When a caterpillar looks in the mirror it does not see a butterfly. Yet hidden in that form is the potential to take the epitome of sluggishness and transform it into the epitome of grace, lightness and flight. The only condition is that the very nature of the thing must change completely. Caterpillars have no choice in the matter. People and businesses do. And therein lies the trap. The trap to remain the way you are, eating leaves and grass, crawling from place to place and thereby miss the opportunity to eat nectar and fly from flower to flower at will. Why would someone choose to be a caterpillar over being a butterfly? Because the status quo is always more comfortable and after all, when the caterpillar looks in the mirror, it does not see a butterfly!!! Also caterpillars are friends with other caterpillars because butterflies don’t crawl. I hope you understand what I am alluding to.
Family businesses need a similar transformation if they seriously intend to become global players in the world market. A transformation that is intrinsic, primordial, intense and painful but which then opens the doors into a world that they did not even know, exists. A world of global influence, great wealth and power and the potential to leave behind a legacy that lives on long after the founders have gone the way of all life. The choice is ours. It is not an easy choice. It is not a quick fix transformation that will happen without serious effort. It is not a course of action that will not meet opposition from other caterpillars. However, as I said, the choice is ours to make.
One thing that I learnt in my practice is that in the East, the family business is more about family than about business. Consequently religion, culture, social norms, family connections, marriage alliances, tradition and manners play a very big role in how the business is run. None of these things may find mention in a conventional business school course but are prime movers for all decision making in the families that eventually hire the products of the business schools. That is why in family business consulting, knowledge of the culture and religion is essential to understand the way in which decisions are made and why they are made. It is only when the consultant is culturally sensitive and knowledgeable that s/he can suggest solutions which are likely to be accepted. I have seen too many cases of Western consultants suggesting good ideas, but which are not accepted because they don’t fit into the cultural/religious context of the family. I have seen families take decisions which were not the best for the business but which were more acceptable in the cultural context.
This is certainly true for Indian subcontinent and Middle Eastern cultures but may well have elements that apply to other cultures as well. I have focused on these two cultures as I have an ‘insider’s view’ of them and therefore the advantage of knowing extensively how these cultures work. That gives me the benefit of perspective from which I am able to conceptualize the processes involved and help family business owners see the changes that they need to make in order to transform. It enables me to empathize with the specific cultural challenges that they face, the emotional dilemmas, the complexity of multiple roles and multiple role players. It enables me to suggest solutions to them in syntax that makes sense to them and to show them ways of accomplishing the transformation in ways that protect their particular vulnerabilities. Having grown up in these cultures and having studied the languages and theology of the religions, I am also aware of the very different interpretation of time that Eastern cultures have, compared to the West. It is not that time does not have value or that there is no sense of urgency. It is just that time has a different meaning and urgency is interpreted in terms of many different factors that impact on the way business is done in these cultures.
Let me give you an example: One is about a family business in India which is a very large infrastructure corporation that builds highways, airports, bridges and such large projects. This family also has a sugar mill in their village, which they still run though almost always, it makes losses. When I was discussing some issues of the business with the founder, he mentioned this sugar mill. My instant reaction coming out of my own very Western training and business degree was, “Why on earth do you still have that sugar mill? It just doesn’t fit in with anything else in your portfolio and takes up a lot of your personal time and resources while the profits it makes are not worth taking about. Why don’t you just sell it?”
He is a very gentle man. Most unlike the popular profile of the billionaire industrialist that he is. He said to me softly, “Sir, those people depend on us, you see.”
I asked, “Which people?”
He said, “O! The people of our village and other villages in that area. They grow sugarcane and we are the only sugar mill in that whole area. If we close, they have nowhere to sell their produce. This business does not make us money, but it is their only source of livelihood. How can I sell it?”
“But the new buyer will run it and they will have their income,” I said; still thinking with my business consultant hat on.
He simply replied, “But the buyer will not be one of them, you see. I am one of them. They are mine. To the buyer it will be a business. For me this is a legacy. I have to honor it.” And that closed the case.
Family is family: There is always a difference between ‘insiders’ who are family members and ‘outsiders’ who are not related. Some of these differences may be overt as in rules applied differently. Some may be covert and under the surface but still clearly visible to everyone, as in forms of address, precedence, who can go to the Chairman’s home uninvited. In many families the business is treated as an extension of the family home and the same roles of elder and younger apply.
