Author: gatewaysblogger

  • Professionalising Family Business Appointing Non-family Board Members.

    Professionalising Family Business Appointing Non-family Board Members.

    Sha is the third-generation director of a mid-sized and progressive medical company. His grandfather started the organisation on a very small scale in a small town in UP. The Board of the organisation consists of his uncle (father’s younger brother, cousins (father’s elder brothers’ son and himself) – all family members. Most of the key positions in the organisation are also managed by themselves. Over the years, they have grown to be a known brand with large presence in Central and North India. During Covid and post covid period, this organisation has achieved notable business growth, especially in nutraceutical products and in modern marketing outlets. While discussing about engaging consulting organisations to support this growth Sha has brought in the idea of appointing a non-family expert to the Board as an independent member, which was rejected immediately. Rest of the family members did not find any reason to bring in a non-family member to the Board.

    What’s preventing the vast majority of non-listed family businesses to appoint an independent and non-family member to their Board?

    While reasons vary, the last few years of working with Family and Family Managed business of various size and industry has provided us with few insights into the how, why, and what – to enable you to appoint an independent board member.

    ESTABLISH A MEANINGFUL PURPOSE

    For a traditional family business sharing their space and secrets is a big move.

    Whoever is proposing this idea to the Board (family member / family business facilitator), must establish and communicate the purpose of the proposal. For example, in the above case, to bring in strategic input on nutraceutical.

    CREATE CONSENSUS

    Creating consensus among the board members on the requirement of an independent director is paramount. All board members should be able to accept the idea of having a non-family member sitting on the Board. They should also understand that this person will be a neutral person who will take decisions based on his/her experience or subject-matter expertise and data. For him/her organization is the objective not the individual.

    The objective of appointment should not be to side-line or silence another member of the board.

    REMOVE THE FEAR OF INSIGNIFICANCE

    Most of the time, family members object to the appointment of a non-family member to the Board due to the fear of being seen (sometimes being felt) as insignificant on the Board. Fear of being marginalised and side-lined by rest of the directors along with the external person will lead to future issues in family and business.

    Family Board members should collectively discuss about it. In some cases, we have advised, in the initial days, that the family board members meet separately to discuss topics before they discuss the same in full board meetings to avoid conflict in the presence of an external person.

    OBJECTIVE ASSESSMENT LEADING TO FAIR / NEUTRAL DECISIONS

    An independent BOD applies an objective angle while making decisions; they have nothing to lose, and their main role is being responsible for stakeholders and shareholders equally. Therefore, they are unbiased and will make decisions that are beneficial to the ultimate users /clientele. This is also a great advantage when succession planning needs to be put in place, as conflict of interests is a key issue in appointing a successor. Many a times promising candidates are overlooked during succession planning because of bias / prejudice / lack of perspective etc.

    AN ORGANIC CHANGE IS ESSENTIAL

    As the business grows along with time, people, technology and demands, so too a board needs new eyes that help keep pace with this dynamic turn. Challenges and complexities have to be met with and in order to sustain and develop the business even further, a change in the BOD is also essential. Independent directors are an asset during such times.

    AREAS BEYOND CURRENT CAPABILITY

    Once the consensus is created, members need to identify the area of appointing independent director. BOD should look for areas beyond the capabilities of the current directors; in some cases, they look for futuristic areas. However, the Board must ensure all members have a similar thought process.

    Identifying an expert who has exposure in the family owned and managed business, especially for the first time, is crucial. An independent director with similar industry knowledge will help and find it easy to align with the thoughts of family directors faster. In many cases, totally radical or different ideas are not accepted well and then the director will feels out of place and becomes non-value adding.

    An independent board member with exposure to family owned and family managed business environment will bring in lot of value and acceptance from rest of the BOD.

    SET RIGHT EXPECTATIONS

    An appointment with clarity will lead to clear expectations.

    Board members should have clear expectation from the external member. It is imperative that this is shared during the initial process. Most of the initial dialogs should be about the role of the independent director. All family board members must participate in these meetings.

    COMMUNICATE

    Design and communicate the job description, period, and frequency of meeting, point of contact etc. The chairman of the board should intimate the appointment of the independent board member to rest of the family members / family board/ family council etc.

