By Parimal Merchant| Mar 11, 2016
They not only have economical assets but also emotional assets. Also, they have the advantage of continuity in leadership
At times, some Family Managed Businesses (FMBs) hesitate to acknowledge that they are so. They would prefer to present themselves as a professionally run company as if FMBs can’t be professionally run. There are widespread and oft-repeated notions that FMBs are very small companies, managed without any systems, as a fiefdom of the owner and are short-lived. Perhaps it is because of these notions that it is unfashionable to be identified as FMB.
However, it’s the FMBs that generally outperform their non-family counterparts. Professor John Ward, who has been researching on family businesses for nearly three decades, suggests that there are a number of reasons for the outperformance of FMBs.
The FMBs have their family’s name and wealth at stake and as such they provide a 24x7 vigilant ownership. Since the business is identified with the family, they have a high level of commitment, dedication and perseverance. Their visible presence in the business leads to higher productivity. Their comparatively easy accessibility to the employee promotes higher sense of belonging leading to higher job satisfaction to the employees.
They do not have to chase quarterly results and have a long-term perspective and as such they can focus on quality of products and services. They can invest time and money in building customer confidence and developing business. They are personally invested in the business and so have high level of adaptability to the available opportunities. The decision making is fast and free from bureaucracy. They demonstrate high amount of prudence and have extremely efficient cost controls.
They have not only economical assets but also emotional assets. They have the biggest advantage of long continuity in leadership. The average span of a CEO in a non-family firm is of 4 to 4.5 years in the US; it is 15 years in case of FMBs. This gives them long memory providing continuity to the business. While for non-FMBs, the criteria is immediate shareholder value, for FMBs more important is long-term value creation and continuity.
In non-FMBs, there are silos in operations and the managers aim for local optimisation often at the cost of overall interest of the company. On the other hand, FMBs focus more on holistic perspectives.
One of the biggest challenges of the businesses today is that of increasing complexity. It has to manage objectives which are diagonally opposed to each other. Thus they have to ensure high quality and at the same time cost control. They have to ensure employee satisfaction and at the same time high performance demand. Managing such contradictions is a big challenge for all businesses. As far as FMBs are concerned, by the very nature they have been managing contradictions all along. They had to manage equality on one hand and fairness on the other. They had to accommodate individuality and at the same time build conformity. They have to ensure liquidity and at the same time provide for growth. Regularly managing such contradictions, it becomes easier for the FMBs to manage the challenges of other business contradictions.
The major difference in management between FMBs and non-FMBs is the orientation of time. The non-FMBs are more focussed on today and have targets to achieve. The FMBs are likely to be more concerned about the past and the future.
As a consequence, the non-FMBs are more performance driven and the FMBs are more value driven. They not only have the profit objective but also the concurrent objective to have harmony in the family and protecting the long established name of the family business.
There are serious misconceptions about succession issues in FMBs. It is being projected that often, the seniors do not want to ‘let go’ and often the next generation either does not have inclination or competence to take over the charge. This may be true in the Western world but generally in India the situation is quite different.
In India, in FMBs, the son or daughter is getting educated as well as inducted in the business from quite a young age at the dinner table. They know the family history and they feel responsible for contributing to the family history. The previous generation knows well that the transition is going to take place and try to the best extent possible to groom the next generation. In any case, it is generally more than two decades that the two generations work together. In the process, the transfer of tacit knowledge takes place and the inductee gets groomed for the business. As a result, the succession over the years becomes a natural flow.
A lot of literature is written in the West, largely criticising FMBs about their short life and about problems of succession. While we in India have to learn a lot from the West on many issues, as far as the family matter goes, it is the West which has to learn from India.
We have a rich tradition of family and extremely strong family relations and bonds. Our family businesses have been doing great and continue to do great. While the names of very big groups like Kumar Mangalam Birlas and Aziz Premjis strikes a cord immediately, there are millions of family businesses as small and medium enterprises which are doing phenomenally well.
While these large companies shy away from admitting to be FMBs, what matters for us is the tremendous growth and performance of other not-so-known family businesses too.
They are hidden champions. Hidden as they are not known. And champions as they have demonstrated outstanding performance.
Salutes to such FMBs who despite heavy odds continue to make their way out and continue to grow contributing not only to their own family but also to the development of our nation.
Hopefully the time is not far away when to be an FMB will be a matter of pride – when people will write on the visiting card, “We are a Family Managed Business. We stand for long term Relations, Trust and Commitment”
- Prof Parimal Merchant is advisor at Asian Institute of Family Managed Business. Views expressed are personal.