Employees are ‘servants’ and in India the word ‘Malik’ (Owner) is used to refer to the business head. The connotation is not limited to the legal issue of business ownership but is extended to the ‘Malik’ being viewed as the ‘Owner’ of everyone who works for him. Loyalty is therefore a very personal thing and is experienced as such. Someone who is not completely in sync with the ‘Malik’ has really no future in the business. Being in sync is often interpreted as being subservient. This means that any difference of opinion can mean a quick termination of career in the business. For family members this is even more complex because in many cases they have literally ‘nowhere to go’ if they leave the family fold.
Guaranteed employment: Every male (in some families daughters also enter the business) member enters the business as a matter of course, whether there is any need for him or not. So, many don’t even look elsewhere. Many don’t care if they do well at school or not as they are sure of a job. Such default entries later have trouble inspiring and leading executive staff who are career driven. Such staff compare the family leaders to business leaders that they may have experienced in multinational process driven businesses and if they don’t measure up positively, professionals have trouble being led by them. Some professionals play politics and decide not to rock the boat and accept the incompetent family member in order to keep their jobs. There is an overall lowering of standard of leadership in the business and profitability and growth suffers.
Guaranteed career progress and no door marked ‘Exit’:
Like employment, career progress is also guaranteed. After all the family rarely promotes an ‘outsider’ over the head of an ‘insider’. So, the family member will always get his promotion, even if it means that someone else does the work. I have seen many examples of this in the Middle East where the professional manager does the work while the family member is busy fulfilling decorative purposes. Needless to say, the same logic extends to family members leaving the organization. After all, just as you can’t steal from yourself, you also can’t leave yourself. So, no exits for any of the reasons that are guaranteed to send ‘outsiders’ into orbit. This encourages complacency. In some families the incompetent member is shifted to some other part of the business where he proceeds to spread his negative influence, only to be moved elsewhere when he has done sufficient damage. The power of the bad apple must never be underestimated.
Hardship is what hungry Indians have to undergo: When a Western child leaves his food the mother says, “Think of all the starving Indians. Don’t leave your food.” As if by his eating, the bellies of starving Indians would be filled. What I am alluding to is almost all 2nd and 3rd generation family members would never have seen financial hardship. They would never have known what it means to want something but not be able to afford it. For the 1st generation founder it is almost a matter of honor not to allow his family to ‘suffer’ what he may have suffered in the startup phase. The fact that this suffering, built character, resilience, energy, self-reliance and confidence is lost sight of. As a reaction to the hardship that he endured, the founder tries to give the ‘best’ to his children. It is in the definition of ‘best’ that the complexity lies. Usually ‘best’ means easiest, most comfortable, cushiest, most expensive, and most glamorous. This only encourages decadence, self-importance, false sense of security and a love of ease. For Generation 2 & 3 getting money to buy something is a simple matter of asking Daddy or if Daddy is reluctant then asking Mommy to facilitate the process which most mothers are only too happy to do. For many even that is not required because all that they really want is usually given to them on one occasion or other and for the rest there is oodles of pocket money.
The other side of the coin: The ‘Burden of the Family’
Who loses his seat? Who loses his head? Who loses his job? Who loses his home? Who gets paid first? Who takes the first salary cut?
In the case of family businesses, the other side of the coin is the other meaning of ‘Family is after all family’. These are the people to whom the place really belongs. So, they are the ones who in the end will be left holding the can if something goes wrong. Many founders hock everything including their wife’s jewelry, their homes and their reputations to raise funds. If the business fails, they stand to lose everything, while a professional who works in that company simply walks away to another job and talks about the last job as a ‘learning experience’. The potential of loss to the owner is far more personal. He is the one who will pay the price personally for the risk. No matter how dedicated the employee may be he is not personally liable. Similarly, if things get tough the founder is the first one to forego his salary and to take a salary cut while it is a matter of honor for him to ensure that his staff never has to do the same. Rare indeed is the staff member who volunteers to take a salary cut when the going gets tough. This is the single most critical factor that builds the ‘insider’ – ‘outsider’ mindset.
I have seen situations where a close friend who was with the founder at the start got an ‘insider’ status because of how he helped the latter in a tough situation even though he was not a family member. Some of these outsider-insiders become powerful beyond measure and wield authority even over younger family members. This becomes the cause of much heartache among the younger generation, but they can do little about it as long as the sponsor of the insider-outsider is alive. It is this sense of personal commitment to the business that truly distinguishes the owner from others.
