Family Firms in the Construction Industry
Every family business tells a story – stories of perseverance and challenge, of exciting highs and heartbreaking lows. Some of these stories stand the test of time. One of the most remarkable began in sixth century Japan with a humble construction startup. In 578 AD, a Japanese prince wanted to promote Buddhism in his country, where Shinto was the dominant religion. No one in the nation boasted the carpentry skills needed to build the ornate Buddhist temples the prince envisioned, so he hired a man named Shigemitsu Kongothree from a Buddhist state in what is now Korea. The newcomer launched the company Kongo Gumi, completed the Shitenno-ji temple in Osaka – which still stands to this day – but did not return to Korea. He saw a golden opportunity to continue his trade and so the small, family construction company flourished and grew and stayed in Japan longer than anticipated – over 1,400 years longer.
Today, Kongo Gumi is the longest lasting family-owned company in the world. To put its remarkable longevity in perspective, the construction company got its start a mere century after Rome fell. It was formed around the same time as the legend of King Arthur, when Celtic chieftains fought invading Anglo-Saxons in dark ages Great Britain. The Mayan Empire was flourishing, and the Aztec Empire would not even make its appearance for another 800 years. Muhammad, the founder of Islam, was an eight-year-old boy.
Over the centuries, the Kongo family continued to maintain the Shitenno-ji temple, as war and natural disasters damaged the structure and created ongoing work for the company. The firm also built new temples throughout Japan, each one a labour of love and craftsmanship that could take over a decade to complete. Occasionally, the company ventured outside of its core business to build castles. To stay afloat during World War II, the firm diversified and built coffins. But, throughout its long life, building and maintaining Buddhist temples remained the company’s primary business stream.
Kongo Gumi was owned and operated by the founder’s descendants until 2006, when it became a subsidiary of the Japanese company Takamatsu Kensetsu. Before then, the firm overcame 14 centuries of challenges. It made it through the Meiji Restoration Period from 1868 to 1912, when the nation endured violent efforts to eliminate Buddhism – not a small problem for a company whose bread and butter is building Buddhist temples. The company kept going through the Great Depression and the ravages of World War II.
So what happened that finally toppled this legendary construction firm? One factor was the modernization of Japanese society. Demand for Buddhist temples dropped overall. As values shifted, the contributions that funded temples decreased. And as the work dwindled, so did the company’s revenues.
An even greater reason for the company’s demise was excessive debt combined with an economic downturn. Japan was booming in the 1980s, and real estate prices soared. Companies – including Kongo Gumi – took on debt as prices skyrocketed and banks relaxed their lending practices. Then the bubble burst in 1989. The value of exorbitantly expensive real estate plummeted. Many Japanese businesses were left with virtually worthless assets and massive amounts of debt. Kongo Gumi managed to hold on for another two decades, but the company had to borrow more money just to pay the interest on the money already borrowed, despite the fact that interest rates were at an all-time low. The writing was on the wall long before the company was forced into liquidation in 2006.
Kongo Gumi still exists today, just not as an independent company owned by the Kongo family. And, despite its eventual liquidation, the firm’s remarkable longevity makes it one of the most dramatic success stories of a family business. Of course, a family firm does not have to be in business for centuries to make a big impact. Many of our nation’s most successful (and relatively young) construction firms are family-owned and operated. The Association of the Wall and Ceiling Industry (AWCI) surveyed 436 American construction companies with an annual volume over $100 million and found 32 percent are controlled by a single family.
Family businesses as a whole are critical to our economy. There are approximately 5.5 million family-owned businesses in the United States today, according to Family Enterprise USA (FEUSA). These family firms contribute more than half of the U.S. GDP and employ more than 62 percent of the American workforce.
The positive impact of family businesses extends well past the American economy. Some of the world’s best known and highest grossing businesses are family-controlled and have made it into at least the second generation of family ownership. Examples include Ford, Volkswagen, Tyson, Wal-Mart, Berkshire Hathaway, Comcast, Porsche, Mars, Nike, L’Oréal, Marriott, Dell Technologies, and BMW. The Global Family Business Index, compiled by the University of St. Gallen and EY, sheds light on the success of the top 500 family firms by revenue. These 500 companies have a combined $6.5 trillion in annual sales – enough to be the third-largest economy in the world, behind only the United States and China. They employ nearly 21 million people around the globe.
While there are plenty of examples of hugely successful family firms, it is no secret that these companies face unique challenges. Only about a third of family businesses survive the transition to second-generation ownership. And, of that third, only half make it to the third generation, FEUSA reports. Succession can be fruitful – just look at Kongo Gumi! – but it must be carefully planned.
Forty three percent of family businesses do not have a succession plan, according to the Family Business Survey 2016 by the National Bureau of Economic Research Family Business Alliance. With a long list of factors to work through – from voting rights and liability to taxes and estate planning – companies should allow years to set up a solid plan. Long-term planning also affords the next generation plenty of time to learn the ropes so there are no surprises when the transition finally happens. It also gives all involved parties an opportunity to discover if the presumed successor is really the right fit. Gone are the days when the oldest son automatically takes over; talent and desire for the family business must be the dominant qualifications.
When choosing successors, family members must recognize there are new drivers dictating who can and will take the helm. For starters, children born into construction companies face more opportunities than ever before. College degrees and an increasingly mobile society allow young people to pick and choose from a range of jobs – in or out of construction – throughout the country, and they simply may not be interested in continuing the family business when other opportunities beckon. Add to this the concern over long hours and lack of work-life balance that can come with running a family construction business. Millennials and Generation Z expect time to pursue hobbies and personal interests. They are far more likely to work to live, rather than live to work, as their grandparents did. There is also the practical matter of timing. People are delaying marriage and children now, so the next generation may not be old enough to accurately judge if they are a good fit before it is time to take over.
Once the family has agreed who will take over, previous owners must trust the successors, step back, and allow the transition to go forward. If the previous owner hovers and smothers, the next generation will never be ready to succeed independently. And, if there is a question of who is truly in control, it can lead to infighting and instability as the company is pulled in two different directions.
While by far the longest lasting, Kongo Gumi isn’t the only family construction company to choose solid successors and survive centuries. R. Durtnell & Sons is now run by the 12th generation of the family. The UK-based company got its start when two brothers built a house in 1593 that is still standing – and occupied – today. The family firm Takenaka was founded in Osaka, Japan in 1610 and is still going strong.
Whether in business for hundreds of years or still in the start-up phase, family businesses are the backbone of the construction industry. With a solid succession plan in place it is certainly possible, despite the odds, to see the dream continue far into the future, leaving a living legacy for generations to come.