Written by Anil Sainani | Updated: Dec 12 2007, 05:59am hrs
Having been born and brought up in a joint business family, and now having taken up family business governance as a profession, I have long wondered what the root cause of disputes within business families is. These families are of importance to economies all over the world, and so this is a subject worthy of critical examination. Family-owned businesses account for an estimated 40-70% of GDP in all developed economies, and in India too, they account for a significant chunk, whether in the organised or unorganised sector.
Most languages of the world have the equivalent of the saying, From shirtsleeves to shirtsleeves in three generations, implying that family wealth created in one generation does not last beyond three generations. Why is this so What explains the decline and disintegration of family businesses, with their obviously significant costs to the economy
Business success is rare to begin with. Mark H McCormack, the celebrated author of What They Dont Teach You At Harvard Business School, says that of the hundreds of executives who dream of some day becoming successful entrepreneurs, only one actually succeeds. Yet, even successful businesspersons, more often than not, fail to keep their families together and their businesses prosperous after them. No sooner does the founder leave, the business is wracked with disputes among family members. While some families succeed in resolving these issues amicably, many disputes degenerate into conflict, with bitter battles fought in the open (in the press and even courts).
Conflicts always pain family members and have an adverse impact on the business. Yet, they persist. Why In trying to reach the root cause, I discovered multiple layers of causes and subcauses. It was rather like peeling an onion.
Lets begin. Most founders of businesses do not start with a clearly laid-out plan for the future. True, they are visionaries in the context of the markets they address, capable of seeing opportunities beyond the ordinary, and are dedicated to passionate and sometimes irrational extents in fulfilling their vision. But the intense pressure of achieving success, mostly against commonly understood odds, often involves such an all-consuming effort, that other considerations pale in significance. The entrepreneurs own family is often a neglected dimension of life. This, despite the fact that family business experts say that all founders of family business have three big challenges to address, and these are succession, succession and succession.
There are two aspects to this. The first is management succession. The founder not only has the unenviable task of relinquishing what he or she has founded with blood, sweat and tears, but choose a successor who will carry the legacy forward. Whether the choice is between competing family members or between a family member and a non-family CEO, the task is difficult.
Then there is ownership succession, which is even more difficult to handle. Here, the founder has to plan effective ways of insuring his own post-retirement future and that of dependents. Ensuring an equitable distribution of wealth among dependents is especially complex when the family business is the biggest part of this wealth.
At another level, the most common reason cited for problems in family businesses is rivalry between daughters-in-law, which can push a founders sons apart. At a systemic level, family business experts attribute this phenomenon to the failure of the family in integrating the daughters-in-law well enough. Once there are grandchildren in the picture, the question of family mission and values assumes special importance. The relevance of culture to the success of an organisation has been well appreciated by observers of business. And it is the core purpose and values of an organisation that form the bedrock of its culture. Unfortunately, an explicit articulation of the family mission and values, and an associated code of conduct, is missing in many business families.
Looking at family businesses that have survived and prospered beyond the third generation, one discovers the importance of family bonding. Systematic shared activities, such as family holidays, observances and celebrations, play a role in this. Conversely, lack of emphasis on common understandings can create space for differences.
Having peeled through these layers, I still felt that I had not yet been able to nail the root cause. After a siesta, and being woken up by my wife with the grievous news that a young IIT student from a family known to us had committed suicide, my thoughts gravitated towards the effect of competition, or more specifically, comparison. The students elder brother had graduated from IIT last year, and he was reeling under an acute inadequacy in his ability to match that performance.
Whether it is a family business or non-business family, the imposition of false comparisons can lead to trouble. The truth, ultimately, is sobering. It brooks none of these odious separation markers. As the Buddha had said thousands of years ago, Comparison is the root cause of discord and unhappiness.