Choose your family
Family businesses are the building blocks of private enterprise in Sri Lanka, as they are across the world. From the corner shops and microenterprises, to the countless small and medium-sized businesses, to even the country’s largest companies and listed entities, so many of our businesses are family-owned and family-run.
There is strong evidence that family businesses are more resilient and stable, more agile in their decision making and more focused on long-term sustainability. The downside to family businesses however, often resides with the family itself; especially as companies pass down skills gaps, risk-aversion, bad communication, and conflict.
PwC’s Family Business Survey 2018, released last November, found that globally, “family businesses – built around strong values and with an aspirational purpose – have a competitive advantage in disruptive times”. But it also emphasised that “first-generation family businesses clearly outperform those run by subsequent generations in their ability to achieve double-digit growth, highlighting the need to balance business model continuity with an appetite for disruption”.
Research has shown that only a handful of family businesses survive into a third generation and that is because of an inherent set of failures, and overarching intergenerational conflict. Which family can truly claim to be conflict-free? Add a family business to the equation, and the dynamics become that much more complex. When the family legacy is at stake and when family must come first, hearts begin ruling heads. Conflict is natural; it is how conflict is managed that can alter the course of a business, or end it.
Each generation compounds the number of owners of a business, and in Sri Lanka’s case, it also means fragmented families living across the world. How then do you ensure that everyone has the same sense of pride and ownership in what their forefathers created and built, and how do you instil the same founding values in a generation growing up in a vastly different world?
The current heads of family-run businesses must also think about how their business can stay relevant to the ambitions of a digitally-driven next generation that is usually well-educated and globally exposed, but often lack the diligence, rigour, and patience required to carve their own business identity.
Preparing the next generation is a project in itself. Identifying the different skills each family member possesses, and training them to have a different and holistic set of skills must start when they are young, but more importantly when they are ready; it mustn’t be assumed that the next generation would automatically be willing to join the family business. The right family members must be identified for the right roles.
For example, daughters may be far better businesspeople than your sons, so don’t be blinded by traditional expectations of inheritance.
The grooming of family members should ideally include their exposure to companies outside of their own with cross-functional and cross-industry opportunities. Take a look at the family businesses in corporate Sri Lanka, and the more admirable (and respectable) second and third generations have always started lower down the pecking order, spending time learning the ropes and rising through the ranks, despite the privilege of their birthright.
Once they begin working in the family businesses, a common complaint of the newcomers is that the first generation doesn’t entirely trust the next as credible or worthy successors and therefore never pass the baton cleanly.
It’s important to have a clear plan and timeline of succession; allow the next generation to learn from their seniors, but also allow them to make their own mistakes. And remember that “when the time is right” is not a fixed date, and probably never will be. Family seniors can perform a strong stewardship role by influencing the company at board level – ensuring the continuity of the founding principles and values, but not interfering in the company’s day-to-day operations, trusting the next generation’s instincts and vision.
Conflict arising from two generations working together is often why the next generations opts instead to set up their own ventures within the family business, or to transform the way the business is currently run to leave their mark.
Instead of embarking on a path of collision however, families would do well to appreciate that in an age driven by digital disruption, the younger family members’ digital readiness, willingness to innovate, and to venture into partnership with those outside the family, can augment the deep expertise and industry insights of the older members. The two skill sets create a fine blueprint for innovation and expansion in the new world order.
When it comes to business, ownership and management are two vastly different things; knowing and appreciating that difference is fundamental to the trajectory a company takes as it grows through generations.
That’s why most family businesses that have made it big however, have also understood, early, the importance of professionalising their cadre. Bringing in experienced, qualified, and capable external executives enables the business to fill gaps in critical skills, and infuses fresh and diverse perspectives into their companies.
Finding and grooming the right external talent comes with its own challenges – they must be absorbed into the unique culture of the business and the ones who survive are those that, over time, understand the unwritten norms and family preferences that apply to the spirit of a family business. The greatest challenge perhaps is defining a career path for good employees – one that gives them purpose even when they know that plum positions will be held by family members.
The bottom line to ensuring the progress and prosperity of a family business then is to imbue a culture of meritocracy and a spirit of high performance within a culture where the founding family’s values and principles remain at the heart of its character. Bringing in the next generation must be done strategically, following a clear plan of succession. Professionals must be seen as allies, not as threats to the family’s interests. Think today about the company you want to be tomorrow and who you want running it; then act on making that happen.
The family and business dichotomy means that the dynamics of family businesses will always be complex; but it is incumbent upon those running family businesses today to ensure that this backbone of our economy stays strong and solid and sustainable. That will be your legacy.