    Key executive leadership of organisation also should be briefed about the appointment

    Appointing an independent nonfamily member on board is the sign of progressive family owned and managed business. They will bring in fresh perspective to the board and help them to take well informed decisions. An independent board member also brings in an effective governance system to the family board thus can make the entire organization to be professional and progressive. So, move out of the fear zone and embrace progression.

     

    M R Rajesh Kumar
    Lead Partner and Family Business Coach
    GatewaysGlobal LLP

  • Results And Observations Derived from The Study on Generation Based Family Owned and Managed Businesses in Kerala

    Results And Observations Derived from The Study on Generation Based Family Owned and Managed Businesses in Kerala

    GatewaysGlobal has always been engaging when it comes to family-owned businesses. With respect to the same commitment, we do conduct productive surveys and research that provide statistical insight to us and the clients simultaneously. Here are the latest results and observations derived from a study carried out by Confederation of Indian Industries (CII) with GatewaysGlobal on the nourishment required areas of family businesses in an order of generations.

    Family-owned businesses maintains a pivotal role in the economic situation in India and around the world. Owing to the large contribution to the GDP and employment scenario in Kerala or in the perspective of India, not only the big or large family business houses, even Micro, Small and Medium Enterprises or the MSMEs add to the dominant economic growth of the country.

    Family business own a greater level of reputation and abides to principles making them move forward. Business holds the legacy and family values which runs through various generations. Family businesses small or big evolve over a period of time and comes across various hurdles posing concerns in its sustainability. Businesses face distinct management challenges among the generations due to their attitudinal and aspirational differences. Generational transition is the time when many family businesses or business families fail. For a business to be sustainable in long run, protecting heritage, it is to reassess, reframe, and reorganize its mission, operations, and ownership structure. Tied to the element of the ability to adapt and change, inherent in any growth story, it is not just a response to the external environment but the flexibility to change from within. Time to time the businesses and the people within has to be nourished with generation specific value additions.

    In a recent study conducted by GatewaysGlobal LLP and Confederation of Indian Industries (CII) on the nourishment required areas of family businesses in various family businesses in Kerala, it was understood, each generation requires support in different and unique areas. In this study, data has been taken from the members of 3 generations from various organizations.

    This study was with respect to specific focus groups on family members like,

    • The founder generation, the founding entrepreneurs who established an owner-managed company with strong vision.
    • The second generation, who plays a critical role in professionalizing and launching new initiatives to expand the enterprise.
    • And future generations, who displays different competency level with distinct style and perspective towards the company. They should have either entered the organisation or preparing for it.

    Here, it focuses on understanding each generation in the family business and their potential challenges going forward.

    The organizations with the founding generation holding the ownership sees below as their current challenges in family business.

    • Succession policy formulation
    • Conflict management
    • Family wealth management
    • Transition from founding generation to the next

     

    Among these, succession policy formulation is seen as the major challenge. It is also to be seen that 67% of respondents from the founding generation have not established a succession plan in the organisation and there is no family constitution / charter, family Trust and office taking care of personal wealth/expenses in place. Among them only 33% have defined training & development program established in the organization for next-generation family members. This clearly shows where it is to be focused to mitigate the challenges.

    When we look at the literature, succession policy for a family business entails how transition of the management, the ownership and control of the business to the next generation of leaders, most often from within the family is to happen. This transition is a revolution in which the culture of the organization is restructured by the next generation, who brings with them new ideas about how business should be run, how to develop new working practices, new staff, new loyalties etc. Many times, due to lack of succession planning it breaks family business causing to uncertainty among staff, suppliers, customers, and family. So, with a defined succession policy makes it makes easier for the businesses to sail through the transitions.

    Wealth management, which is also a challenge is difficult because personal and professional wealth is intertwined in the case of a family enterprise. Most founders fear that the next generation may not recognize the value of hard work put in to earn the assets and will take the inheritance for granted. On the other hand, members belonging to the next generation fear that they will not receive their rightful share of the inheritance and will not get an opportunity to take responsibility of their family wealth and grow it. Formation of trust and having family discussions mitigates the conflicts that may arise from wealth management.

    Also, Family businesses having defined procedures/ documents (such as shareholder agreements, conflict resolution mechanisms, emergency and contingency procedures, family councils, and entry and exit provisions) enable them to maintain the alignment between family interests and business objectives.

