes the family name. This is an old tradition, and merchants used to celebrate the birth of a daughter with red rice, symbolising the possibility of bringing a new son into the family.

The men are known as mukoyoshis, and there are lots of them. Japan has the world’s second-highest adoption rate, with around 90,000 a year, and 98% of those are of men aged between 20 and 30, who marry into family businesses, and there is at least one matchmaking agency specifically set up to match mukoyoshis to brides.

The world’s oldest family business, the 1,300-year-old, 46th-generation Zengoro Hoshi hotel, had been run by many adopted sons. Suzuki, famous for its motorcycles, is currently in the fourth generation of being run by mukoyoshi. Other large firms with the same arrangement include securities broker Matsui Securities, Kajima Construction, carmaker Toyota and the Canon electronics business.

At the Yasuda financial group in the post-war era the boss Yasuda ZenjirĹŤ even passed over three of his biological sons as heirs and plumped instead for a good employee, who later married into the family, to run the firm. He even changed his name to Yasuda ZenjirĹŤ.

It is quite obvious that this is going to be good for a firm. As this (absolutely fascinating) paper put it: “Adult adoptions mitigate the suboptimal succession problem: A family that draws an exceptionally untalented blood son can recover by adopting a highly talented professional manager as a new son”.

That paper found that firms run by mukoyoshis performed better in terms of profitability and shareholder value than family firms run by blood relatives, or non-family firms. That is not surprising – mukoyoshis are specifically chosen for their business nous. Also they have the benefit of “Sunday lunch”-style chats about the business, which business family members often say helps them have an intuitive understanding of the business.

Obviously the mukoyoshi custom can be seen as old-fashioned, and it clearly perpetuates a patriarchal system. But daughters-in-law would presumably also be just as good. Such incomers combine the advantages that family members have – knowhow, contacts, easy access to decision-makers – with the benefits of the outside CEO. Namely, talent. It’s the perfect solution for succession.

All that remains is to continue persuading the next generation that arranged marriage is the best course of action.

This article first apperared on Business Family and has been reproduced with their permission.


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