FAMILY BUSINESS AND LEADERSHIP TRAITS By Dr. R. SATYA RAJU, Ph.D., PROFESSOR, DEPARTMENT OF COMMERCE & MANAGEMENT STUDIES, ANDHRA UNIVERSITY, VISAKHAPATNAM (INDIA) MOBILE: 94403 56259 EMAIL: [email protected]Paper presented at the First Asian Invitational Conference on Family Business held at Indian School of Business, Hyderabad during February 1 – 3, 2008 Key words: Family Business – Ownership and control of the business with family members Family System – Goal is development and support of family members Business System – Goal is profit, revenue and growth Leadership Triad – The leaders, followers and results EQ – Emotional Quotience WQ – Wealth Quotience
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Mittal, Ramalinga Raju, Mallikharjun Rao, Sashi Ruai, Anji Reddy, etc.
The successor of the family had become an important factor in family business. Some
join at early age because of compulsion. Some join after 50 years. The visionary leaders of
the family businesses successfully manage all the crises of business including succession
management. Professionalism, good management, active board members, ability to change,
strategic planning are some important factors in the family business.
Sam Johnson of the SC Johnson company who was the recipient of the IMD
Distinguished Family Business Award described not only his values but his vision when he
said, “Every community, where we operate should become a better place because we are
there” Fist Johnson, Sam’s son carries on the tradition, he stated that his father didn’t just talk
values, he lived with them.
1 Retailer – 2007, Vol. 2, No. 7, December pp. 36
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Some challenges of Family Business are:
• Seniority, rank and gender;
• Children don’t like to face challenges (they raise in wealth culture);
• No proper encouragement by parents;
• The desire of the parent to close the business after him / her;
• The younger child possesses better skills than that of the elder;
• Brothers and sisters often reluctant to grant authority to their siblings;
• Children are very good with numbers but not with people;
• Ignoring succession planning and also choosing the successor among three or
four;
The distinction between Family System and Business System is explained briefly as
under:
Area of Conflict Family System Business System Goals Development and support of
family members Profits, revenues, efficiency, growth
Relations Deeply personal Semi personal / Impersonal Rules Informal Written and formal Evaluation Members rewarded No systematic evaluation Succession Caused by death, divorce,
voluntary willingness Caused by retirement
Authority Based on family position or seniority
Based on formal position
Commitment Life time; based on identity with the family
Short term, based on rewards received
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The Strengths and Weaknesses of Family Business are given as follows:
Family involvement High commitment Loyal Shared values Family Dream
Can’t keep family issues out of business Inability to between family and business needs Rivalry
Succession Training can begin early Inability to choose successor Governance / Ownership Family owned high degree of
control No outsiders on boards High premium on privacy
Culture Can have creative culture Rich integrity of goals
Emotional, Inefficient Resistance to change Risk for conflicts
Leadership in Family:
Leadership skill is highly required for entrepreneurs. The leaders and followers work
together for achieving results. The triad can be shown as follows:
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As per the study by Raymond Institute in 2003, about 88 per cent of family owned
businesses plan to stay in the family; 47 per cent expect leadership in the next five years, 42
per cent did it choose successors, 13 per cent family members said that the CEO would never
retire. There is a serious failure to plan for leadership transition in family businesses. Some
requests that come to key resources sound like this: “I always thought my son would run this
company but I just think he can’t. He’s a very good with numbers but not with people”.
Distinction between Entrepreneur and Leadership skills is given under:
Skill set Entrepreneur Leader Intelligence Above average Not necessarily above average Energy High Moderate Listening Skills Fair to poor Good Ability to Dementor Average Good Energy High for some period Grows over some time Emotional Intelligence Average Good Willingness to Take Risks High Moderate Dealing with Crises Good Great Control Needs High Moderate Ability to Delegate Poor Good Networking Skills Poor to great Good to great
The annexures I to IV would give the growth of family business, India’s richest
family businesses, splits, potential heirs of family business.
The head and children in the Family Business should have to possess some qualities.
• WQ (Wealth Quotience / Intelligence) = FQ plus appreciating the meaning of wealth,
managing financial relationships, and using wealth wisely.