    One of the ways to simplify these processes is hiring family business advisors who can guide through the various stages in streamlining the processes and setting the policies and procedures.

    In the learning areas for the founding gen, establishing succession policy and training and development makes the top in list. As succession policy formulation is also a challenge for this gen proper training and guidance from industry experts and organizations can help in these areas.

    In this study, based on the data taken from the second generation run organizations, conflict management and family governance are considered as their top challenges along with succession policy formulation, family wealth management and growth.

    The analysis of the report says, 50% of the 2nd generation respondents have challenges in communicating between the family members and in 40% of the organisations, roles and responsibilities of family members are not clearly defined and documented. 60% do not have a governance system like a family constitution / charter. A 40% have not created any process to separate Personal wealth & Organisational wealth and among these 30% require support in establishing personal will & family wealth management. 90% do not have a written down individual will in place and conflict management process established in the business. 100% of the respondents do not have functional family Trust and 70% do not have a family council in place. Only 40% has specific policies designed to induct the next generation family members into business and all the respondents feel next generation need support to focus on companies’ growth.

    Over the years it is understood that, in family businesses, most conflicts are caused because family business owners perceive that their needs are not met. These conflicts arise on various issues such as how the wealth will be passed on to the next generation, choosing future leaders of the family and business, the strategy for business growth, performance of family members working in the business and setting of their remuneration levels etc. Between generations, there can be gaps in communication and credibility. The collision of expectations and the lack of communication can be emotionally charged but more importantly, harm relationships between key family members which eventually affects the business.

    Family governance is also considered as a top a challenge by the second generation. A well-developed, implemented family business structure provides a framework for decisions and effective communication, unique to the family and business. At their best, governance systems create harmony between both family and business. Family governance framework has several bodies like family assembly, family council, family advisor board etc. The process of establishing a functional family business governance structure is iterative. Partnering with a trusted advisor with relevant experience can help avoid common pitfalls and imbue best practices into the development process. Regardless of where the family and the business are in their progression, a discussion about how to implement governance is a worthwhile exercise which can mitigate challenges of a family business. The key learning areas for this generation is training and development and the second top being family induction, exit and retirement policy making.

    Data taken from the 3rd generations shows that in 62.5% organizations the ownership and management was held by the second generation and 37.5% organizations by 3rd generation. In this scenario, this generation feels succession policy formulation as the key challenge along with Family governance and conflict management, followed by family wealth management and growth.

    62.5% respondents in this generation have exposed to any intergenerational conflicts. However, all of them have been part of family councils and 75% have seen the family constitution in the organization and are aware of the written down personal will and wealth management. Majority feels happy with the rewarding system for the family members in the organisation. 87.5% feels there is enough communication across generations. In this generation 75% responded that they are going through a clearly defined learning and development program and 50% responded that there is specifically defined learning program for the next generation in the organization. However, only 37.5% have gone through a selection process during your entry to the business. Overall, when we look at this generation, the family business organization has evolved over the generations.

    The older generations want their next gen to grow their business bigger and improve the work they started. But flexibility and a willingness give them more responsibilities can take time and energy. Proper coaching and interventions by experts in family business dynamics will handle these challenges and will prep the next gen to take up the roles in a manner envisioned by the older generations.

     

    The top learning areas for the third generations is identified as establishing succession policy formulation along with family governance, training and development, family induction, exit and retirement policy making and family conflict management.

    For the study, 200 family-owned businesses have been contacted for data collection, however the response was very meager totaling to 24 organizations only.

    Across all the generations, majority identified established brand, employee strength and already established network of dealers and suppliers as the strengths that exist in their family-owned business.  To keep these strengths intact, the challenges have to be delt with. As each generation carries different set of responsibilities and has a distinct work style, target-based programmes curated to understand generation level problems/concerns are to be provided.

    As succession planning is a challenge across all generations, focusing on it and taking necessary steps to have a structured plan will avoid failure of a family business over successive generations. Foreseeing the family business over generations there by setting up and implementing structures, systems, processes, and policies like developing family governance, family constitution/charter, family councils, succession policies, etc. will pull down or solve the challenges that may arise and help in smooth running the family business over the years, For the setting up of these systems and processes, family can seek the interventions of family business coach.

    Expert family business management organizations like GatewaysGlobal and industry support institutions like CII shall conduct sessions and interventions in the challenging and learning areas derived out of the study to equip and support the businesses.

