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This article takes some insights from Harvard Business Review articles whose links appear at the end.
Continuing from the last post, we shall look at recommendations for the other two types, and then conclude this topic.
The Sibling-Controlled Family Business
The business here is controlled by more than one person, who are siblings. The immediate concerns that come to mind are – division of labor, division of decision making, consensus decisions, differences in powers etc. On the positive side, the members of the same family shall share the desire to make the business even more successful than the previous generation. On the flip side, the possibility for conflicts is quite high which may adversely affect the working of the organization. When sibling-controlled company goes further into the next generation, the number of family members vying for control increases manifold with an equally high probability of conflicts.
The recommendations are as follows.
- An advisory board including non-family members is highly recommended. The non-family members shall be able to offer unbiased advice and may help in buffering the conflicts.
- Evolving a ‘professional’ management structure is greatly helpful. It should be applied equally to family and non-family employees. It is easier said than done because the family in Pakistan usually hates to stand in the same place as the employees. But if done, it certainly carries very good value.
- Instituting policies and procedure to support the infrastructure is the next step. The use of discretion should be minimized gradually and finally eliminated.
- Making rules and criteria for entry of next generation. It should not be taken as a birthright by everyone to run the company; though their birthright to own the company is undisputed. Those family members who aspire to join the management of the firm should be selected on merit against a known set of requirements.
- For long term sustenance of the business, either of the two approaches may be adopted. Either one member should buy out others and become sole owner so that he/she can run the company as per their vision. Or, the ownership structure should be further diffused, creating more owners within the family so that no one person can try to gain undue control over others.
The Diffused-Ownership Businesses
The family businesses who already have diffused ownership, have their own unique challenges. Diffused ownership means that there are several owners and that the core ownership is not with the nuclear family anymore. This situation is likely to arise in the third generation or extended family set ups. The most important challenge is that various people may join hands to influence the working in their own way which may be very different from the other members. The conflicts may also not be one-to-one, but group against group. These situations are more difficult to handle. Analogy may be drawn with the landholding structure in Pakistan where division and redivision among generations has led to people holding on to mere fragments of land, but it does not stop them from wasting time and money on litigation.
The recommendations are as follows.
- The owners may choose to make it a ‘corporate’ where control of business is with those only who work full time. They will also have influence within their own domain of work and will not try to impact the entire organization.
- Act like a public limited company. Make a board from within the owners to run the business. The other owners should keep getting benefits but do not control the working of the organization.
- Another similar alternative is to make a family council of owners where all matters are shared and discussed.
Before I conclude, I would like to quote from Edmund Clark himself.[Quote] So, which family business ownership structure has proven to be the most resilient over the long term? The generationally successful diffusely-owned “democratic” business structure is often viewed as the aspirational template for the most successful family business. However, these are difficult businesses to create, manage, and maintain.
The future of ownership structure is a decision every family business owner must face. And each one of them comes at a cost. Consolidating ownership may result in hard feelings from those not included. Diffusing owners to a more representative form of ownership may result in feelings of loss of control of the business. Staying in the middle ground with an oligarchy seems like an easy choice with siblings, but that is likely only a temporary solution, as they may face the same dilemma later on. Whatever your choice, put your family first, and make a reasoned and well-discussed decision that’s best for your family. [Unquote]
Though I have quoted from two of the world’s best thinking platforms, INSEAD and Harvard, the situation in Pakistan is uniquely different due to our unique social fabric. Probably, other Asian countries would face similar dilemmas. It is true that almost all businesses shall start as family-owned enterprises, and that they will face the challenge of passing the baton to the next generation. I had the opportunity to work in multinational public companies for many years followed by an equally long time in family companies. I have seen first-hand the issues that family businesses are facing. I shall make three recommendations based on my observations.
Raising capable, qualified children is the first recommendation. Their aptitudes should be understood, their education plans should be designed accordingly, and they should be raised to appreciate the value of work. They should be encouraged to work in a corporate other than their own, to learn and understand the corporate working better.
Doing process-oriented induction is second. The owner shall remain owner, no matter at what position he/she works. They should be exposed to their function in the same manner as an employee is exposed. They should not be given the top slot with decision making powers without going through a process of orientation and training.
Engaging them in long term planning is the third recommendation. They have more education and ideas, and their input should be encouraged and appreciated. If they are going off-tangent, an objective discussion should be done to make them see the point rather than brushing them aside.
Family businesses shall remain the mainstay of entrepreneurship. It is essential to work on the survival and longevity of these businesses.
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