Speed is the result of power: Owner versus Employee:
Play by the rules versus make new rules: Another factor in the discussion that we have been having is the power of the owner to decide things. Customers like to deal with owners because they can get decisions fast. The owner has the power to decide, to change rules to make new rules, and choose to do business in new ways. Most employees must follow policy guidelines and so are slowed down, and their hands are tied in some cases. Many owners are very wary of handing over authority to other family members, let alone employees and like to make all decisions themselves. Many take pride in micromanaging oblivious to the fact that this is the biggest barrier to the growth and development of the business. They are themselves involved in all kinds of minor decisions which leaves them little time or inclination to think about the long term or to work on expansion or diversification. In the end of course, everything adds up and the result is not beneficial, to say the least.
One of the interesting things about culture in family businesses is the extent to which the personal culture of the family becomes the culture of the business. For example in India, Africa and the Middle East (and in Indian and Middle Eastern family businesses elsewhere), the joint family culture continues to be the operative, dominant culture in most business families. In this culture hierarchies are rigidly defined, can’t possibly be superseded and are a matter of birth and end with death. The patriarch is the head of the family and remains the head until his death, no matter how old or feeble he may become. He is succeeded by the eldest surviving male member of the family, either his brother or son. And this continues. In this system if you are not fortunate enough to be born early then your turn at leadership will probably never come and there is nothing that you can do about it except to break away. And that is what often happens.
Naturally this does not happen overnight and over time a lot of resentment builds up at imposed authority that is sanctioned by society. Politics within the family also starts up with different people taking sides. Women play a very powerful behind the scenes role where they influence their men in one way or the other. Tradition and social rituals and customs add to the resentment. The family hierarchy dictates social standing and so the younger ones must kowtow to the elders in all public ceremonies and functions no matter how much they may dislike doing it. Boundaries of official and personal interaction are blurred. As one young man from a very prominent Indian business family said in a group once, “The Chairman to you, is Tauji (Uncle-the father’s elder brother) to me. I go home with him, you don’t. I have to touch his feet, you don’t.” What happens in the office becomes an extension of what happens in the home. Causes for resentment can be many and powerful. Loyalties are by blood relationships which sometimes get influenced by marriage. ‘Scion A’ marries the daughter of his uncle and then his ties with that part of the family become stronger. Not that he will be disloyal to his father but when it comes to competing with his brothers, he will have the additional force of the uncle’s side of the family behind him.
For an outsider (consultant) to even understand these dynamics it is almost obligatory to be an insider first. Meaning that you need to know the native language of the family and be from or have a deep understanding of the culture/religion that the family follows. The boundaries between religion and culture are also blurred and many things which actually have nothing to do with the religion but are really elements of the local culture, get the sanctity of religious rituals. And since they have been followed for centuries in cultures that have a high degree of connection with their roots, they have great influencing power. For a Western mind it is very difficult to understand how family history and tradition that is centuries old can have any relevance at all today. But in the East history is a living thing. It may not all be factual, but it is believed nevertheless and gives us a sense of identity and belonging which is highly valued and jealously guarded. Like all things there are two sides to this as well.
On the one hand Westerners are not weighed down by tradition but then they often don’t have a strong sense of identity with the large extended family group. Easterners however have a very strong sense of who they are and what they stand for; things which come very much in handy especially during stressful times. They have a strong connection with their roots and family bonds are very strong. ‘Family’ in these cultures is not merely confined to nuclear relationships but a vast extended network involving marriage alliances and children of what in the West would be several separate families. All are seen as part of the clan and each has its privileges and responsibilities in a rigidly stratified system. In societies where the state does not bear the burden of social security, the family ties are critical to survival. This is recognized and respected and where necessary, enforced. People are not always free to do whatever they want because what they choose to do can jeopardize the whole system and others may suffer the consequences. So, freedom is not experienced in the same way as it is in the West. Mutual responsibility is a big consideration in Eastern cultures. There is always someone to take care of you, but with this comes the burden of tradition and all its boundaries.
Honor is a big part of the equation and public opinion is a living thing that influences decisions strongly. For example, I have seen in several Muslim and Hindu business families (it is amazing how many traditions are similar) that as a mark of respect, the younger members of the family will not sit in the presence of the patriarch or any of his siblings, the uncles, unless invited to do so. Neither will they smoke or even speak or laugh loudly in their presence, even if the elders do, as a mark of deep respect for them. This behavior is expected, rewarded and its absence strongly objected to and even sanctioned when the young one refuses to give up his ‘waywardness’. The conditioning however is so strong that I have personally never seen any instance of anyone defying this tradition of ‘showing respect’ to elders.
