Can professional CEOs last in family-run firms?

DEBATE

V C Burman,
Chairman
Dabur India

Indian promoters, like any other promoter worldwide, demand performance and integrity from their CEOs. The profile of the CEO is secondary to a promoter as long as the CEO delivers performance and maintains the highest standards of integrity within the organisation.

The question of intolerance comes into play when the CEO spends more time and energy in upgrading his profile than in upgrading the business.

In my opinion, high profile CEOs, at times, become victims of their own profile as it raises the expectations from them to a level that becomes difficult to sustain.

It is disturbing to note that whenever there is a tussle between a promoter and a professional, which has eventually resulted in the ouster of a professional, the general perception is of intolerance by the promoter.

There are enough examples today where professional CEOs of global companies have succumbed to high pressures and have resorted to unethical practices to record high growth.

There also have been examples where high-profile CEOs have been asked to quit on issues relating to integrity.

On the other end, we must also take into account the changing mindset and depth of understanding of promoters.

Today, promoters of the older generation are catching up with changing times. In many cases, the young breed of promoter entrepreneurs, who have been equally well-educated and exposed to global business cultures, technology, processes and trends, have outperformed CEOs and proved effective managers.

I have never come across this question in international media where the shareholders are more intolerant towards non-performing CEOs than Indian promoters are.

CEOs, in most global firms, walk on a razor's edge everyday, trying to meet shareholder expectations and taking on competition.

Shareholders have a right to demand growth from the management of the company they invest in. Why should an Indian promoter be different?

In India, we need to think of promoters as the largest and important shareholders in the company. We must understand that wrong decisions and individualistic egos hurt the promoter more than the CEO because the stakes of the promoter in the business are much higher than that of any management.

However, I also agree that, at times, the professional gap between the mindset of promoters and CEOs tend to interfere in the day-to-day affairs of the company that results in unnecessary confusion and conflict.

In these cases the onus lies on the promoter who can use his entrepreneurial skills to resolve these issues.

For a healthy relationship, it is important for the promoter to draw a line and clearly understand and define his level of participation in the company to derive maximum growth through least intervention.

Sonal Agrawal,
Senior Director
Accord Group India

Our view is that any corporate appointment is as delicate a situation as arranging a marriage.

To assess whether a professional will flourish within a particular setup, one needs to examine the bride and the family in some detail.

To start with, family-owned businesses are a major force, and are among the most vibrant competitors in today's marketplace and you may well have the opportunity to be part of a company that is not obsessed with the next quarter results.

However, the road to the corner office can be littered with potential minefields in the form of entrepreneurial bosses who can't let go, semi-competent family members, ad hoc decision making and, in extreme cases, lack of adherence to corporate governance norms or family conflicts that manifest at work.

Growth could be stunted by the promoters desire to hog the headlines, or the son's desire to take over. Difficulties arise in the form of entrenched coteries of long-serving professionals who could short-circuit any proposal that can cause a radical change in the existing structure within the group.

Too often, family members are too emotionally involved and are unable to think objectively about what is good for the business.

Therefore, for a professional to make hard calls on what the business needs could be stonewalled and blame passed back to the professional manager.

Disagreements over growth rates, divestments, investments, compensation, empowerment or just the professional exceeding his brief, can cause grief and finally the separation.

Many professionals will find their carefully scripted growth plans clipped, usurped, modified and even shelved without as much as a mention in the closing credits.

The "bride" needs to look at the "family" and assess the situation within. Recognise that different management styles exist in different family owned groups.

As in any situation, candidates who do consider roles with family-run companies should do a little bit more research on the company and the family.

A useful check is to look at whether the company has a truly independent, strong advisory board. Look for feedback on the promoter's style, his ability to delegate and work with people.

Check for family interpersonal dynamics. Is there one clear leader of the family? Ask frankly about succession plans for children.

Look for a track record of attracting and retaining managerial talent. Will the promoter allow you to share the limelight?

The comfort with the answers will determine whether a professional will fit within a particular situation. With more than a third of the Fortune 500 list being family-owned and more than 70 per cent of businesses worldwide being family-managed, professionals will be equally well placed in well-run family-owned companies as they are in publicly-held ones.