Lessons learned from 30 world business families With the 6C formula for success and (not) success in Thai family businesses (Part 8)

This article will discuss three family businesses in the automobile industry from two countries, Japan and Italy, and one in the toy industry from Denmark, which have something in common: they employ professionals or people outside the family to manage their businesses at certain times, especially during times of crisis when there is no suitable successor.

1. Family business Toyoda, the Japanese automobile manufacturer Toyota: The family is not a major shareholder.

The business started with the Toyoda family. The founder was Sakichi Toyoda in 1926 as a textile loom business until he had a son-in-law named Risaburo who was adopted as the eldest son by Sakichi. He had another son, Kiichiro, who became the second son. Later, Kiichiro invited him to produce a car in 1936 under the name Toyoda. Later, it was changed to Toyota to make it easier to pronounce.

When Kiichiro, the founder of automobile manufacturing, retired from the Toyoda family business, the family was not ready to take over the family business, so they hired an outside executive to lead it for 17 years. This was during the time when Japan was rebuilding the country, until 1967 when Eiji Toyoda, Sakichi's nephew, took over as president of Toyota Motor because he had worked with Kiichiro.

During Eiji's 15 years as Toyota's leader, Toyota's export business was the Toyota Corolla, the best-selling car in the world's history. Eiji created production standards and efficient management known as The Toyota Production System, or 'Just-in-time', as well as emphasizing the quality of cars. Eiji retired from the business in 1981 and died in 2013 at the age of 100.

After that, Shoichiro Toyoda, Kiichiro's son, who was the third generation heir, took over the management for another 3 years, and it was during this time that Toyota Motor produced luxury cars under the Lexus and Toyota Prius brands. After that, the leader of Toyota, Tatsuro Toyoda, Shoichiro's younger brother, took over the position for only 11 years, and had to let 3 other executives who were outside the family come in to manage the company for 3 years.

Until the Toyoda family took over the business again in 2009, which was a time of crisis for Toyota. There was a crisis of oil prices affecting sales, a financial crisis, and the fact that some Toyota cars caused dozens of deaths due to a stuck accelerator pedal, so the company had to recall more than 9 million cars worldwide (The Recall Crisis), causing a serious crisis of faith in the Toyota brand.

During that time, Akio Toyoda, the heir of the Toyoda family and son of Shoichiro and grandson of Kiichiro, the founder who was the 4th generation heir, took over the business until it was managed and turned around from a loss-making business into a profitable business. Akio, the 4th generation heir, managed and stepped down in 2023, while currently an outsider, Koji Sato, has returned to lead the company once again.

Currently, the Toyoda family holds a combined stake of less than 8%, and the executives hold only 1%. Despite being a small number of shareholders, the Toyoda family still plays an important role in the management, as if it were their own family business, due to the close relationship and reputation of the Toyoda assets and Toyota, which are inseparable from the family.

It is currently a challenge whether Toyota's auto business can adapt to the changes brought about by the EV system, which Toyota has adapted to slower than automakers such as Tesla or BYD or the Chinese electric car group. Therefore, it is something to keep an eye on to see how the outside executives will lead Toyota to continued success and whether the Toyoda family will have to return to manage it. But one thing is for sure, the family is no longer a major shareholder in this auto manufacturing business.

lesson learned

• Japan's IPO and inheritance tax have reduced the original family business owners' shareholdings to a small number, but the Toyoda family's reputation remains important in saving the business.

If compared to Thailand, it may be compared to the case of Kasikornbank or Kbank, where the Lamsam family is not a major shareholder and has appointed professional external directors to be executive directors. However, there is still the Honorary Chairman, Mr. Banthoon Lamsam, who may still be behind the management of Kasikornbank because Kasikornbank and the Lamsam family may not be separated, similar to the Toyota family and the Toyota automobile company.

• When a family business is in crisis or does not have enough capable people, it is necessary to use professional management to help resolve the situation.
• Doing business with social responsibility towards customers when a crisis occurs is something that all family business owners should learn, especially family business owners who have built up a reputation. Therefore, it is very important to resolve the crisis with prudence and be careful of the family's reputation, allowing the business to survive the crisis.

