How does Japan's oldest enterprise navigate uncertainty?

In 1945, an air raid destroyed the main factory of Toraya in Tokyo. Toraya is a time-honored Japanese wagashi enterprise that has enjoyed a stellar reputation in the industry since the 16th century. Even as World War II was still ongoing, the company launched reconstruction almost immediately. Later, even amid severe sugar shortages and an uncertain future for Japan, the enterprise kept operating, continued trial production, and pressed ahead. Its logic was extremely simple: the very meaning of Toraya's existence is to make confectionery, and this mission will continue no matter what happens around it. To this day, Toraya operates three factories and around 80 stores across Japan, alongside a boutique outlet in Paris, with its original aspiration remaining unchanged.

How have enterprises like Toraya managed to survive and thrive through centuries of political, social and economic upheavals? Nowadays, organizations of all kinds are facing increasingly frequent man-made and natural disasters, escalating trade conflicts, and the disruptive impact brought by artificial intelligence — what can they learn from these long-lived enterprises?

The average lifespan of S&P 500 constituent companies has dropped from around 33 years in the mid-1960s to 21 years in 2020; consulting agencies predict that by the end of this decade, this figure will further fall to 15 to 20 years. Against such a backdrop, the above question is well worth exploring and answering.

To this end, we conducted a study that compared the operating performance of 59 large listed Japanese family enterprises, non-family enterprises in Japan, and large family and non-family enterprises in the United States, Germany and Canada from 1994 to 2024. We also interviewed the management teams of three of Japan's oldest enterprises: Toraya, the textile brand Hosoo, and the tea caddy manufacturer Kaikado.

Japan was selected as the sample for this study for the following reason: among developed economies, Japan not only hosts multiple ancient enterprises that have survived for hundreds of years, but has also experienced an extremely harsh macro environment over the past three decades — 15 out of the 30 years saw falling or flat prices, and the population aged 65 and over nearly doubled. Calculated in U.S. dollars, Japan's GDP has shrunk by roughly one fifth, while the U.S. economy has quadrupled in size over the same period.

Interestingly, after controlling for variables of the macroeconomic environment in each country, the return on assets (ROA) of large Japanese family enterprises is on par with that of their U.S. counterparts, and outperforms family enterprises in Germany and Canada. In the long run, the operating performance of Japanese enterprises has steadily improved: from 2014 to 2024, their absolute ROA has been equal to that of the U.S. enterprises in this study. Over the full 30-year sample period, their ROA fluctuation margin is only half that of their U.S. peers. In short, in a harsher environment, the surveyed Japanese enterprises have achieved returns no lower than, or even higher than, their overseas counterparts, while taking on lower risks.

Business Philosophy, Long-term Perspective and Four Core Principles

The Toraya case at the beginning reveals the underlying methods that have enabled these enterprises to navigate the past three decades, and even hundreds of years of history.

What guides them is not prediction, but architecture: a clear and firm understanding of the corporate mission, and a clear distinction between what can be changed and what must remain unshakable. A senior family business consultant summarized this as: shifting from family rule by individuals to governance guided by established philosophy.

The managers of such enterprises hold a unique view of time. As directors of multiple Japanese enterprises noted: "From the family's perspective, a 3 to 4-year or 10-year business cycle is just a tiny fragment of a century-old enterprise's history... Decisions that seem illogical to outsiders are actually reasonable when examined against this extended time horizon."

We found that the most resilient enterprises rely on four principles to implement their mission-centered business philosophy and ultra-long-term perspective.

1. Translate values into operational systems

Kyoto-based textile workshop Hosoo, founded in 1688, has put its principle of "beauty as the highest criterion" into practice rather than treating it as a mere slogan: this principle determines what technologies the enterprise adopts and which cooperation projects it takes on. Otsuka Holdings has embedded its corporate philosophy into its corporate governance and management system: it selects directors and cultivates the next generation of managers in accordance with the philosophy, ties executive compensation to medium and long-term value creation, and reinforces this set of value requirements through group-wide ethics training and internal feedback mechanisms.

2. Use tradition as a springboard for evolution

The 18th generation president of Toraya believes that as long as the core mission of being a confectionery manufacturer is consistently fulfilled, everything else in the enterprise can be adjusted and reformed. Toraya has been iterating and innovating continuously: it opened its Paris store in 1980, developing confections that incorporate local ingredients such as figs and berries; in 2021, it partnered with a 3-Michelin-starred chef in Paris to launch a restaurant. At the same time, the enterprise still produces traditional confections in accordance with design classics preserved from the 17th to 20th centuries.

Hosoo once saw its core market collapse: by 2008, demand for kimono had shrunk drastically, leaving the workshop with only three artisans. Instead of clinging to the existing stock market, the enterprise independently developed a unique 150cm loom, integrated the Nishijin weaving craft into its collaborations, and launched co-branded collections with Dior, Gucci and Louis Vuitton.

3. Guard patient capital

Long-lived Japanese family enterprises firmly believe that if a strategy can eventually deliver returns and support the corporate mission, they are willing to invest ultra-long-term capital. In the early 1960s, Suntory entered Japan's fiercely competitive beer market. This investment could not be justified using traditional return cycles. The enterprise endured decades of losses, treating the deficits as tuition for capability building and brand cultivation; thanks to its hit product Premium Malt's, the beer business finally turned a profit for the first time 45 years later. The patience mentioned here does not mean abandoning control, but rather rigorous management over an extended time horizon, accumulating compound returns over the long term in an environment full of uncertainty.