  • Let go

    Let go

    What is Let Go in Business?…

    The ability to Let Go is one of the hardest behavioural change for human beings. On the professionalisation journey of family businesses, they tend to face more stumbling blocks than other organisations primarily due to the inability of the owners to hand over the responsibility to the new leader/ professional.

    In a typical scenario, a business owner senses the need to hire an external professional while facing a positive or negative growth in the organisation. It is often witnessed as a slow process and they adopt various methodologies, from casual meetings to engaging in highly specialised interventions. The methodologies vary based on the real urge to change.

    Once they hire a professional, the business owners promise absolute freedom in decision making, strategic planning, people management, etc. Essentially, complete control over the governance of the business. These privileges are not offered to the employees who have grown with the business making them all the more exclusive. Most of these appointments are done with great fanfare, announcements, and expectation. In some cases, you even hear the business owner stating – “He is me, I just hired someone like me to take this to the next level.”

    After the acclimatisation period, the new leader now starts taking business decision independently, and this is when the first signs of discomfort set in.

    (This can happen not only between the owner and hired professionals but also between two generations of owners).

    As time goes, the new professional begins to see more and more interference from the business owner and a lot of time is wasted trying to clear the dissonance rather than focusing on the business goals. This eventually leads to the professional not performing as per expectations and the owner rethinking his decision.

    To avoid these frictions, what business owners need to do is develop the ability to “Let Go”, in other words, relinquish the grip or control on a certain role, decision, and process.

    Although it is a difficult process, control or power exercised over the years can be handed over to next in line, with a certain well-guided approach without causing heartburn or rocking the foundations of the business. Here’s a quick reckoner of how:

    1. Create a compelling reason-: Decide why you need to handover. Identify the compelling reasons for identifying a successor.

    2. Prepare in Advance -: Prepare mentally and create engagements outside the organisation still linked to business

    3. Find the right fit-: Look for the person who could bring in new thoughts and take the organisation to the next level.

    4. Do not compromise -: Take time and seek professional help in identifying the right person. Do take references.

    5. Align Business & People -: Prepare the business to accept the new leader and change accordingly. Keep the key people in the organisation informed about your decision and get their buy-in.

    6. Handhold the new leader-: Familiarise the new leader with the organisation value system. Mention expectations very clearly. Inform the non-negotiables.

    7. Find a Coach -: Find a coach to work with you in this transition period. He would enable you to overcome the irritants you face during this period.

    M R Rajeshkumar PCC
    Managing Partner, GatewaysGlobal LLP

  • Win with your Image – Create the perfect ‘Friendship Chemistry’

    Win with your Image – Create the perfect ‘Friendship Chemistry’

    Recently, a picture of a grumpy new-born went viral on the net and triggered a whole lot of memes, that were really hilarious. That ‘image’ might probably haunt little Isabel Pereira de Jesus for the rest of her life. Woe-betide anyone who would show this photograph to her when she grows up to be a beautiful young lady. But then again – who knows? she might grow up to be a woman with  a great sense of humor!

    IMAGE!!!!

    So, why is image – having one, creating one, building one – so essential, so important? Because, it can make or break a situation. Yes, it is true!

    Have you heard of ‘thin slicing’?

    Thin slicing is psychology’s word for an ability to accurately judge people or situations, through a narrow window of experience.

    When applied to judging people, it is through your ‘image’ that people thin slice you. In effect, your first impression is already captured. And in less than 10 seconds, you or I or someone, has judged or been judged on traits like intelligence, trustworthiness, friendliness, socio economic status, dominance, success- the list could go on. And, who does not want to be all this and more if they want to create a positive first impression?

    So, is it really easy to build up an impressive image? It may not be really easy, but it is not difficult either. It is true, that some people are seemingly born with it. However, as with any change or improvement you want to see in yourself, this image transformation will happen if you put in dedicated effort and show continuous commitment. It is possible to interest, impress and inspire others through your image.

    Mind you, image is not only about the way you dress (no one said you have to wear designer outfits), it includes your communication and conversational skills,, your manner and etiquette and most important of all the unspoken language – your body language. Whether in personal or professional surroundings, appropriateness is paramount when creating that impressionable image about yourself, first time around.