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• IQ (Intelligence Quotience)
• SQ (Spiritual Quotience)
• CQ (Creativity Quotience)
Review of Research:
There is a considerable currency of literature available on family business. Several
studies were conducted abroad and very few were conducted in India. The leadership, family
business and understanding dynamics of the family business was outlined in a publication of
ICFAI2. A profile of India’s family owned businesses relating to Apollo Tyres, Arvind Mills,
Ballapur Industries, Essar Steel and Gujarat Ambuja was examined in detail in another
publication3. Tips for managing challenges of family business were outlined by Jane Hilburt
Davis4.
The issues relating to managing for the long run for competitive advantage from great
family Businesses were outlined by Miller Danny et. al.5. They stated that the starting tips for
family firms on their way to getting great were: following passion, using initiative, do sweat
the small stuff; communicating face to face, making decisions with people. Jane examined
the solutions for family business problems6. Comparison of family business system and
business system was outlined in another study7.
Another interesting publication briefly outlined that corporate India was increasingly
finding various ways and means of settling or pre-empting family disputes. Family
constitutions, codes of conduct, mediation by society, private equity intervention by society,
private equity intervention and new lines of business were among the routes being explored8.
Fifty years of Indian entrepreneurship textile and agro based industry to new services
oriented economy was explained by another writer9.
2 ICFAI (2007) “Effective Executive”, vol. IX, No. 5 3 ICFAI (2002), “India’s family Oriented Businesses”, Hyderabad 4 www.familybusinessconsulting.com 5 Miller, Danny and Lebreton Miller, Isabel (2005), “Managing for the Long Run: Lesson in Competitive Advantage from Great Family Businesses”, Harvard Business School Press, Boston. 6 Jane Hilburt Davis, www.familybusinessconsulting.com 7 www.familybusinessconsulting.com 8 Business World (2007), “Lessons from the Banyan Tree Beyond the Family Fued”, the Author, Mumbai, 17 December, pp. 28 – 32 9 Business Gyan (2007), “50 Years of Indian Entrepreneurship”, the Author, Bangalore, pp. 69 – 71
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Gurucharandas outlined the structure of Indian business, competitive advantage of
joint family business, the characteristics of successful Indian company and the problems of
family business at different stages10. The colours of decision making in family business, at
the three thresholds of involvement as members of the Board, the CEO entrepreneur were
stated by Vinay Bharat Ram11.
The change and continuity of family business houses such as the Tatas, Birlas, Modis,
Sarabhais, Bangurs, Singhamas, Mafatlals, Srirams, Thapars, Walchands and Goenkas was
examined by Dwijendra12. The success factors, trends in the growth of scions, and other
related family business issues were presented in an other article13. According to Gita Piramal,
the family business management was based on taking risk and the role of leadership was
significant in the crisis14. The family business in India revealed chequered past and uncertain
future15. Several interesting case studies on family business were conducted by
Ramachandan16. The role of leadership and the family business, an interview with John
Davis were explained in an other publication17. Family business growth intelligence,
understanding dynamics of family business were also presented in the publication18.
Another publication of the Harvard had covered interesting issues on family business.
The study had covered great businesses, examined several issues and concluded with the four
C’s. They were: Continuity (pursuing the dream) Community (building a cohesive team),
Connection (open ended, mutually beneficial relationship with business partners) Command
(acting independently quickly and in original ways). The tips given at the end were: follow
your passion, use your initiative, do sweat the small stuff, time stagger your objectives, get
people on your side, communicate face to face, make decisions for people19.
The Study Observations:
10 Gurucharan Das (1999), “Family Business: A symposium on the role of the family in Indian Business” October, pp. 2 – 16 11 Vinay Bharat Ram (1999) “The Colours of Decision Making” Family Business Symposium, pp. 17–25 12 Dwijendra Tripati (1999), “Change and Continuity” pp. 26 – 30 13 Sudipt Dutt (11999), “Boys to Men” Family Business Symposium, pp. 31 – 36 14 Gita Perumal (1999), “A Crisis of Leadership” Family Business Symposium, pp. 43 – 49 15 Ninan T N (1999), “Chequered past and uncertain future” Family Business Symposium, pp 50 – 56 16 Ramachandran K (2006 – 2007), “Case studies of Family Business” Indian School of Business (Mimeo) 17 Effective Executive (2007), The ICFAI University Press, Hyderabad 18 Ibid. 19 Miller Danny & Labreton Miller Isabel (2005), Managing for the Long Run – Lesson in Competitive Advantage from Great Family Businesses”, HBS Press, Boston
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The present study was conducted on family business entrepreneurs. About 50 family
business entrepreneurs were interviewed with a simple questionnaire. 40 questionnaires were
received with the required data. Ten were not obtained due to busy schedule of the
entrepreneurs. The observations were presented briefly as follows.
