Family firms account for two thirds of all businesses around the world (according to Harvard’s Professor John Davis), with matching influence on global GDP, job creation and social welfare. However although the management and leadership of family firms is critical to the economic success of nations, they are less well understood than public corporations, due to the complexity of their ownership, management, family composition and long-term purpose.
The announcement this month of the launch of the Thomas Schmidheiny Centre for Family Enterprise, at The Indian School of Business (ISB), is thus very welcome. As is a new book from the Centre’s Executive Director, Professor Kavil Ramachandran: The 10 Commandments for the Family Business.
Family businesses are the main economic driver in many countries across the world, but perhaps nowhere more so than in India. Appropriately established at ISB, the new Centre, funded and supported by Dr Thomas Schmidheiny, seeks to fill gaps between the real business world and academic knowledge on management of family businesses.
The life cycle of a family business, typically started by an individual entrepreneur, invariably involves increasing complexity and a need for what Ramchandran terms “professionalisation” as the business expands and perhaps even becomes global. The dynamics of family businesses can make this a troubled journey, even leading to a slow drift through the 5 Ds the author identifies as threats to sustained success: Dilemma, Deviation, Differences, Disputes, and Destruction.
Open frank communication is the way to avoid the 5Ds. But business practices, that in a public company would be straightforward or dictated by accepted protocols, can be complicated in a family business context. Communication, for example, the basis of trust and the cornerstone of any healthy organization, may be tricky when family is involved. As Ramachandran says: “Most family businesses suffer from the effects of poor communication” as family members “Do not realize knowing each other is a vague situation and is quite different from having good-quality communication.”
Professionalisation means above all good corporate governance. Speaking at the Centre’s launch, the Chairman of ISB Board, Adi Godrej said: “I believe that an essential element for the long-term success of family managed businesses is a strong system of corporate governance, which identifies business participants, develop management talent and demarcates roles and responsibilities of these participants. Good corporate governance must include the framework of a strong performance orientation.”
As the world economy comes out of recession, now is a good time for family firms to establish better governance, deeper professionalisation, and a sustainable future. These are the '10 Commandments' Professor Ramachandran suggests they follow:
Commandment I: Communicate and Build Trust
Commandment II: Professionalise Your Business or Perish
Commandment III: Preserve and Practice Values
Commandment IV: Manage Ownership Challenges
Commandment V: Redefine Role But Never Retire!
Commandment VI: Successfully Manage Succession in Business
Commandment VII: Build Businesses Entrepreneurially
Commandment VIII: Develop Long-Term Business Strategy
Commandment IX: Give Back: Family Philanthropy
Commandment X: Understand ‘Togetherness’: Role of Consultative and Compassionate Leadership
According to Professor Kavil Ramachandran, the Thomas Schmidheiny Centre is committed to research with practical dimension and a keen focus on case studies. Some emerging areas of interest include - philanthropy efforts, cross cultural relations, women in family business, appointment and getting the best out of independent directors. The centre aims to provide multiple platforms for knowledge sharing and learning that will benefit family businesses.”