    After all, the first step to building any kind of relationship, whether personal or professional, is to trigger a ‘friendship chemistry’ in order to see a positive reaction.

    It’s the one thing YOU can control. You are responsible for how people remember you….or don’t. So, don’t take it lightly. KOBE BRYANT

    Jessica Mundroina
    Sr. Consultant – Organisational Learning, GatewaysGlobal LLP

  • Best Emerging Asia Family Business Advisory Firm 2020 – GatewaysGlobal Human Capital Solutions LLP

    Best Emerging Asia Family Business Advisory Firm 2020 – GatewaysGlobal Human Capital Solutions LLP

    GatewaysGlobal LLP is backed by 50+ yrs of combined multinational expertise in advisory, talent, sales & marketing management in varied industries. Specialising in Family Business Advisory, we offer tailored programs focused on creating a perfect synergy between Family, Business & Ownership. Our in-depth experience with family businesses of various sizes and spheres have made our methods unique. We also offer services related to Performance, Sales & Marketing Enhancement and Executive Coaching.

  • Survey on the Impact of Covid-19 on Family Businesses in Kerala

    Survey on the Impact of Covid-19 on Family Businesses in Kerala

    The unprecedented outbreak of Covid-19 urges businesses to define a new normal in operations, strategies and approach while re-entering the market. Dealing with economic slowdown, people morale and uncertainty has become a challenging proposition to leaders in making decisions for a long-term impact. Hence, sharing a few best practices followed in different organizations, will help companies define policies and systems most appropriate to their businesses.

    The survey-based research conducted by IIM Ahmedabad in association with GatewaysGlobal LLP is intended to understand the impact of Covid-19 on Family Businesses.

    GatewaysGlobal is a family business advisory firm specialized in developing and implementing a Governance system and professionalizing the organization, ensuring a cultural reinvention. IIM Ahmedabad, progressing towards its vision of ‘educating and nurturing leaders of institutions and entrepreneurial organizations, has been into research for academic interest and to create a progressive and sustainable impact on society.

    Methodology of research:

    Survey conducted over telephone or through face to face interaction

    Process of research:

    Duration of research:

    The duration to complete this survey is expected to be for 6 months including the submission of report on best practices to each participating organization.

    Team GatewaysGlobal would is always committed to work with family businesses to enhance their performance and look forward for more fruitful associations in future. We hope, this joint initiative would help to identify future-focused and sustainable practices to deal with dynamic business environment.

    COVID-19 Impact on Family Business in Kerala: Interim Survey Report

    The COVID-19 pandemic has put almost all businesses across the globe to a survival test in the last few months. Family-owned businesses are no exception when we delve into the impact of the pandemic. The current crisis has caused widespread instability across various sectors as well.

    Kerala, “Gods’ own country”, is home to plenty of family-run businesses spreading across various industries which includes jewellers, restaurant chains, FMCG, construction, NBFC, healthcare, hospitality, etc. Family businesses continue to be an acceptable norm in Kerala, with most entrepreneurs and business owners passing down their businesses to the next generation. Due to their widespread presence, family businesses are recognized as important and dynamic participants in the economy.

    The ongoing research survey covering around 50 family businesses in Kerala is being guided by Prof. Biju Varkkey, Faculty, IIM-Ahmedabad and M R Rajesh Kumar, Lead Partner, GatewaysGlobal Human Capital Solutions LLP- a leading family business advisory firm.

    The research has been conducted across three levels of businesses: Family Management level, Non-Family Management level, and Employee level. The family business owners and key family members were covered in the survey. The respondents shared their experiences and insights on the present situation and how they coped up with COVID-induced challenges.

    As per the survey, family businesses have faced challenges of varied nature and intensity and reacted towards COVID-19 across the three levels.

    One of the major challenges was managing the family itself, as it interfaces with itself and with other family members

    Levels

    Challenges

    Coping Strategy

    Family Management

    1. Manage communication channels at the family level.

    2. Family governance and lack of succession plan for family members to take up new responsibilities.

    3. Senior family members becoming indisposed due to COVID restrictions

    1. Use of digital communication tools.

    2. Family members and top management reorientation

    3. Encouraging next-generation family members to take up strategic roles in the business.

    Managing regular communication has been a big challenge in the pandemic time due to various restrictions imposed externally and internally. All family businesses started relying on various technology platforms to reestablish and continue communication with the family and top management. Bringing the whole family together was challenging since they were geographically separated. Most family businesses faced a sudden leadership vacuum due to a lack of senior members since they were indisposed due to COVID restrictions. Family respondents also mentioned that they experienced a sudden vacuum due to the lack of established family governance protocols.