About one-third of the enterprises were above 50 years. These enterprises were started
by their grand parents or great grand parents of the present generation entrepreneurs
(Table–1). Two enterprises were started by the first generation entrepreneurs.
The family business enterprises were under the management of proprietary (13 per
cent) a, partnership (50 per cent) and Hindu undivided family (37 per cent). All the
enterprises were under the control and management of their respective family heads and other
family members (Table–2). An interesting observation was over 50 per cent of the enterprises
were third generation and about one third second generation enterprises. One enterprise was
fourth generation enterprise (Table–3). The family business enterprises were mostly run by
Hindus (80 per cent) followed by Muslims (8 per cent), Christians (5 per cent) and others (7
per cent) (Table–4).
The nature of business enterprises covered in the study were: printing, food
processing, textiles and ready-mades, real estate & construction, modern retail (Malls), Books
and stationery and jewellery. All activities covered equally except food processing enterprises
(Table–5). The total employment provided by all the selected enterprises was over 8,000.
Only 10 enterprises employed over 5,000 employees. Out of the total, over 3000 were
women. Thus it had created employment opportunity to both men and women (Table–6). The
native land of the heads of the families was Visakhapatnam, Hyderabad, Guntur, other places
of Andhra and other States (Table–7).
The founders of the business enterprises were 45 per cent grand parents and 35 per
cent parents. The parents and grand parents were working with the business enterprises to
guide and train their children or grand children (Table–8). In every enterprise, active
involvement of family members was observed. Two to five members of the family members
had been working with family business enterprises (Table–9). All the members of the family
were not involved. In some activities, spouses, daughters, sons, grand parents and cousins in
the family were not associated with the family business (Table–10).
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TABLE – 1: RESPONSE REGARDING PERIOD OF EXISTENCE OF FAMILY
BUSINESS
Particulars Number Per cent
Below 10 years - ---
11 – 20 years 2 5.00
21 – 30 years 2 5.00
31 – 40 years 12 30.00
41 – 50 years 10 25.00
Above 50 years 14 35.00
TOTAL 40 100.00
Source: Field Study
TABLE – 2: RESPONSE REGARDING TYPE OF OWNERSHIP:
Particulars Number Per cent
Proprietary 5 12.50
Partnership 20 50.00
HUF 15 37.50
TOTAL 40 100.00
Source: Field Study
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TABLE – 3: RESPONSE REGARDING GENERATION OF ENTREPRENEURS:
Particulars Number Per cent
First generation 2 5.00
Second generation 15 37.50
Third generation 22 55.00
Fourth generation 1 2.50
TOTAL 40 100.00
Source: Field Study
TABLE – 4: RESPONSE REGARDING RELIGION OF ENTREPRENEURS
Particulars Number Per cent
Hindu 32 80.00
Muslim 3 7.50
Christian 2 5.00
Others 3 7.50
TOTAL 40 100.00
Source: Field Study
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TABLE – 5: RESPONSE REGARDING ACTIVITY OF THE FAMILY ENTERPRISE
Particulars Number Per cent
Printing 5 12.50
Food Processing 10 25.00
Textiles & Ready-mades 5 12.50
Real Estate & Construction 5 12.50
Modern Retail (Malls) 5 12.50
Books & Stationery 5 12.50
Jewellery 5 12.50
TOTAL 40 100.00
Source: Field Study
TABLE – 6: RESPONSE REGARDING EMPLOYMENT IN THE ENTERPRISES
Particulars Number Per cent
Below 50 5 12.50
51 – 100 10 25.00
101 – 200 15 37.50
201 – 500 6 15.00
Above 500 4 10.00
TOTAL 40 100.00
Source: Field Study
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TABLE – 7: RESPONSE REGARDING NATIVITY OF THE FAMILY BUSINESS
HEADS
Particulars Number Per cent
Visakhapatnam 25 62.50
Hyderabad 2 5.00
Guntur 3 7.50
Other Places 5 12.50
Other States 5 12.50
TOTAL 40 100.00
Source: Field Study
TABLE – 8: RESPONSE REGARDING FOUNDERS CONNECTION WITH THE
FAMILY
Particulars Number Per cent
Present entrepreneurs 6 15.00
Parent 14 35.00
Grand Parent 18 45.00
Great Grand Parent 2 5.00
TOTAL 40 100.00
Source: Field Study
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TABLE – 9: RESPONSE REGARDING NO. OF PERSONS ACTIVITY INVOLVED
IN BUSINESS
Particulars Number of enterprises
Per cent
Two persons 10 25.00
Three persons 12 30.00
Four persons 8 20.00
Five persons 10 25.00
More than five persons --- ---
TOTAL 40 100.00
Source: Field Study
TABLE – 10: RESPONSE REGARDING FAMILY MEMBERS NOT INVOLVED IN
BUSINESS
Particulars Number of enterprises
Per cent
Spouses 5 25.00
Sons 2 5.00
Daughters 5 12.50
Grand parents 10 25.00
Any other 18 45.00
TOTAL 40 100.00
Source: Field Study
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Decision making was done by the head of the family in several cases. Sometimes,
selected members in the family were taking decisions. In few cases, all the members in the
family participated in decision making process (Table–11). Most of the decisions (80 per
cent) had accepted by all but very few decisions (20 per cent) had some conflict. It was only
due to the modern thinking of the present generation and traditional outlook of the grand
parents or parents (Table–12).
