The writer is a historian and public speaker
“In principle, the eldest son is to succeed his father as head of the family; but if his conduct should cause harm to the family, he shall be expelled, even if he is the only son, and sent into the priesthood.” This important clause in the family charter of Japan’s Mitsui family, agreed 300 years ago, demonstrates that there is nothing new about such agreements.
It addressed how the duties and rewards of its enterprise should be laid out for future generations, and the $62bn value of the Mitsui Group today belies the Japanese saying: “The third generation ruins the house.”
The reversion of successful family businesses to square one has been such a common trajectory around the world that it has spawned many axioms: “From clogs to clogs in three generations” in England; “From sandals to sandals” in China; and “From stables to stars to stables” in rather more poetic Italy.
Statistics support such sayings: only 30 per cent of family businesses survive through the second generation, while just 13 per cent make it past the third. Family feuds and a failure to plan succession are the main dangers. More generally, a fragmentation of ownership as beneficiaries proliferate dilutes impact and ambitions. And then there is the question of ensuring the next generation has the right qualities to be absorbed into the family business. Are family charters such as the Mitsui one the answer to these complex obstacles?
They have their appeal, as an influential financial adviser (who prefers to remain anonymous) says from his Monaco office: “[Family charters] are beneficial for the business, because all family members involved in the business buy into the agreed-on principles, values and strategies with respect to the business.
“This is especially pertinent for periods of transition regarding leadership . . . Going through the process to develop the family charter and then following its terms can, in our experience, result in both a more prosperous business and greater family harmony.”
Such charters navigate subtle and deeply felt family dynamics — including tensions that may have remained dangerously hidden — while underpinning values around which families can rally. The actual construction of the charter tends to be handled by professionals who are not only trusted by the family, but are also aware that they are drafting something that is often unique in its requirements and stipulations. The result, which is agreed in private, provides a framework for decision-making and dispute resolution that is separate from the operating business. Charters are not legally binding — although elements of them, such as the rights of shareholders, might be — but they set expectations and define appropriate roles for family members.
Alessandro Anastasio, who founded the Young Partners Community at Swiss private bank Julius Baer, which brings together “future leaders” aged 18-40 from among its clients, stresses how charters can also unearth the value of overlooked family members.
“I’ve worked with heirs who were not destined to run a company but who carried the emotional weight of the family with grace and quiet strength,” he says. “One woman I supported became the family’s informal keeper of values. She interviewed elders, created shared rituals and facilitated conversations between cousins who hadn’t spoken in years. She didn’t hold operational control but she held something far more important — continuity of spirit.”
He says he also worked with a European family whose elders appreciated that their eminent name and vast wealth could be hindrances to the personal development of younger members. They made it a condition of their family charter that a potential heir undertake a six-month sabbatical, when they must travel alone and anonymously, with only a backpack and a tight allowance, and without social media or access to staff. At the end of the six months, they were asked one question: what did you learn about yourself?
Anastasio remembers one answer from an heir: “For the first time, [the family] did not treat me as someone they thought they knew. They treated me as the person in front of them without prejudice and without expectation. That experience taught me that those who have the least often give the most. That perseverance matters. That humility is strength. That values are not inherited. They are chosen, lived and earned. And most of all it taught me to treat others the way I want to be treated.” The applicant was accepted into the family business.
Family businesses underpin the global economy, accounting for more than 70 per cent of GDP and about 60 per cent of employment worldwide, according to McKinsey analysis. They can have many advantages, including freedom from having to meet quarterly investor expectations; freedom to establish long-term relationships with staff who often reward them with loyalty; and the ability to respond with agility to crises. But they are subject to the emotional entanglements that come with being family. Family charters help to deal with this human side of the business, while their composition often uncovers surprising opportunities.
As Anastasio observes: “It’s about when you’re ready — ready to talk about values, to acknowledge power dynamics, to face old patterns and to have the courage to say: ‘We want to do this differently.’ What I’ve seen work is when families stop treating succession as a transaction and start treating it as a transformation.”
This keeps the lineage in control of management and governance — and can keep the clogs at bay for a few more generations.