    Levels

    Challenges

    Coping Strategy

    Non-Family Management

    1. Revenue generation

    2. Limitations of not having an organized and professional approach.

    3. Pressure to develop strategic initiatives & implementation to meet COVID 19 challenges

    1. Reaching out to new markets

    2. Reexamine existing business and management practices.

    3. Use of digital communication tool

    4. Decentralizing functions

    5. Openness to professional consultation

    Non-family members who ran the business looked up to family members for aid since they faced a different set of problems. Most family-owned businesses during COVID 19 revealed that organisational structure and professional approach towards tackling issues at hand were major challenges. Many of them were comfortable with existing processes which helped them function during normal times but they were not prepared to face the present crises. We observe that organisations lacked the resilience to come out of the situation which had a great role to play in a pandemic situation. They could not anticipate, prepare for, respond, and adapt to sudden disruptions to survive and prosper. We find that the approach was more reactionary rather than taking a strategic approach to facing the issue. Over some time, almost all organisations were able to reorient. The importance of professional management, in a way, has been reinforced and a good number of family businesses became open to external consultation. They started hiring consultants and subject matter experts.

    Levels

    Challenges

    Coping Strategy

    Employee Management

    1. Talent retention & productivity

    2. Paying employee compensation & other existing benefits like incentives, bonuses, etc.

    3. Manage communication channels at the employee level.

    1. Use of digital communication tools

    2. Businesses resorted to countercyclical hiring

    3. There were no salary cuts. Salaries were paid either fully or partially.

    Companies had bigger challenges concerning talent management, talent retention, and compensation management. The employees had to be given reassurance on their career and compensation to retain them and at the same time companies had to prepare themselves within a short period on business priorities as well.

    The family businesses that took part in the survey had shared their unique business practices during the COVID period to face the challenges mentioned above. Many unique practices have been identified in the family businesses; mentioning some of them identified on two fronts, namely communication at family and employee level and employee management level.

    Fronts

    Unique Business Practices

    Communication

    At family level: Conducting family council discussions, family member meets, board meetings, extensive use of digital communication tools to communicate between family members. One of the companies explicitly mentioned that the Family Council was able to contribute. There has also been more active participation within the family members including sleeping family members as well. Since the senior

    generation was indisposed due to COVID restrictions, the younger generation stepped in to run the business at the forefront.

    At family to employee level: Conducting direct meetings, online meetings, regular reviews (daily, weekly, bi-weekly, monthly), adopt top-down communication, supervisor-employee meetings (with planned ratio), and direct interaction through managers. Owners increased the intensity of communication by reaching out to lower-level employees amidst COVID restrictions. One of the CEOs mentioned that he travelled to communicate with the employees at their factory in a different state amid the COVID restrictions to boost their morale and extend support.

    Employee Management Practices

    Family businesses had been benevolent by retaining jobs and supporting employees. Since they had no pressure from stock / private equity, they were able to retain employees. Concerning salary payment, almost all the companies paid salaries to their employees either fully or partially. Companies provided employee benefits like COVID insurance to employees. A few companies surveyed employee living standards to extend support, accordingly. Some of the companies also brought in consultants for professional advice to increase internal efficiency thereby realizing the importance of changing the status quo. One of the companies hired a CEO during the COVID for professional management.

    Out of the companies interviewed, 72% of the total firms are managed by second and third generation whereas only 18% are headed by 4th and 5th generation family members which was a major challenge. They recognized it as an immediate need. While the senior generation relied on proven & external strategies and resisted change, the younger generation has futuristic plans which focused on growth & diversification, opportunity exploration & readiness to take up risks, and focus more on internal strategies. Businesses that relied on family governance were able to cope up.

    During the research we found that 80% of the interviewed firms, do not have a well-structured family constitution and a succession plan for family members in place which has led to a major challenge of lack of professional organisational structure and approach. This trend has enlightened about 41% of the family businesses has expressed the need to implement the family governance framework in place.

