THE 10 COMMANDMENTS OF FAMILY BUSINESS
Kavil Ramachandran
Sage Response, 2015
187 pages; Rs 645
It is difficult enough to maintain family unity through successive generations, and even more challenging to remain competitive as a business through the ups and downs of economic cycles. To combine the two in family businesses must be the toughest of jobs; yet many major corporations in the world have successfully converged the two dimensions to survive and thrive through the ages.
In fact, as Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at the Indian School of Business, Hyderabad, points out, family companies score over other forms of ownership when it comes to contribution to gross domestic product (GDP), employment generation, number of firms and innovation. They are dynamic as well as resilient. However, they have not received the deserved attention and have, in fact, been vilified for corporate nepotism and lack of professionalism.
Coincidentally, The 10 Commandments of Family Business came to my desk around the time that The Economist magazine brought out its special issue (April 18-24) on family businesses. From this, I gleaned the interesting information that there is an international club of as many as 44 family businesses that have been around for over 200 years, and that some family businesses serve the interests of hundreds of members. Of companies with revenues of more than $1 billion a year, family businesses account for a third of American companies and two-fifths of French and German companies, while close to 60 per cent of the top 200 Indian companies by revenue fall in this category.
Professor Ramachandran's book covers the managerial aspect of family businesses, attempting to act as a guidebook for family members for effective perpetuation and success of their holdings. Through case studies, action plans and illustrative templates, it offers family stakeholders a first source of the issues that must be addressed to avoid the paradoxes and pitfalls inherent in an organisation where home and business, each with their very different criteria for success, are not so distinct.
The author notes the complexity of organisational evolution, as a family business goes through the different stages of inception and expansion. "The first major organizational challenge such families face is when they grow and transcend to an orbit that requires them to have additional expertise, beyond the family domain," he explains. This takes us to the stages of the "5Ds to disaster" - "dilemmas" leading to "deviation" that in turn causes "differences" and "disputes" and ultimately ends in "destruction".
The chapters then delineate each of the "10 commandments" that family businesses should internalise. Since they cover the most prominent issues of sensitivity within familial companies, most of the rules are fairly obvious - effective communication and building trust, adding professionalism to management, how to ensure that founders or elders are able to step back from running the business and how to plan succession effectively. A few of the 10 chapters are not so self-evident; for example, it is insufficiently recognised that family philanthropy can contribute to its unity.
To illustrate, the chapter on preserving and practising values is instructive. Ethics, morality and characteristics define an organisation, and although all family members should take care to avoid violation of values, in practice, deviation from family norms is rampant and often the cause for differences. The author says that there is need to first list the values that the family wishes to emphasise in its personal and business relations through a structured discussion process. The "flexibility value continuum" is an important factor in a family subject to both emotions and traditions, and family members should be able to be flexible without fear of losing their authority. "Many of the challenges … can be smoothly handled once family members believe and practice flexibility in their thoughts and action," stresses the book. It goes on to outline the need for a code of conduct at home and another for work to build core values and organisational systems and processes. The template at the end of the chapter provides a useful list of possible values, such as trust, transparency, caring and humility.
The problem is that such homilies are not only self-evident but often difficult to practice and enforce. If families were able to communicate and adhere to such rules instead of infighting, they would be able to maintain unity in general as well as in a dynamic business environment. As The Economist mentions in its cover story, only 30 per cent of family businesses continue into the second generation and a mere 12 per cent survive into the third generation. Professor Ramachandran's action points at the end of each of the commandment chapters usually include an instruction to take the help of an outside facilitator to enable the family to stick to the identified rules. In some cases, even that may not be practical, especially where the family has enlarged to include hundred or more members.
Also, such sentences as "Professionalization is the process of developing and maintaining professionalism in every part of an organization" and "For what all purposes should we communicate?" should have been better edited. In the end, Professor Ramachandran adds value to a field of management study that is often neglected, but is increasingly significant as the contribution of family businesses in the overall entrepreneurial landscape invariably goes up.
