Few would be aware that family-owned businesses (FOBs) contribute to 75% of India’s GDP and can be seen across a spectrum of enterprises ranging from large conglomerates to MSMEs. An interesting observation made in Srinath Sridharan’s book Family and Dhanda is that only 10% of the FOBs survive the third generation. The main issue is succession planning.
There have been several cases of strong disputes between family members leading to business groups being dismantled. Moreover, often not all successive generations have the ability to continue to grow their enterprise. The author points out that there would always be issues like family politics and sibling biases that creep in. Further the level of competence varies across generations and ideology often is a barrier. Interestingly, he also points to the role of spiritual gurus who tend to get associated with the family and provide strong advice on this issue. This book is quite revealing as he takes us through various facets of the planning process with some anonymous examples being thrown in.
The author points out that problems in FOBs came to the fore especially after the reforms in 1991. This was a turning point because markets opened up and one had to fight to survive and succeed. It was not a case of saying “we can produce what we want and the consumer will accept it”. The choices had increased and there was ever increasing demand for new products. What was required was adaptability where one had to accept change and look to see where opportunities lay. This became difficult when such enterprises were run by people with fixed mindsets. It was only businesses that aligned with change that did well. A major lesson also learnt was that there was need to have professionals run the businesses. Those who had professional qualifications and experience had the right tools to run business in this new environment. This is a problem with several businesses where the CEOs tend to be family members across generations. Hence this was a wake-up call for all businesses.
Sridharan literally goes through the A to Z of succession planning with each letter in the English alphabet connoting a trait that is required. These could start from ‘Aspirations’ varying across generation members of a family or preserving the ‘Brand’ of the family (which is very important even today as several customers trust the brand) to qualities like ‘Desire’ and ‘Competencies’. Other aspects of succession planning touched upon are ‘Values’, ‘Unity’, ‘Transparency’, ‘Quality of life’, etc.
Of special mention can be the ‘Leadership development’ aspect because this is something that cannot come from within but has to be learnt either by experience or classroom sessions. He does point out to essential qualities required here, like having a strategic vision, financial acumen, communications skills, ethical decision taking, etc. A system where the owner projects they know everything is not something that works today.
This is a book that should be read carefully by all family business people. In fact, the author also provides the A to Z of skills sets that are needed to run a business. Here he touches upon factors like emotional intelligence, financial literacy, humility, innovation and so on. More importantly, he stresses on the global mindset that is progressively becoming important today with the spread of globalisation and integration of countries, due to which the symbiotic relationship between companies and the world cannot be separated.
Sridharan also has a section that looks at the ‘rough edges’ which come up when managing such enterprises and need to be ironed out. One area that comes up repeatedly is the need for professionalism and the need to move away from the practice of ‘jugaad’. As most companies tend to get listed and are answerable to shareholders, who would be outside the family too, creating ambiguity and uncertainty is just not acceptable.
Another factor that he talks about is when the progeny are not ambitious; as there is no reason to believe that a successful businessperson’s children are equally competent to take on the job. If the reader looks at the history of some of the major family businesses, names pop up immediately about many misfits. The same is true of when the author talks of ‘spoilt brats’, where the examples are numerous.
These two aspects of ‘avoiding jugaad’ and ‘misfit children’ become important not only from the point of view of success of enterprises, but also come in the way of corporate governance. Here, too, when one looks back at contemporary family business history, several examples come to the mind. The reputation of brands is hit and this can also get exacerbated in the form of legal issues where family members are fighting one another.
When a family business is a well known successful brand, expectations of all the stakeholders remain high even when the baton is passed on. If the same standards are not maintained, it reflects on the sustainability of the business.
This book is extremely interesting as it also delves into areas such as disputes within the families, as well as out-of-wedlock children and their role in succession planning. He also goes further into issues of failed marriages between business families where a social issue can have a sharp effect on business prospects.
Therefore, he suggests that families need to do the balancing act when planning succession keeping in mind all these factors. This may not always be easy, especially when one of the children has to be given the most important post. For this, the parent needs to fall back on advisers for unbiased guidance, as the preservation of the legacy is contingent on the best person being chosen.
But more important, the parent needs to step down at some time. Often, the person is not willing to loosen grip on the reins until there is a health challenge. Or even so, by taking a non-executive role, such a parent would still call the shots. This really could be the biggest challenge.
This book is surely one of its kind and something that every business family can identify with. It could have been embellished with some names when giving examples on both the good and not-so-good sides. Evidently the author has steered clear of any controversy here.
Madan Sabnavis is chief economist, Bank of Baroda.
Family and Dhanda: A to Z of Succession Planning for Founders and Successors
Srinath Sridharan
Rupa Publications
Pp 352, Rs 695