Making of a 200-Year-Old Family Business

Building a family community is the key to ensuring that the family passes its specialized assets along for over three generations.

Although we don’t have to mechanically copy the ancient practices by rebuilding the family tree, reconstructing the ancestral halls, creating the clan property or restoring the sacrificial ceremony, we need to draw on the values enshrined in creation of the Chinese family community.

In the ever-changing business world, people take it for granted that companies need to become more competitive, stay open-minded to changes and innovations, grasp the opportunities brought by globalization, gain access to capital in face of crisis, and be in a better position to meet challenges. In this context, we have seen a stream of M&As and reorganizations, as companies no longer choose to hold controlling interests for a long time. The change has shortened the corporate lifecycle. It is just one side of the business world. As for the other side, we have noticed the so-called family businesses can survive and thrive for centuries and that the company ownership and even management have been passed on from generation to generation.

The Oldest Company

The world-renowned Henokiens Association is made up of the oldest family businesses worldwide on record. Presently, the Association has 40 members, all of which conform to the following rigorous criteria: they have reached a minimum age of 200 years; they are managed by a descendant of the founder or majority shareholder; family members remain engaged in corporate operations or governance; and they are in good financial health.

In the Henokiens Association, Hoshi Ryokan in Japan is the world’s oldest family business. Founded in 718, Hoshi Ryokan has a history of some 1,300 years. It remains owned by the Hoshi family and has been passed on for 46 generations according to the traditional Japanese primogeniture. Hoshi Ryokan’s managers believe the heat and minerals offered by spa can cure customers of diseases. While clinging to the tradition of spa hotels in terms of hardware, Hoshi Ryokan has preserved many historical scenes, such as Japanese courtyards and tea ceremony, with the aim of carrying forward the traditional Japanese culture. Hoshi family’s core concept is “Take care of fire, learn from water, and co-operate with nature”. According to Mr. Hoshi Zengoro, the 46th owner of Hoshi Ryokan, the driving force behind his determination to take over the family business is the sense of honor, responsibility and identity in the world’s oldest family business and the obligation to ensure its everlasting prosperity.

In Europe, the oldest family business is Barovier&Toso. Founded by Jacobellus Barovier in 1291 and having a history of 723 years, Barovier&Toso is the oldest glass manufacturer across the world. Thanks to the continuous efforts of generations of artists, the Barovier family had built an empire of glass art. During World War II, the Barovier family joined hands with the Toso family, another family having mastery of glass art, to establish the “Barovier&Toso” brand. Barovier&Toso is dedicated to building each product (lamp) into an artwork with eternal value and beauty. However, the company has neither clung to the old tradition nor completely casted it aside. Instead, they held fast to the Murano Island in Italy and strived to infuse fresh interest and inspiration into the ancient crafts by constantly creating and exploring new designs and approaches.

Specialized Assets of Business Families

Most members of Henokiens Association are based in Western Europe and Japan. All the members except the above-mentioned two companies were founded between the 17th and early 19th century AD (i.e. the period from late Ming Dynasty to mid-Qing Dynasty) and have been operated for 291 years on average. What is the secret of their long-term prosperity through smooth succession from generation to generation during the past centuries? Are there any longevity genes that facilitate family business succession and enable the families to meet the challenges they encounter in different times? According to a joint study by INSEAD, such specialized assets as well-defined family missions, unique business philosophy and family values are often the bedrock for family business longevity. These specialized assets can be passed down across generations within the family but cannot be duplicated by other businesses.

One criterion of Henokiens membership is having a minimum age of 200 years. As a result, all Henokiens members were established in the era of pre-industrial revolution (before the 1800s) when modern business organization had not come into being or was in the prototype stage of its development, while business families performed various functions of modern business organizations. Therefore, the specialized assets of these family businesses that were inherited from generation to generation are not the product of modern industrial civilization and modern enterprise system. Research findings revealed that business families are more capable of preserving and transferring those specialized assets than modern business organizations.

Does it mean that business families based on kinship ties can absolutely ensure the formation and smooth inheritance of these specialized assets across generations? Social anthropologists do not think so. According to David Faure, research fellow of business history at Chinese University of Hong Kong and the first researcher revealing the generation mechanism of business activities, it depends on how much effort the family members made to build the assets through the kinship-based family wealth controlling organization – “corporation”. Japanese sociologists referred to the organization that creates and preserves the specialized assets as family community, while British social anthropologist Freedman called it “lineage” with an intention to distinguish it from “clan”, which is entirely based on kinship ties. To put it simply, there is essential difference between the kinship-based family and family community. The specialized assets created by founders cannot be effectively transferred from generation to generation within a business family unless it builds a family community as the carrier of the specialized assets. Therefore, the kinship-based family cannot ensure the preservation and intergenerational inheritance of the specialized assets. In fact, similar conclusions can be drawn by taking a close look at the infighting in modern business families.

The choice between rapid growth and longevity of the family business is heavily dependent on the value orientation of family owners. For instance, Mr. Mao Zhongqun, the second-generation owner of FOTILE (a leading Chinese kitchen appliance manufacturer) has clearly expressed his objective of “building a 500-year-old business rather than a top 500 company.” For a family business pursuing long-term prosperity and smooth intergenerational succession, more attention should be given to the generation mechanism of the specialized assets rather than what type of specialized assets the family has acquired. The root cause of the governance and succession challenges confronting Chinese family businesses lies in the lack of family community. Although we can learn from the centuries-old European businesses by probing into their specialized assets, it is impossible to duplicate the historical context in which they operated as well as the family communities formed in the unique social, cultural, institutional and even religious environment in post-Renaissance Europe. It’s the mature business family community that created these centuries-old family businesses and the specialized assets, which has passed down across generations over centuries.

Considering that the kinship-based family cannot ensure the preservation and intergenerational inheritance of the specialized assets and, in particular, the traditional Chinese social, cultural and institutional environment is not conducive to the construction of business family community, building family community poses a new problem and a formidable challenge to those Chinese family businesses which place a high priority on business longevity rather than the rapid growth of business.