From Family-Owned to Family-Led
By Dr Niranjan Hiranandani
How does one define a Family Business? It is a commercial organisation, which is influenced and decisions driven by multiple generations of members of a family. It has a penchant and knack for leadership and ownership qualities. It is arguably the oldest and most common model of economic organisation.
The next question is – in what way does a family business differ from other categories of what are essentially public-owned and professionally run businesses? I would start with the definition, which has much to do with ownership of the business. As business evolves and grows, the aspect of ‘family-owned business’ also evolves to become a ‘family-led business’.
The obvious importance of family business in India – the Indian economy is majorly driven by entrepreneurial capitalism. Globally, in some countries, many of the largest publicly listed firms are family-owned. For example, Samsung, Reliance, Tatas, Walmart, Nike, Foxconn, Oracle and Volkswagen.
Family businesses operate on the basis of values; they set goals and commission action to achieve the same. There are family entrepreneurs, and then family owners and family management. The Success Mantra of a family business is all about emotional capital + wealth creation + leadership & ownership sense.
This works in both the local as also global scenario. My group companies work across geographies, and it has been a similar experience. A family-owned business evolves in different ways – a business organisation grows in size and across locations, may even become a publicly listed company or have an IPO. Despite this, it remains a family-owned business so long as someone in the family owns majority shares in the company.
Change in Model: This is basically about the trend of family-owned businesses moving on to becoming family-led businesses. It is a 21st century trend; we have seen family-led businesses hiring professional teams to work as functional heads. This brings in a fresh perspective and expertise; it becomes process oriented and performance driven, offering equal opportunity in a tech driven business that is more adaptive towards the changing and competitive global scenario. Family owned or family run businesses are also now shifting towards family-led business.
Succession & Diversification: Every family business has to decide upon a clear succession road map. It is defined as a clear decision and a peaceful transition. The entry of ‘Next Gen’ in the family led business is felt in the expansion and succession phases. With brimming energy, the youngsters work to take the business to newer heights. They bring in ideas beyond plain operations. They develop strategies that broaden and diversify the family business landscape, as also pump in new professionalism in the organisation. For this (smooth transition) to happen, it needs open and frank discussion to overcome all kind of challenges.
The challenge faced by family businesses and their stakeholders is to recognise the new issues they face, understand how to develop strategies to address them and more importantly, to create narratives, or family stories, that explain the emotional dimension of the issues to the family. The most difficult family business issues are not the business problems the organisation faces, but the emotional issues that compound them. In these modern times, family-run organisations need a new understanding and a broader perspective on the human dynamics of family run/ led firms.
Family businesses are growing in significance in India. The biggest challenge they face is how to align the vision while keeping values intact, to protect the family’s goal. The key is the ability to identify problem areas and expedite the process before things gets sour.
Instead of focusing on problems, one should quickly look out for amicable solutions. Reason for problems could be real or imaginary in the minds of people. We can’t solve problems which are imaginary. Problems could be due to ego issues, jealousy, wrong advice, or someone could be misguided or misled. We need real solutions, to be looked out for in a peaceful way.
My advice to family-led corporate businesses who may go through disputes is to find a solution agreeable to all, and close the issue quickly. Delay tends to complicate the issues further. Quicker the better, with real practical solutions, which should be smooth and fast.
Family businesses are here to grow and with their growth, we can track the history of India’s economic growth. It has been one of the major contributors in the nation’s wealth creation and has led the business landscape. Every challenge can he handled and one needs to cope up, learn from the experience and look ahead for new horizons.
The writer is Founder & CMD, Hiranandani Communities, and National President, NAREDCO