Vision and goals of the family business enterprises were quite interesting. They had a
noble vision to be good citizens and social consciousness (60 per cent) followed by serving
society (15 per cent) to become great (15 per cent) and fulfilling their parental ambition (10
per cent) (Table–13). They would like to spend a lot towards charitable purpose. More than
50 per cent of the families are spending a substantial amount from 5 to 10 per cent of their
profits towards charity. Health care and education were the main charitable activities (Table–
14).
There was some locked up wealth of the family enterprises. They did it for their grand
children education abroad or marriage of their grand daughters. In some families they didn’t
lock up any amount of wealth. They were utilizing for productive purpose of their business
ventures (Table–15).
The traits of the entrepreneurs were ascertained. Most of them opined that
commitment, customer orientation, teamwork and loyalty, sincerity and loyalty were the main
traits of the entrepreneurs. Some other important traits were good relationship, employee
friendly, effective communication and transparency, and enjoying business (Table–16). The
entrepreneurs advise to the new generation entrepreneurs was to take risk in the changing
business scenario. They also advised them to be committed, building teams, fulfilling their
dreams into reality and courageous. (Table–17).
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TABLE – 11: RESPONSE REGARDING DECISION MAKING PROCESS IN THE
BUSINESS
Particulars Number Per cent
Head of the family 28 70.00
All the members 2 5.00
Selected members 10 25.00
TOTAL 40 100.00
Source: Field Study
TABLE – 12: RESPONSE REGARDING AREAS OF CONFLICT
Particulars Number Per cent
None 32 80.00
Sometimes 8 20.00
TOTAL 40 100.00
Source: Field Study
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TABLE – 13: RESPONSE REGARDING FAMILY VISION AND GOALS
Particulars Number Per cent
To be good citizens and social consciousness 24 60.00
To serve society 6 15.00
To become great 6 15.00
To fulfill parental ambition 4 10.00
TOTAL 40 100.00
Source: Field Study
TABLE – 14: RESPONSE REGARDING AREAS OF CHARITY EXTENDED
Particulars Number Per cent
Health care 15 37.50
Education 16 40.00
Others 9 22.50
TOTAL 40 100.00
Source: Field Study
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TABLE – 15: RESPONSE REGARDING LOCKED UP WEALTH OF THE FAMILY
Particulars Number Per cent
Locked up wealth 15 37.50
Not locked up 10 25.00
Locked for children wedding / education 15 37.50
TOTAL 40 100.00
Source: Field Study
TABLE – 16: RESPONSE REGARDING TRAITS POSSESSED BY THE
ENTREPRENEURS [BASED ON RESPONSES]
Particulars Number Per cent Rank
Commitment 40 100.00 1
Enjoying business 20 50.00 3
Customer orientation 40 100.00 1
Good partner supplier relationship 30 75.00 2
Employee friendly 30 75.00 2
Teamwork 40 100.00 1
Effective communication and transparency 30 75.00 2
Sincerity 40 100.00 1
Loyalty 40 100.00 1
Source: Field Study
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TABLE – 17: RESPONSE REGARDING ADVISE TO NEW ENTREPRENEURS TO