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Presentation made BY Prof Ramacharan from ISB hydrabad, on how to perpetuate family Businesses through generations.
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Professor K RamachandranThomas Schmidheiny Chair Professor of Family Business & Wealth ManagementIndian School of Business, Hyderabad
How to Build Long Lasting Family BusinessesPresentation to the Indian Heritage Hotels Association
Classic Amoebic Model
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• Beyond amoeba, institutions
• Institutions crumbling as amoeba
• Opportunity knocking; decide: “to be
or not to be”
Why Amoeba?
Key to Business & Family Prosperity
Extent of influence
Economic
Emotional
TimeIII genII genI gen
War signals
Flow Chart to solve Family/Company Problems
DON’T TOUCH IT
YES NO
YES
IDIOT
NO
IS IT GOING TO EXPLODE IN YOUR HANDS?
NO
PRETEND YOU HAVEN”T SEEN IT
SOMEONE KNOWS? YOU ARE LOST YES
YES
NO
HIDE ITCAN YOU BLAME
SOMEBODY ELSE ?NO
SO, THERE IS NO PROBLEM
YES
THINGS ARE
WORKING WELL?
HAVE TOUCHED IT?
Dilemmas
Deviation
Disputes
Destruction
Road to Hell
Adding to complexity…
• Generation gap in thinking/aspirations (goal, ownership, process…) especially with fewer children
• Changing emotional priorities of growing family unit / aging - deadlock
• Assume needs, views……!• Opportunity will not wait; act on compulsions
of scale of operation, brand….
• Dream : Prosperity and Peace at home and work
• Reality : Very few survive
• Challenge : How to address?
In Nutshell………
Common solutions
• Blind leads the blind
• Community / friends advice split
• Proven amoebic model of sub optimization if business and assets are somewhat equally divisible
• Sell off at whatever possible valuation
• Hide under carpet until……
Interest growing, many listen, some act
Ray of Hope
Unique Challenges – Managing Different DNAs
Family Business
Relationships natural Planned relationship
Cannot fire Can fire / dismiss
Entitlement by birth Meritocracy
Informal Formal
Tradition bound Organized ; ObjectivityChange is natural
Values Structure / Systems
SOCIALISM (compassion) CAPITALISM (competition)
Age
Firm Life Cycle
Unique Challenges - What roles do you play? Over time?
F
B
F B
F B
OSize
F
B
O
Family
Business Owner
Where are you?
• Never look for business solutions for family problems
• Create goals, policies and codes of conduct for both business and family
• Go for ‘Satsang’
• Reflect over and talk among peers and family members to keep ‘family’ and ‘business’ separate
• Educate family on benefits of togetherness and preparedness required
• Industry association to create Non Amoeba Club – meet regularly
• Start early
Way Forward
• Professionalise business
• Family governance
• Business governance
Preventive strategies
• Beyond Strategy, structure, systems and processes
• Detached passion
• ‘let go’ difficult but essential
• Religions say : “Do your duty!”
• Master the ASK of professionalisation
Professionalise Business
Manage No Man’s land
Family Governance
• Family as a single entity – happiness and sorrows always shared
• Cultivate stewardship value
• Talk …listen… Talk…listen… through all forums on all (key) areas to ensure transparency
Develop Family Constitution
Constitution outlines vision, values, goals, roles, rights, duties of family
members towards family and business
Make Succession and Retirement plans early
Baton change not easy
• Homework• Timing of
detachment• Speed• Exit route• Goal congruence
Retire ; never to retire !
Support in Transition
Size
FLC
Socio – psychological support for transition
Crisis of Transition / transformation
Time
Business Family
Owner
Trust(Intentions, capabilities)
• Emperors who acted as the sole owners of their empire paved the way for the demise of the empire that they built
• Emperor is also a trustee, like a business leader
• Control ego!
We are the sculptors of our own destiny
Arise, awake and stop not till the goal is reached!
Thank You
Ownership
Family Management
Fam
ily g
over
nanc
e
(Fam
ily C
ounc
il)C
orporate governance
(Board of D
irectors)
Management systems and processes
Mentor Pool
Family Business Transformation: Cushioning model
Suggested Chapters of Family Constitution
• Preface• Introduction and Definitions• Family Vision and Values• Family Council (All members)
• Building Cohesiveness• Code of Conduct• Enhancing Capabilities of family members
(including children and ladies of the family)• Overview of Company and Family Structure• Family Business Board• Non Business Family Forum (weddings, education,
charity)
Suggested Chapters of Family Constitution
• Foundation (charity)• Family Office
• Wealth management• Personal financial security
• Family Fund• Share Ownership and Dividend• Investment in Business• Family Jobs
• Retirement• Succession• Induction• Compensation/ remuneration• Role of women and non-working family members
Suggested Chapters of Family Constitution
• Family Social Responsibility• Conduct of family members in society
• Commercial Ventures by Family Members (for those who do not want to join business)
• Managing Differences – will be part of each major chapter
• Other Matters