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Home > Business > Special

Are family businesses doomed to split?

BS Bureau | May 23, 2007

Since families multiply much faster than the number of businesses, after a point, there just aren't enough independent firms for each member to run.

Vishesh C Chandiok, National Managing Partner, Grant Thornton, India

Global research shows that less than one in three family businesses continue into the third generation and less than a tenth continue beyond that.

Global research into family businesses has found that less than one in three family businesses continue into the third generation and less than one in ten continue beyond the third generation. Therefore, statistics are clearly stacked against family businesses being able to 'stick together'.

There are several reasons for this, none more obvious than the inherent conflict between the family value system and the business value system, both of which are diametrically opposed to each other.

The family value system is based on emotions whereas the business value system is task-based; there is unconditional acceptance into a family since being part of a family is akin to a lifetime membership whereas in a business, one either performs or is asked to leave; and finally, families are usually averse to change whereas businesses need to embrace change or they would not survive.

In the Indian context, the problem is compounded because business families that work together often also live together. Bedroom and boardroom politics cross boundaries affecting relations both at home and at the workplace.

When siblings or cousins start working together, or when the next generation enters the business, managing egos and the differing ambitions of the younger generation and aligning them with the vision of the previous generation, as well as that of the business is usually another sizeable challenge.

Further, for a parent, being fair is usually about being equal in dealings, which is a principle that often also gets carried into the business. Siblings who work together in business are usually provided equal shares, equal pay, equal say, equal perks, even equal sized offices -- only there is no one to assess whether an individual sitting in one office is putting in more than that in the other. As the famous Chinese proverb goes, "you can't have two tigers on the same mountain"; similarly you can't have multiple bosses running a business. For a parent, judging his/her children is a challenge and having to rate their performance against one another is simply a nightmare.

Generally the older generations prefer the ambiguity of there being little clarity on matters that affect the family as opposed to having to deal with awkward questions that will naturally accompany any attempt at bringing clarity on critical issues like proportion of share ownership, succession and retirement. Unfortunately, either out of respect or fear, the younger generation is too afraid to ask for such clarity.

Clearly with all these challenges, it is quite easy to see why global statistics on the continuity of family businesses read as poorly as they do, and there is little doubt that the odds are against families being able to stay together in business.

However, in my opinion, families that do so stay together generally have one thing in common -- the current generation takes the time and effort to clarify the rules relating to the manner in which the family may participate in the business. After the current generation is gone, there is little that can be done.

Just like businesses have standard operating procedures, it is equally important for families to have a rule book or a 'family creed'. This family creed should define the family value system, the history of the family and the business, including the hardships ensured by the family to build the business.

The rights and obligations of family members for them to be a part of the family, of the management of the business and of the ownership of the business need to be clearly spelt out in this family creed. All current and future generations of the family should be made to read and sign this document once they reach an appropriate age. The family creed itself cannot stay static; it needs to evolve with changing family and social circumstances for it to remain relevant.

Abhishek Dalmia, CEO, Renaissance Group

If families apply the same principle of work -- one of collaboration -- to their homes, there is no real reason why family businesses should not survive.

In a world consumed with a 'self before others' ethic, it is no wonder that this has become a topic for party chatter, where the socialite crowd seems to be celebrating the 'defeat' of a competitor family. The other set that seems to revel in this never before opportunity to accumulate maximum wealth through an 'end justifies the means' ethic, is made of those who were fortunate to be born with a superior intellect, and who therefore seem to believe that they were born to rule the world. Is this a sustainable approach in any system, and especially in a democratic one?

We seem to have lost touch with our ancient systems that made India famous as the sone ki chidiya and are unthinkingly adopting a model which arguably has attained only partial success in the western world. One of the key tenets of this model was propounded by Adam Smith, and postulates that in capitalism, an individual pursuing his own good tends also to promote the good of his community, through a principle Smith referred to as "the invisible hand of the market". This selfish approach clearly does not work well in many facets of life.

Consider a few instances. Let us first look at the army where "country first, colleague next, self last" is the guiding motto. Undoubtedly, any other rule would lead to a complete disintegration of the system and certain annihilation in war-like situations. Or an ant colony where an ant follows a few simple rules: gather food, dump the waste, tend the young and defend the colony. An ant has limited means of communications with fellow ants. However, when thousands of these simple agents interact with each other, what you get is not teeming chaos but a global behaviour that can solve problems, keep the colony fed, protect it from attack and adapt to a changing environment.

Let us finally consider Google's search technology. Known as PageRank, it relies on the uniquely democratic nature of the Web to determine an individual page's value. In essence, Google interprets a link from page A to page B as a vote: by page A for page B. Votes cast by pages that are themselves 'important' weigh more heavily and help make other pages 'important'. Using these and other factors, Google provides its views on pages' relative importance.

The reader might well ask what does this have to do with families in business! The simple lesson from these examples is that collaboration is at the heart of some very successful, time-tested systems. The common thread that runs through each of the above examples is that there is none whose behaviour leads to a breakdown of the simple collaboration principle.

At a philosophical level, if every family member puts the family before self; if they apply the same principles they practice at the workplace to the family setting such as team work, the leader in the family caring to listen to the dreams of the led and the led respecting their leader, making the effort to communicate with the team with the intent of carrying them along, and so on, then, as John Lennon might have said, Imagine there's no conflict, it isn't hard to do!

At a practical level, the leader in the family, in my view, needs to build an ecosystem at home and at work that is conducive to minimising conflict and promoting the desire to be together. Some of the critical building blocks to achieve this, to my mind, are divorcing the right of management from ownership, allowing each working member to pursue their dream-- within or outside the family business, allowing working members the freedom to run their businesses as they deem fit without compromising on accountability, and inculcating a sense of fairness in dealings and compromise.

Most of all, what seems to separate successful business families from the ones that disintegrate is the presence of a level five leader, who blends personal humility and professional ambition. One who rarely allows his ego to be an obstacle for the success of his family. Are our leaders; family, business or political; up to it?

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