Family businesses have been the growth engines of the economy the world over. Some of the largest and most successful global corporations such as Nike, Volkswagen and Samsung are, in fact, examples of well-run multigenerational family businesses. The family behind a business is one of the most critical internal stakeholders that can affect the fortunes of the business. Like no two businesses are similar, no two families behind businesses are alike.
While it is important to view a family business as independent from the family that runs it, it is an established fact that the fundamental strength, values, principles and people that underlie the fabric of the family unit always have a strong bearing on the business. In this context, the next generation is a key pillar that supports and furthers the fortunes of a family business.
In our experience, while working with various Indian and NRI families, there are quite a few challenges in setting the Gen-Next on a growth path.
First and foremost, having a succession plan encompasses business succession, ownership succession and also values succession. A structured approach to addressing transition in business management, while accommodating individual interests and addressing conflict, is a key factor in enabling subsequent generations to succeed.
In India, there is a general reluctance among business families to discuss matters related to succession planning proactively. More often than not, the discussions are confined to business or management succession, which is not good enough unless clearly supported by ownership and values succession.
The underlying value system with which the Gen-Next has been brought up plays a critical role in long-term sustainability. While many of them try and leverage the strength of the family and family business to take it to greater heights, some of them get associated with the consumptive part of wealth and end up destroying value in the long run. It all depends on whether Gen-Next sees itself as the custodian of the family wealth/business or treat it like an owner/master.
The next big challenge for Gen-Next is its role in the family business. Sometimes, we have seen them joining family businesses with fancy titles but no substantial role. The most common business model is to find multigenerational partnerships with the grandfather, father, and children operating the same business line(s). Here, the question that needs to be asked is whether there is a real requirement for everyone to be involved in the same line of business, or is it leading to disguised unemployment? Is the family fully utilising the respective capabilities of each individual? This highlights the need for business families to engage the next generation in dialogue in order to create a match among interest, aptitude and needs of the current or future business. The last thing Gen-Next can afford is to be seen as competition to professionals in a family business.
There is also a need to appreciate the difference in the levels of exposure and education of the younger generation that creates a contrast in the manner in which they approach their patriarchy. This may often result in the creation of different interests among the youth that may not find satisfaction in the current way that the business is being run by the family. Often, Gen-Next tends to face resistance in being able to implement new ideas that it brings to the table. This resistance may extend to forays into new-age businesses or introducing new ways of doing an existing business.
Families should recognise the importance of exploring new ideas, while providing room for trial and error, including the possibility of failure. In our experience, the Gen-Next that has an early experience of failure is often more humble and matured, which helps build a stronger business.
Having an open communication is the key. We have enough examples of family members staying together but rarely communicating at the level and depth that’s needed. Encouraging both formal and informal dialogue and allowing different viewpoints and, more importantly, bringing conflicting views to the discussion table is critical.
The strength of Gen-Next lies in its ability to adapt and respond more easily to changes in the external and internal environment related to the family business. As management practices, technology, products and consumer behaviour evolve over time, the success of the next generation lies in its ability to anticipate the market trends impacting the industry, while remaining true to the value systems that the family has put in place over time.
In conclusion, families must create a structure that respects divergent viewpoints, incorporates new ideas and provides flexibility to go off the beaten path, while remaining true to the established value system. They must provide the next generation with the autonomy that it needs to effectively function, so that each generation can successfully build upon, and take their family’s business to greater heights.
Satya Narayan Bansal, CEO of Barclays Wealth and Investment Management, India, since 2007, has interacted with several of the country’s business families over the past two decades. He has also extensively commented on issues of succession and management
(This story appears in the 18 March, 2016 issue of Forbes India. To visit our Archives, click here.)