Kavil Ramachandran
Sage Response, 2015
187 pages; Rs 645
It is difficult enough to maintain family unity through successive generations, and even more challenging to remain competitive as a business through the ups and downs of economic cycles. To combine the two in family businesses must be the toughest of jobs; yet many major corporations in the world have successfully converged the two dimensions to survive and thrive through the ages.
In fact, as Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at the Indian School of Business, Hyderabad, points out, family companies score over other forms of ownership when it comes to contribution to gross domestic product (GDP), employment generation, number of firms and innovation. They are dynamic as well as resilient. However, they have not received the deserved attention and have, in fact, been vilified for corporate nepotism and lack of professionalism.
Coincidentally, The 10 Commandments of Family Business came to my desk around the time that The Economist magazine brought out its special issue (April 18-24) on family businesses. From this, I gleaned the interesting information that there is an international club of as many as 44 family businesses that have been around for over 200 years, and that some family businesses serve the interests of hundreds of members. Of companies with revenues of more than $1 billion a year, family businesses account for a third of American companies and two-fifths of French and German companies, while close to 60 per cent of the top 200 Indian companies by revenue fall in this category.
Professor Ramachandran's book covers the managerial aspect of family businesses, attempting to act as a guidebook for family members for effective perpetuation and success of their holdings. Through case studies, action plans and illustrative templates, it offers family stakeholders a first source of the issues that must be addressed to avoid the paradoxes and pitfalls inherent in an organisation where home and business, each with their very different criteria for success, are not so distinct.
The author notes the complexity of organisational evolution, as a family business goes through the different stages of inception and expansion. "The first major organizational challenge such families face is when they grow and transcend to an orbit that requires them to have additional expertise, beyond the family domain," he explains. This takes us to the stages of the "5Ds to disaster" - "dilemmas" leading to "deviation" that in turn causes "differences" and "disputes" and ultimately ends in "destruction".
The chapters then delineate each of the "10 commandments" that family businesses should internalise. Since they cover the most prominent issues of sensitivity within familial companies, most of the rules are fairly obvious - effective communication and building trust, adding professionalism to management, how to ensure that founders or elders are able to step back from running the business and how to plan succession effectively. A few of the 10 chapters are not so self-evident; for example, it is insufficiently recognised that family philanthropy can contribute to its unity.
To illustrate, the chapter on preserving and practising values is instructive. Ethics, morality and characteristics define an organisation, and although all family members should take care to avoid violation of values, in practice, deviation from family norms is rampant and often the cause for differences. The author says that there is need to first list the values that the family wishes to emphasise in its personal and business relations through a structured discussion process. The "flexibility value continuum" is an important factor in a family subject to both emotions and traditions, and family members should be able to be flexible without fear of losing their authority. "Many of the challenges … can be smoothly handled once family members believe and practice flexibility in their thoughts and action," stresses the book. It goes on to outline the need for a code of conduct at home and another for work to build core values and organisational systems and processes. The template at the end of the chapter provides a useful list of possible values, such as trust, transparency, caring and humility.
The problem is that such homilies are not only self-evident but often difficult to practice and enforce. If families were able to communicate and adhere to such rules instead of infighting, they would be able to maintain unity in general as well as in a dynamic business environment. As The Economist mentions in its cover story, only 30 per cent of family businesses continue into the second generation and a mere 12 per cent survive into the third generation. Professor Ramachandran's action points at the end of each of the commandment chapters usually include an instruction to take the help of an outside facilitator to enable the family to stick to the identified rules. In some cases, even that may not be practical, especially where the family has enlarged to include hundred or more members.
Also, such sentences as "Professionalization is the process of developing and maintaining professionalism in every part of an organization" and "For what all purposes should we communicate?" should have been better edited. In the end, Professor Ramachandran adds value to a field of management study that is often neglected, but is increasingly significant as the contribution of family businesses in the overall entrepreneurial landscape invariably goes up.
The reviewer is author of several books on Indian business history