The Classical “Tight-Spots” in a Family Business…!

Families are from Venus, businesses from Mars.
Alan Barker

www.en.wiki2.org

There is an ancient saying, “Never do business with family or friends”

I am not taking a side, but continued existence of the family business is a concerning challenge even today for the families in the business.

We all know about some of the most discussed family business fracases (Like, Hancock Prospecting, Rollins, Puma and Adidas, L’Oréal, Gucci family dynasty, Hustler magazine, Redstone Enterprise, etc.). Each feud is virtually like a compelling, intimidating, and hammy potboiler than a reality.

Even back home, there are many comparable examples, characterized by twisted interpersonal affairs and unbelievably melodramatic events.

The truth is family businesses are not always a picture-postcard of family bliss.

Why?

Have you ever worked in a Family Business environment?

Recently, while enjoying a tea break during my session on “Possible Dysfunctionalities in Family Owned Businesses”, few participants privately accosted me for seeking my response on their respective emotional mayhems.

Sharing few testimonials which may sound familiar to you:

“Two bypass surgeries Sirji… but that man is not quitting”

‘I do not know whether I do what father tutors or what son cancels… Why can’t they talk to each other?”

 “My uncle is a grown-up man and a director in the company, but he acts like a juvenile during serious business meetings and wrangles with everyone. I feel so embarrassed”

“I know it shouldn’t trouble me, but the old man always favours his son over rest of the family. He will still command all of us what to do, even though most of us are in our 50s.”

 “Entire business is out of control. The behavior of family members is so caustic with each other that no professional would like to be around them.”

In reality, differences are obvious in any relationships, but families that own businesses are more at jeopardy, because consequences of such conflicts are far too uglier.

Conventionally, the marvel of the family business has amassed inexorable attention from numerous scholars and business analysts. It represents a unique “business flair” of inherently cherished and unpretentiously endured set of core values and guiding principles. A family business cannot endure unless it withstands those entrepreneurial values across the business life-cycle and that too for generations. The family business is customarily articulated as a business with a strong commitment of the family members which also includes certain loyalists. To me, a family business is fundamentally a conundrum. In a way, a striking paradox of mingling business with family.  Only few effective enterprises have learnt that art of dealing with such incongruities as their success weapon.

It will not be misplaced to identify family businesses as a composite web of “nerve-system” for our country’s economy. Yet, transience in family businesses is significantly improbable while crediting their farfetched impact on the economy and the society. Nevertheless, unrelenting barrage of studies have established that the survival chances of family businesses till the third generation are sub 10% globally. Bulk of them, in the life span of first or second generation itself, either shut shops, or get distributed, or change hands. As family grows, ownership fragments. So logically a question arises – how come the very reason for their extraordinary success, over a prolonged period of time leads to their cessation? When we closely evaluate these family businesses, two distinct scenario emerges. There are many family businesses which have abundantly earned opulence and eminence over a passage of time. Whereas, few are fronting formidable trials even after the continued existence of the business across generations.

How can family businesses sustain their existence and institutionalize as a legacy in a globally competitive milieu?

All family businesses are founded by the entrepreneurs with amazing vision and achievement appetite. Great entrepreneurs have deep determination to succeed. They have inscrutable spirit of ownership with a purpose (The Tipping Point for the Indian Entrepreneurs…! at Placebo Effect /October 7, 2014).

While a family business has inconceivable gift of the “family commitment” (being the business owner) in not only ensuring that business propagates or accumulated wisdom is efficaciously passed down to next generation, but also in sheltering the hard earned family honour.  Likewise, it also has inherent dysfunctionalities like family complexity, governance, informality, and poor respect for strategic business issues. Besides, harmonizing both the interests frequently necessitates appeasement between family and business viewpoints.

What goes wrong over a period of time?

What encumbers the entrepreneurial inspiration to remain kindled for generations to come?

Fortunately, through most of my professional career, I have worked in family business environment and learnt about few very classical behavioural “tight-spots” frequently confronted by many family businesses.