This patience is paired with a robust balance sheet. In our 30-year cross-border sample, Japanese family enterprises have the lowest leverage level among the four country groups, with a median leverage ratio of only 16%, compared with 29% for their U.S. peers. The low-leverage feature makes these enterprises more resilient in the face of successive shocks. Debt can certainly optimize taxation and reduce capital costs under certain conditions; but when considered over a century-long horizon, excessive debt may bring fatal risks once an unexpected downturn cycle hits, so the trade-offs must be carefully weighed.

4. Treat succession as fiduciary inheritance

When planning management transitions, such enterprises do not only finalize the next CEO, but also consider successors after that, and are no longer limited to members within the family. The enterprise will build a supporting team to assist the new leader, or assign a prudent and reliable deputy to work with them, and candidly inform them of the harsh realities in private. A governance practitioner noted: "After the CEO is selected, the enterprise will make every effort to ensure that he can perform his duties successfully."

The value of succession management is confirmed by data: during the management transition phase, Japanese enterprises see a smaller decline in operating performance and more stable fluctuations, outperforming similar U.S. enterprises. A long-serving director observer commented: this system is embedded with a long-term fiduciary commitment.

In our research, we also saw counterexamples: enterprises that abandoned these principles declined. Kongō Gumi, founded in 578, was once widely recognized as the world's oldest family enterprise. After 14 centuries of development, Kongō Gumi took on debt to expand into general construction contracting, taking on projects for apartments, office buildings and senior care residences. This track relies heavily on price competition, where the enterprise that had never fought price wars had no advantage. In the late 1990s, demand for temple construction plummeted (Hosoo also faced a similar shock but successfully weathered it), and Kongō Gumi was unable to service its debt. It lost its independent operating rights in 2006, and its business was merged into the Takamatsu Construction Group.

Implications for Other Enterprises

Are these experiences applicable to organizations outside of Japanese family enterprises?

Ownership structure is obviously critical: across the four country samples, family enterprises generally achieve higher returns at lower risk; specific equity structures can insulate against short-term market pressures, making it easier for management to adhere to a long-term perspective. But the research has an even more valuable finding: all 59 Japanese family enterprises in the quantitative sample are publicly listed. Equity does not determine the fate of an enterprise, and practical operational methods are what matter most. As the tragedy of Kongō Gumi shows, even a family enterprise that has lasted for a thousand years will fail once it discards these principles.

Building operational systems based on values, carrying out strategic iteration rooted in tradition, guarding patient capital with a robust balance sheet, and carefully planning succession and inheritance — this set of practices applies to all forms of ownership: from fully unlisted enterprises (family-owned, foundation-controlled, employee-owned, with employee stock ownership plans, or non-profit-owned) to public companies with dispersed shareholdings, and can be implemented in different regions.

Examples are as follows:

Novo Nordisk, a century-old Danish pharmaceutical company, not only states its social and environmental commitments in its value declaration, but has also written them into its articles of association. The articles stipulate that the company shall conduct its business taking into account financial, environmental and social responsibilities. The foundation-controlled entity holds 28% of the enterprise's shares and 77% of the voting rights.

Corning, a U.S. manufacturer of advanced glass and ceramics founded in 1851, has continuously developed new products, such as Gorilla Glass used in smartphones. The company operates under a one-share-one-vote system, and members of the founding Houghton family no longer serve on the board of directors.

Robert Bosch, a 140-year-old German engineering and technology enterprise, has a charitable foundation that holds 94% of the shares, with the vast majority of voting rights vested in an independent industrial trust; India's Tata and U.S.-based Patagonia also use trusts to achieve long-term governance goals.

Research confirms that the world's leading family enterprises, both in terms of processes and outcomes, generally outperform large public companies in the same industry in succession planning. But many listed companies (Mastercard, PepsiCo) are also excellent examples of these management practices.

Regardless of the equity structure or region they are in, outstanding executive teams, boards of directors, long-term investors and fiduciary managers should continuously ask themselves these sets of questions:

Values: What value criteria truly guide difficult trade-offs? How are these criteria embedded in promotion, compensation and supervision mechanisms?

Tradition: Which of the enterprise's accumulated heritage can serve as the foundation for continuous development, rather than being discarded as a burden or passively guarded as a relic of the past?

Patient capital: What long-cycle investments have we retained despite pressure from quarterly performance assessments? What milestones do we use to judge that these long-term investments remain justified? In the face of current drastic fluctuations and uncertainty, is our leverage level sufficiently prudent?

Succession: Beyond emergency replacement plans, how far in advance can we plan for management transitions? Have we planned for the supporting team that will work alongside the successor?

In 1945, no one inside Toraya knew what would happen in the next decade. To this day, no enterprise can predict how artificial intelligence, market fragmentation or the next crisis will reshape the industry. These long-lived enterprises in our study do not have the ability to foresee the future; they adhere to a set of business philosophies, long-term perspectives and behavioral principles, and rely on this system to respond to uncertainty. At a time when predicting the future is almost impossible, we believe more enterprises can learn from this model.

Claudio Fernández-Aráoz, Masahiro Kotosaka, Yasushi Maruyama, Gregory Nagel | Text

Claudio Fernández-Aráoz is a global leadership expert and the author of It's Not the How or the What but the Who (Harvard Business Review Press, 2014). Masahiro Kotosaka is a professor at Keio University and an associate researcher at Saïd Business School, University of Oxford. Yasushi Maruyama is a visiting scholar at Stanford University and a partner at Egon Zehnder. Gregory Nagel is a professor of finance at Tennessee State University.

Zhou Qiang | Editor

This article is from the WeChat official account "Harvard Business Review" (ID: hbrchinese), author: HBR-China, published by 36Kr with authorization.