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