“It is better to have daughters than sons as you can choose your sons.”

This Japanese adage neatly sums up the succession planning among Japanese business families who welcome the birth of a daughter.

According to the Japanese, daughters provide a great opportunity for business families to cherry-pick a successor. Graduates from top universities who are star employees of the family business or other elite companies are prime candidates.

After marrying the patriarch’s daughter, the capable man will be legally adopted and carry the new family’s name.

The adopted son also voluntarily cuts most ties to his birth parents and swears fealty to his new parents.

This uniquely Japanese practice is known as mukoyoshi, the modern version of which often involves love marriages. One prominent example is Suzuki Motor. Its current chairman, Mr Osamu Suzuki, was born Osamu Matsuda.

As a researcher, I was curious whether mukoyoshi is beneficial to family businesses.

Together with my co-researchers, we investigated this issue by analysing the performance variables such as return on assets, sales growth and employee growth of all publicly listed companies in Japan for four decades.

Family businesses that are run by adopted heirs had superb performance when compared with others, namely companies run by natural heirs and professional chief executive officers as well as non-family companies.

The only leader group that adopted heirs could not surpass were founders. This is not surprising as founders are often regarded as having a superior leadership style.

We found this after controlling for firm size, industry, age and various factors that might affect performance.

We observed that adopted heirs are twice as likely as natural heirs to have degrees from elite universities known for merit-based admissions.

Talent pool

In addition, adopted heirs are chosen from a larger pool of talent, tend to be more ambitious and driven to prove their worth, while natural heirs tend to feel more entitled.

The Japanese practice could offer a lesson for family businesses in Singapore.

An example in Singapore is Mr Ong Beng Seng of Hotel Properties. Mr Ong met his wife, a daughter of Mr Peter Fu in the 1970s while he was working at the Kuo International group.

While Mr Ong was assigned to develop the hotel and property management business, Mr Fu was focused on the oil and other businesses and transformed the group to be an industry leader in Singapore.

It was perfect teamwork between the patriarch and son-in-law. Hotel Properties now owns the Four Seasons and Hilton hotels, among other properties in Singapore and London.

Family businesses may also be professionalised by looking beyond family members as leaders.

Eu Yan Sang is an excellent case. Its former boss, Mr Richard Eu, 71, stepped down in July last year and appointed Mr Aaron Boey, the first non-family outsider as CEO.

And to ensure a smooth succession, Mr Eu remained as a board member.