Let’s take a look at few inevitable challenges for the family businesses in India.

IRASCIBLE PERSONALITIES AND SENTIMENTS:

Personal emotions have tendency to spread over work. This has a very grave manifestation in family Businesses. It could be the personal conflicts, separation, ill health, financial failings, diminishing profits, favouritism/preferences, squabbling over the succession of power, or any other personal emotional issue. At times, even divergent orientation of different family members towards business itself creates a major ego conflict. All such family problems have perilous effect on the business. It creates a long lasting power equation which even wrenches employees in the muck. A business often becomes embarrassingly disordered around issues of territories and authority assertions. Even after the best of compromises, apparently forceful stiffness between family members, generates a very scratchy circumstances for family, employees, and for the overall business. Any provisional win-win treaty between family members to douse the heat, further overturns “what is right” for the business. Soon that will too result in severely augmented conflicts. Finally, such virulent fights do end-up in the courts. I would be very reluctant to advise to nurture such impractical and ill-advised longing for stabilizing harmony at the cost of business.

OVERDOSE OF INFORMALITY: 

At the core, family businesses are managed very informally. The language, the conduct, and the mathematics, all are very different than what a normal professional can comprehend. Major decisions are highly centralized. Essentially, centralized decision making is rooted in the desire to keep control and enabling faster verdicts. Whereas, other critical control systems such as budgeting and planning are very sloppily defined. Family businesses have two imbedded apex circles.1. Formal Outer Circle: One which also has few senior professionals as frontage (the official fascia of senior decision making team for the public at large). 2. Discreet Inner Circle: Largely core family members and few select old amigos or alter-egos (irrespective of their hierarchical position in corporate ladder). Routinely, all key business decisions are informally taken by the patriarch of the family based on his intuitive judgments. Later on, Outer circle is involved to formalize it as a documentable logical decision without having much say in it. Promoters are paranoid when it comes to trusting others. You will rarely see a written strategy or predictable long term planning. Even if it is there, it is only for the employees’ comfort. The true blueprint of the business plans is deep treasured inside the patriarch’s entrepreneurial mind or untidily pooled by the inner circle for his final approval. Consequently, business usually suffers from tunnelled vision due to privation of divergent views and relegating participation from the professionals in decision making.

ROLE OPACITY & COMPROMISES

Structures in any family business is defined by the generation that wheels the business. You will never see a definite and visibly circulated job description of a family member. They are largely assigned “Areas” encompassing certain logical functions to look after without formal measurability or answerability and regardless of the talent to lead those functions. Such “role-confusion” between a family member and the professionals, who are actually responsible for those functions, fuels downright “joint-irresponsibility” in the system. You will also notice absence of clear policies and business norms for family members. Even tangible issues like dividends, remunerations, and other benefits for employee and non-employee family members are pretty vaguely defined. Non-employee family members generally look for some “occupation” in the business as a pastime activity, which further creates sensitive circumstances in the business. Interventionism means leadership in family businesses. Where employees’ fidelity is demanded indubitably without sharing much power or information. Controls are highly centralized and governed by conventions instead of evolving business practices. It takes much time for a promoter to comprehend that such undisputed individualities are never auspicious for any family business.

LIMPING RESPECT FOR GOVERNANCE:

Family businesses are predominantly governed by the profit-maximising focus. The efforts required to lead and govern a transparent successful family business make the prospects of governance immensely demanding. Besides, how would you deal with board members who are your uncle and aunts? It takes long time for owners to recognize that investing on organization building is more imperative than economic shrewdness. Actually, lack of effective governance is an essential cause for many business related problems. Professionalizing board and giving a formal respect to governance is always a struggle for family businesses. The journey from an overlooked filed paper-rubric to definite internalized practice is always selective and limping. Family members do often talk about the “right” governance practices at various platforms, but find it very demanding to build a common accord to actually practice it. It is characteristically unmanageable for them to affect such wishful desires in the backdrop of essentially informal style of doing a business. Often initial resistance to any progressive change is at the senior level in family business. It is also not necessary that all family members will have similar ethos of ownership with strong sense of common shared purpose. Older family members generally stress for protecting the existing state of affairs for psychological comforts rather than encouraging newer ideas acclaimed by the younger generation or professionals. Every family member will have a very different business perspective and differing intensity of involvement in day to day business. We also need to appreciate that governance practices progressively evolve in family businesses and can certainly be distinctively peculiar from one business to another. Nonetheless, governance is an essential mechanism for easing clarity, effective decision making, and establishing answerability. With clear policy guidelines, professional board, and long term perspective, a family business can definitely strike on with their growth strategies.