2. The Agnelli family business Agnelli, Italy, owner of car business and others: M&A and Spin off business

The family business was started by Giovanni Agnelli from Turin, Italy, who started out manufacturing cars with eight partners under the name Fabbrica Italiana Automobili Torino, or 'FIAT'. The business expanded dramatically during Italy's wartime involvement, selling trucks, machine guns, engines, airplanes and ambulances, and by 8 it was the third largest industry in Italy.

During this time, Giovanni bought shares from other partners and expanded into a publishing business called La Stampa, bought Juventus football club, set up a bank to lend car loans, and in 1927, set up a holding company called Industrial Financial Institute (IFI) to hold shares in various businesses, including shares of FIAT. At that time, Giovanni was a member of Mussolini's Fascist Party. When World War II ended, Giovanni was prosecuted and had his assets seized, but fortunately, because FIAT operated independently of the Fascist regime, he was acquitted and eventually got his assets back.

Giovanni had prepared to hand over the business to his son, Edoardo Agnelli II, but his son died at the age of 2, forcing Giovanni to hand over the business to his grandson, Gianni, to lead it. However, since his grandson was only 43 years old at the time, the family assigned an outsider, Vittorio Valletta, who was the managing director of FIAT, to be the president of the company until 24, when the business was returned to the third generation, Gianni. Gianni appointed his younger brother, Umberto, as the president of Juventus Football Club and his elder sister, Nasi, as the president of FIAT.

During that time, the family business expanded greatly in Italy through mergers and acquisitions (M&A), including car brands such as Lancia, as well as Alfa Romeo, owner of the Ferrari brand, and Piaggio, manufacturer of Vespa motorcycles. At that time, the family was considered the largest family in Italy with a business empire accounting for 3 percent of Italy's GDP.

Until the crisis of the 1970s, the oil price crisis, the economic crisis and foreign car competition caused the FIAT business to lose money since 1997 onwards. From sales market share of 60% to only 30% until 2002, the Agnelli family had to sell many businesses that the IFI company invested in to recover from the crisis and pay off loans to the banks. That year, the family's wealth decreased from 5 billion euros to only 2.3 billion euros. In addition to the economic crisis, the leaders of the family died, namely Gianni and Umberto.

Gianni did not hand over the business to his son, Agnelli III, due to conflicts in political and religious ideas, and instead handed the family business over to his grandson, John Elkann, who entered the business during the crisis at the age of 3. When John came to the rescue, he appointed Sergio Marchionne, an outside executive, as the CEO of FIAT, to overhaul production, until FIAT became profitable in 28.

And later acquired the troubled Chrysler in 2009, becoming a multinational company called FIAT Chrysler Automobiles or FCA, listed on the New York Stock Exchange in 2014 and moving its headquarters to Amsterdam, Netherlands since 2016.

John also spun off the Ferrari car business in 2015, leaving the family holding company Exor, which was transformed from an IFI, with only a 23% stake in Ferrari, which helped reduce IFI's debt.

In 2021, FCA merged with French company PSA Group, which owns the Peugeot and Citroën brands, to form Stellantis, with John as Chairman of the new company and Carlos Tavares from PSA as CEO.

He also acquired PartnerRe in the US to start a reinsurance business. John also merged the family's nearly 100-year-old newspaper business, La Stampa, with la Repubblica to form GEDI Gruppo Editoriale, and bought a 43% stake in The Economist in 2015.

Today, the family has more than 100 members from 9 branches, controlling the family business through a holding company called Gianni Agnelli e Cie. The holding company holds a 53% stake in Exor and a holding company in the car company. John transformed the family business into a multinational company through mergers and acquisitions. The spin-off created an increase in the value of Exor by more than 25% during the 2010s and paid dividends, so that the family members accepted John's decision and let John lead until today.

lesson learned

• This family business has experienced many crises, but with the leadership of John, a grandson and fourth-generation heir who has experience and became a director at a young age, he has learned lessons, whether it is setting up a holding company, merging businesses, selling businesses and spinning off to create added value for the business, including hiring professionals to help manage the business during times of trouble.
• The fact that the family company has a Holding Company enables it to restructure, expand, sell, and spin off businesses into the stock market, which increases the company's value. It must be admitted that the decisions of John, the 4th generation leader of the family, were able to lead the family business, which was once at its most prosperous, to overcome the crisis, even though it may not be among the highest in Italy.

