Not In The Family Business, Gen-Y Looks Outside
12th September 2014 Kavil Ramachandran, Indian School of Business
The shrinking size of families and growing complexities of business, often results in a shortage of competent family members to work in the business.
Most business families believe their members should be deeply involved in the operations of their business. It has always been considered a right as well as a responsibility. But the scenario is changing with the shrinking size of families and growing complexities of business, often resulting in a shortage of competent family members to work in the business.
Young family members now openly ask, "Why I should I work in the business?" Most often such a question is never asked because the best person to ask it is the promoter himself. It is only under extreme compulsions such questions are noticed. In several entrepreneurial and family ventures, big and small, old and young, one can now hear echoes of this or similar questions.
Emergence of several new and exciting alternative opportunities is making many next-gens sit up and think of the options. Indeed, there are solutions if only promoters are willing to listen. The premises for promoters working in their ventures are many.
Besides having the freedom to build the business as one likes, the person believes (often rightly) that he alone (and his immediate family) has the passion and commitment. He knows that he cannot easily trust anybody. Above all, running the business keeps him busy. It allows him opportunities to account for his expenses, personal or business.
In essence, the owner is the operating head as also the head of strategy and governance, besides being the key investor. When the business is small, it is easy to have all the above capabilities blended in one person. But as the business grows, several of its critical success factors do change. That is when ownership rights do not necessarily make a person a good manager too.
The reasons for the promoter to operationally run the business, such as occupation, monetary rewards, social status and trust may still be true. But the question is whether he is the right person to do so, purely from the angle of the business and its competitiveness. In European and American companies, there are major shareholders who are not involved in anything at all but continue to enjoy dividends and capital appreciation as investing owners.
The assumption that owners should be involved in the business on a day to day basis is a myth. We can break it if suitably qualified persons can be appointed for the job. This is not easy primarily because there are several ownership related concerns to be addressed, of which trust in integrity and confidentiality are the most important for any promoters.
Of course, they do not want their hard work of years of building the business destroyed by an 'outsider'. The way out is to design organization structure and systems professionally. One has to create robust systems and processes, high quality internal and external audits and performance linked incentives.
Owners need to think like entrepreneurs and find opportunities for growth. They should no longer see operational involvement of their successors as a responsibility; they should cultivate their interest and capabilities as strategists and investors. Such an approach not only helps grow the wealth but also find a number of family members connected with the business in one way or other.
About the author - Kavil Ramachandran is the Thomas Schmidheiny Chair Professor of Family Business & Wealth Management, Indian School of Business, Hyderabad.