SUCCESSION LIMBO:

A lack of succession planning, which includes a strategy for bringing the next generation into the business effectively is the real challenge for any family business. Succession decisions are a lot abrupt or fortuitous. Hard-nosed grooming for succession is never formal. Founders do suffer from a sense of imperviousness which further throttles young promising leaders to take over. For the old guard, business becomes his only identity and hence succession for him is more emotional than a cogent decision. Insentiently, an entrepreneur does not want anyone to dislodge him. In my view, it is very natural for him to want to evade the question about successor. He would rather justify it by convincing himself that none of the family members is ready to take over the role. At times, even children are averse to take control of the business as a successor, rather they want to have a liberated identity unconnected from the family business. Yes, it is very demanding to deal with the problems of succession in the family business. Yet, that does not mean one should simply endure it.

I am not critiquing family-owned businesses. Rather, I believe that the family member can certainly do something about such behavioural “tight-spots” to further moderate the influence of emotions spawned by such behaviours in the race of survival.

I am certainly conscious about the powerful role family enterprises play in the world economy. Who will not salute establishments such as Walmart, Berkshire Hathaway, Exor, BMW, MAERSK, Samsung, Tata Group, Reliance, Porsche, and many more? 

They have voyaged for as long as businesses have been around.

The intention of illustrating few classical behavioural “tight-spots” here is to share my own experiences and observations. Needless to say that things are much better in many large evolved Indian enterprises. Yet, in few MSMEs, scenario is still not reassuring. Professionalism in Indian family-owned businesses is relatively compromised, even if awareness and need both are fast snowballing.

Regrettably, Very rarely owners of family businesses are appreciative of such escapable reasons till they are caught up in a helix… But by then it is too late.

 

2 thoughts on “The Classical “Tight-Spots” in a Family Business…!

  1. Good one Bhagwat . you have well articulated the tight-spots of a typical familiy business. However , more often then not , I find , each business familiy is some what unique . Background , education , size and ethos of the familiy make huge impact on the nature of the tight-spots . If there are too many family members involved in the business , then dynamics is very different incomparison to the business where only one or two members of the familiy are involved . Often , second and third generation of the familiy business houses are more trusting in comparison to the businesses which are still in hands of first generation familiy member . Single unit vs conglomerate nature of business is another differentiator . Worst is single unit business where there are several members of the familiy are invovled . In such a scenerio , professioanls do not have any significant role .
    Over all , I have seen businesses run by families with good values and business sense have done well in all aspects of running the enterprise . They have provided , entrprenurial vision , drive as well as high level of governance and respect to professionals . Aditya Birla Group , Mahindra , Godrej , RPG , WIPRO are few examples which immediately come to my mind , in this regard . arvind

    • You are absolutely right!
      Most of the successful companies you have listed do offer a valuable lessons for unlocking great leadership in family businesses. It is also striking how each of the families have been able to base their business strategies on well-defined long-term planning based on a commitment to the legacy for the next generation. The families have also invested enough in designing efficient governance structures to mitigate the consequences of certain internal family challenges.
      Although we’ve heard several success stories, cases of harmony, professionalism, and longevity seem to be exceptions to the rule. Trust me, in many so called “best companies”, little scratching will divulge few unattractive naked truths.
      Thanks for your valuable comments.

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