Therefore, it can be considered that the organization of the structure with a Holding Company, M&A and M&P, Spin off the business, and hiring professionals are the survival paths of this family.

If we apply the 6C formula, it is C1, structure and C6, changes that enable businesses to survive the crisis.

• The involvement of the family business in politics by the first generation of leaders of this family almost caused the risk of having their assets seized. Therefore, it is a matter that must be carefully considered whether the family business should get involved in politics or not. It should be considered in the context of Thailand and in Thailand where many family businesses still get involved in politics, whether it is appropriate or not. Because there has been an example that happened in Thailand where if a businessman gets involved in politics, it will result in many negative effects, as everyone is well aware.

3. Family business Kirk Kristiansen, owner of Danish Lego company

The Lego company was founded by Ole Kirk Kristiansen in 1916 as a furniture maker. In 1932 it began producing wooden toys using the new product line, Lego, which comes from the Danish word 'LEg GOdt', which means Play Well in English.

Today, the third generation heir, Kjeld, the son of the second generation heir, leads the family business. Over the past hundred years, the family business has gone through many crises, especially when the first crisis occurred in 3, when the factory caught fire. He built a new, bigger factory and in 2 it caught fire again. During World War II, he changed the material of the toys to plastic using molds in 1924.

Later in 1960, there was another fire. The second generation of the leaders decided not to repair the warehouse and stopped all wooden toy business, but went into plastic building blocks business, which made the other three brothers, Karl, Georg and Gerhardt, unhappy until they sold their shares to Godtfred, which became the leading toy company until today.

The Lego company has been patenting the production of plastic bricks since 1958 and has never stopped developing innovation. In 1968, Legoland opened in Denmark. In the 1990s, the Lego company, under the leadership of Kjeld, the third generation, began to face challenges from the birth rate in Western countries that affected the balance of children's money, competition from digital toys, which Lego tried to adapt to, but was not successful. No matter how much the business was expanded, it was in a bad situation in 3, causing the company to almost go bankrupt.

Until Lego changed its plan to use technology to develop, not to replace, plastic bricks, by using technology to develop innovations in the form of Brick by Brick, which is to build one piece at a time, such as developing Biological Chronicle by combining plastic bricks with plastic media from picture books, comics, games, movies and online media by purchasing the rights to make Lego bricks from movies such as Star Wars, Harry Potter and Private of the Caribbean, including bringing LEGO City to develop and create cities endlessly.

Most importantly, the business was saved when Kjeld, the third-generation heir, stepped down from the family business and brought in Jørgen Vig Knudstorp, a famous and capable executive from outside the family, to take over the position. Family members also played a role in closely supervising the business, not neglecting it and letting professionals manage it alone. This included designing the holding company structure so that the company held 3% of the Lego Group shares and the remaining 75% was held by the LEGO Foundation. The management of the Lego Group was done by people outside the family, while the vice president was a family member. Family members worked closely with the executives, not just letting the executives do their job.

lesson learned

• This family uses innovation to keep up with the changes. Innovation in the world is important for businesses to adapt to the times, not just stick to the old ones, and registering Intellectual Property.
• Establishing a Holding Company with family members holding shares and a foundation, and managing during crises when family members are unable to manage, having outside professionals come in to manage is an important option. However, family members should work and consult closely with professionals throughout the period together, not leaving professionals to manage by themselves without family members being involved.

Because if it is left like that, it may cause an incident similar to the case of LVMH business, The Wall Street business, or Guinness business, where the family business owner lost ownership because they let the professionals manage it alone without interfering because the family business belongs to the family. It would definitely not be right to let the professionals manage it.

If we apply the 6C formula, it means having C1, the management structure of a Holding Company, and changing C6, which changes the business and allows outsiders to manage it, allowing the business to stand firm today.

In the next episode, we will follow another 3 families.