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This article takes some insights from Harvard Business Review articles whose links appear at the end.
The times are turbulent, the risks emerge from unknown corners and tend to attack the very existence of businesses. The most recent example is that of COVID19 which led to the unceremonious demise of so many enterprises, new and old. The shield against this would be to build resilience in the organization.
Resilience would mean that the organization structure, strategy, investment, orientation should be designed in a way to enable it to withstand economic, social, political, governmental shocks, and to come back from shocks more quickly. The huge change in dollar-rupee parity, huge increase in fuel prices, taxation policies, KIBOR rate changes, are just a few examples of shocks that occur. Change of government, opposition sit-ins, strikes, road closures are common manifestations of political turmoil. Social media, influencers, and other such campaigns can threaten the existence of a business to the level of stopping it. The sum up is that building resilience in the organization is critically important.
By structure, the family businesses may be one of the three types: the solely owned business; the business owned by more than one siblings, such as two or more brothers, brothers, and sisters, or even first cousins whose parents were siblings of the same parents; and family-owned business where even extended family is included. These types may not have evolved as a result of generational transfer; these may be how the original structure was designed. In Pakistan, we do have long history of some businesses which were operating before partition in this part and continues uninterrupted after Pakistan came into being. Among the pharma industry, no such example is there, as far as I know. At the most, the second generation is running the business now, who took over from the founders.
Edmund Clark, Executive Director of the Northeastern University Center for Family Business recommends following resilience strategies for each type of family-owned businesses.
Family Businesses having Sole Ownership
The founder started it and now runs it. He (mostly, though female entrepreneurs are coming up) is the autocratic boss who decides all matters. This ownership structure provides greater stability, viability, and resilience during the evolving phase and even later. The resilience is more a matter of personal outlook, rather than organizational structure.
Recommended strategies are as follows: (text in italics represent Edmund Clark recommendation; commentary is mine).
- Increase and improve communication with the goal that people at all levels stay rightly informed. One major issue in Pakistan is the willful lack of communication. The owners believe that it is always better to hold the information, even from their own children. Better communication shall help to rally support and create resilience.
- The senior generation owner must be willing to exit the business when the time comes. However, like politics in Pakistan, there is no graceful exit in the family businesses. A very well-known newspaper owner/journalist was finally thrown out physically from his office by his son who wanted to take over the business. Any business can go into that direction.
- Opportunities should be available (rather made available) for the exiting, senior leader to provide advice and consultation when needed or desired. There is no denying the fact, that the outgoing senior carries a wealth of information and experience, which should be put to use for the good of the organization.
- The ownership transfer should be structured to minimize any financial impact to the business owners and operations. Basically, it means that the transfer of ownership does not have to cause financial hardships for the enterprise by way of taking out assets, or dividing the operations.
- Any financial disparities of wealth that may develop among siblings not involved in the business should be addressed well in advance of ownership transfers. In Pakistan, we usually have a different situation; the ownership from father is usually taken up by all the male siblings. If a sibling does not wish to work in the family business, he may well lose his right on the business. Having said that, the suggestion is very good because it will keep the family united and resilient.
- The departure of the senior generation owner should be celebrated and memorialized, while acknowledging and formalizing the transfer of ownership and control to the junior generation owner. We have this tradition in most places, though the senior generation remains attached to business till death does them apart. The senior owner who created the enterprise, or grew the enterprise to the next level, must be cherished and his vision shared as a tool for inspiration.
- A board of advisors is necessary for a solely-owned family business to ensure that you receive unbiased outside advice that employees and family may be reluctant to provide. Business owners in Pakistan are very reluctant to form a board of advisors because they are not willing to share information with outsiders. It is a misconception. The board advises on the performance, strategies, and practices, all of which are public domain articles. Certain formulas and recipes may be secret and must be kept so. A properly formed advisory board can add good value and help to keep the enterprise on track.
We shall continue with the other types in the next post and conclude the topic.
To be Continued……
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