The question of course is not about sitting or standing but the carry forward of this tradition of showing respect into the Board room. Which son, who will not even sit in the presence of his father, would or could speak against his father’s point of view, especially in the presence of others? In such a scenario what chance do you think an ‘outsider’ professional manager has of taking a stance opposed to the heavy weights in the family? Professional managers are also judged by the same yardstick, the degree to which they are seen as ‘loyal’. In these cultures, power is derived from your identity, from who you are. Not from what you have or have done. Achievement is important but is second to the position of birth. So, if an elder member is not performing on par in the business, he is almost never questioned, because of his social position. In many families a younger one is put as an understudy to him, but with the unspoken responsibility to take up the slack and see that the commercial results come. It is a very subtle system and for the most part worked well as long as the market remained the way it was, with the future being an extrapolation of the past. However today, when the future is nothing like the past, this system is showing a lot of strain, if not becoming completely out of place. Consequently the need to make the business process driven.
In one very large Indian business family it is the tradition that when the patriarch travels anywhere, one of the managers of the company that he is visiting is always in attendance, 24 x 7. While he is sleeping in the bedroom in the guest house, the manager (and must be a fairly senior one, not some pipsqueak) sits in the living room, watching TV with the volume turned down, right through the night. Every 8 hours the shift changes. Reason? ‘In case he calls.’ It is also the expected form that the head of the location meets the flight and formally ‘receives’ the visiting patriarch or uncles at the airport and sees them off, no matter what time the flight may come in or leave. His wife is expected to be in attendance likewise on the wife of the visitor if she accompanies her husband. This rule extends to the next generation also but with more junior members of the professional management taking the place of the location head.
That is why in that corporation it is an unwritten rule only to hire people from the same religious community, who may not be related to the family but because they follow the same socio-religious cultural customs, they understand them and will know what to do and will not resent the servile overtones. On the contrary for them, to be chosen to be in attendance is seen as a sign of high favor and an honor and is a source of perceived power for the individual. Closeness to the seat of power devolves power upon the individual. Many professionals have reported in survey after survey that one of the principal reasons they join family organizations is for the chance to be close to the source of power. In a large multi-national this may never happen. It was not a simple punishment when in the days of old someone was banished from the ‘Presence’. That was almost as good as getting a death sentence. Being banished from the presence of the seat of power meant that you no longer mattered. Not many survived that banishment.
In the Eastern tradition disagreement is often viewed as opposition and therefore by inference as disloyalty. Disloyalty in this system is a capital crime. Nothing is considered worse. And that is why those who are considered loyal are forgiven all other ‘sins’. Things like contribution to the business, demonstrated entrepreneurship, ability to inspire others and take them with you, are all way down on the list of priorities. The last one is also sometimes viewed with suspicion and the individual is seen as a potential threat, especially if he or she is unwise enough to rock the boat. This is one big reason why in most Indian and Middle Eastern family businesses succession is neither planned nor successors consciously developed. Capable successors are feared.
And since there is no legitimate way to succeed the only way is to break away or overthrow the older generation. Our histories are replete with instances of dynasties where rulers lost their seats by virtue of losing their heads, literally, at the hands of their own sons and brothers. There is much confusion in most business families about what to do with non-contributing family members. The only way of ‘taking care’ of family seems to be by keeping them in the business. However negative or incompetent people have a disastrous effect on the morale of others, especially when they are themselves seen as powerful by association with the family. I am not talking about someone who misappropriates funds or does something dishonest. I am talking about someone who is not competent in business and does not produce results. If that person had been a professional, he would have been sacked without question. But if he is a family member, he is usually shifted around from one role to another. All that is achieved is that his attitude spreads. The fact that the only reason he still has a job is because of his family’s name on the door, is not lost on anyone. That such a situation will in the long run destroy the whole business and consequently the whole family will suffer, is something that is conveniently ignored, most often because the family has no process to confront each other constructively. Consequently, family members have a different status in the business no matter what their designation may be and no matter what the official line on career progression may be. The fact remains that the family member has lifetime employment and his family is looked after, no matter whether he is productive or not. Once again social traditions outweigh good business processes with attendant consequences.
Transforming by chance or by choice?
It may seem as you read the above, that given the nature of issues with family businesses it is almost impossible for them to transform their intrinsic character and become process-driven. This is not so. It is eminently possible to transform, and I am going to show you the way to do it but let me say at the outset that it is not an easy job. It is essential to be mentally prepared for the difficulty so that you don’t quit. Some families make this transition because they have no choice since the growth is very rapid and there are not enough children to go around (RPG, Tata). So, professionals are taken in and processes are created. Others transform by choice (Murugappa). The choice is ours. It means basically changing the reasons for prominence, influence and control. It means fundamentally changing the way we think and, in many cases, going against traditions that have the weight of centuries of followership. But unless this is done the transition from person-led to process-driven will never happen and the organization will never be able to unlock its potential to become a market leader.
Facing the Fears
There are two major fears that founders have to deal with if they are to successfully induct key professionals and introduce a process-based approach.
- I will lose control of how things are run
- I will lose money because the non-family professional will not treat my money the way I do.
Let us see what needs to be done if you are to overcome these fears. To begin with I will not tell you that these fears are unrealistic. They are real and all founders have them. But if you are serious about transformation, then these fears must be dealt with and overcome. The way to do this is detailed below:
- I will lose control of how things are run
You will not ‘lose’ control, but you will consciously and deliberately ‘give up’ control to some extent and this is eminently desirable. This is because firstly this is the best way to develop successors and secondly because you need to free up your time to look at bigger issues. If you are involved in daily transactional matters, then the organization will suffer. When you hand over control to a professional, do remember that the incumbent has the education and experience to handle what you are giving him. You are not really taking any substantial risk because you are handing over to a capable person. Secondly you are always there to see what is going on and to help him to perform. While saying that let me pre-warn you that looking over his shoulder constantly or asking him to ‘check with you’ every time he moves, is not the way to do this. You as the founder must learn to trust others. If you are interested in the growth of your business and in attracting the best talent and in leaving a legacy that endures long after you, then you must learn to trust people.
Hire the best. Some founders hire incapable people because they come cheap, then when they fail, they try to tell themselves that delegation is not practical. The fault is not with delegation but with the way you chose the person to delegate to. So, hire the best, because the cost of hiring the best will be more than justified and offset by the quality of their output. Satisfy yourself that the person is capable of the responsibility and then leave him alone to perform. Mutually set goals, agree on measurement parameters and then set in a structured appraisal system. Reward handsomely and give him a stake in his own success. Clarify what kind of reporting you need for your own peace of mind. And THEN LEAVE HIM ALONE. This is very important. Professionals who have not worked with family businesses may take a bit of time getting used to this style, but those who are interested in the responsibility and in learning to work with family businesses will make the effort.
- I will lose money because the non-family professional will not treat my money the way I do.
Once again in this case it is a question of trusting that the professional will treat the company’s money with respect. There are two things to do in this case. One is to create a culture of openness and thrift which you reinforce by your own practice. Focus on cost effectiveness, not on cost cutting per se. Always ask and teach people to ask, “What is the return on this investment?” Collect data about cost effective management and give them visibility. Reward people for giving suggestions for cost effective ways of managing and put the suggestions into practice. When you create a culture that continuously focuses on how to make the operation more profitable, then people will not spend money unnecessarily.
The second method which must go hand in hand is effective financial control. Automate and use technology to track all expenses. Get comparative data to see what others are doing. But don’t create bureaucracy. That is the biggest danger in this step. Bureaucracy slows you down and makes you less responsive to the customer. Both are lethal dangers. Good financial controls backed by automation will help you to ensure that your money is not being lost and that it is being used in the best possible way. Once again, leave the professionals to do their work and keep track of their performance through your reporting systems.
In some cases, a third piece of advice has to be given. If you are so wary of delegating and handing over to a professional, then define which aspect of your business are you most worried about handing over to someone else and keep that to yourself. Hand over the rest. Then when some credibility builds, you can think of handing over that ‘critical’ piece as well. But delegation is an absolute MUST.
The key factor in the case of family businesses is not simply to turn around 180° but to do so while keeping the good parts of family traditions alive. Change must be brought about but with the least possible pain.
It must be remembered that in the end decisions are far more ‘personal’ than they are in a Western corporation. In short this means that ‘family will always be family’ still the business must be process-driven. That is why an in-depth knowledge and personal understanding of the social and religious traditions is such an important element of all family business consulting in the East. Family business tends to be more about family than about business. Decision making is not based purely on cost – benefit analysis. Many other factors play decisive roles. Keeping the family together while making any changes is by far the most important consideration of all.
Before I go into the details of that, let me state with all the emphasis at my command that if this transformation does not happen, the business will decline and eventually disappear, taking the family with it. Transforming the business is therefore also more for the sake of the family than for the business. It is in the interest of both to ensure that they give it their full support so that both the family and the business may prosper undiminished from one generation to the next.
‘The business and family love are two different, mutually exclusive things. When the two mix, both self-destruct.’
For more, please read my book: The Business of Family Business
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