    The disruptive events like COVID-19 are challenging and tough for family businesses to stay afloat and focus on growth. In the subsequent report, we will explore more into the challenges faced and best practices adopted by the family businesses.
    A study by GatewaysGlobal in association with IIM Ahmedabad

  • 5Cs of Inducting Non-family Professionals in a Family Business

    5Cs of Inducting Non-family Professionals in a Family Business

    Amongst professionally run businesses, the early stages of a family business might have only family members acting as managers. Upon progression and over the years, members of the family business often decide to step back. They might shift their focus to Strategic Areas and expansion thus needing the addition of non-family professionals to operate the business.

    Most of the family businesses prefer the following options while considering non-family professionals for their organization:
    Promote Non-Family talents from within the current manpower.
    Hunt experienced talents from other successful organizations. At this phase, various types of family businesses seek specialized external services in hiring talents from other successful organizations.

    Here, we would like to share some of our observations during our interventions in various types of family businesses (Family Owned and Managed (FOM)) as well as the key points to be focused upon while bringing in professionals of any role (bottom-up or top-down talent sourcing) from external organizations.

    In our experience, most of the FOM organizations would like to start with a Business Head. Most organizations start from the top as the family members prefer to concentrate on strategic areas. They prefer experienced Business Heads to run the day-to-day operations.

    Detailed below is our 5C guideline to be considered before hiring an external professional for your family business management:

    Create Consensus

    Create an internal harmony amongst the board of directors. Consider everyone’s opinion. If any of the members present have a different opinion, then it should be further probed and resolved, else the new hire will be met with resistance.

    Bring in Clarity

    Curate a clear job description, compensation package and responsibility matrix. There needs to be clear differentiation of roles and responsibilities between the current family members and the new business head. Limit the duplication of responsibilities. Specify and determine who reports to whom.

    Pay is another significant aspect, in conventional businesses, as entrepreneurs typically withdraw the payment through various mediums. However, in the presence of an external business head, they like to have a defined remuneration structure. Another significant point is to regulate a responsibility matrix such as a RACI Matrix (Responsible, Accountable, Consult and Inform) for better facilitation.

    Confirm and Re-Confirm

    Conduct multiple degrees of discussion with the candidate. Try not to employ in haste without appropriate meetings. In the case of key recruitments, instincts for the most part are not accurate and may lead to failure. The Board members present ought to have both formal and casual meetings with the business head.

    Ideally, all the family board members should meet at various times separately and collectively. It would be advised to have all individuals meet the business head before offering the final contract.

    Seek assistance from external experts during the negotiation and interview process. Do conduct various recruitment processes such as reference checks and psychometric assessment. These may assist us in finding the right behavioural mix of candidates.

    Communicate

    Ensure to pass on an organization-wide communication about the role changes and reporting structure. Establish a positive changing environment through various sets of communication. Make and impart the standard procedures for the employees on when and how to meet the family board members.

    Cultural Immersion

    Establish a successful interaction to inform the new leaders of the existing culture of the organization. Engaging the services of an experienced Executive Coach will be helpful to support and guide the new leader through their transition.

    Ensure that the board members and managing directors have regular meetings with the new leader. Set up a prefixed meeting plan with the whole board and managing director. Lessen the recurrence of the meetings complementing the pace of the transition.

    Organizations should seek the support of an Executive Coach or a Family Business Facilitator to handhold both the family and the newly appointed non-family professional during the initial phase. This could be the key to a smooth and hassle-free transition.

    Case study

    GatewaysGlobal has worked with one of the main Family Owned and Managed FMCG Organizations in India, to create a conducive environment for the hiring of a Business Head. The family was successful in running the business but considering the business growth potential, the family members in the business wanted to invest more time on strategic functions. Hence arose the need for a professional to run the business.

    Our process started with creating an awareness to have a leader to maintain the business and to accomplish the estimated growth. We had the option to work with the family board of directors and persuaded them regarding the requirement for a single face inside the family to maintain the business. This led to delegating one of the family board individuals as the business head. But soon they felt the requirement for an external Business Head. After various conversations, meetings and considerations, we obtained a total agreement from the board.

    The family had identified business head candidates through references and external consultants. With a thorough search, the family narrowed down on their preferred business head after going through their references and interviews.

    Upon appointing the new business head, we established an Induction process. We provided them with clarity on their roles & responsibilities for which we had already formulated a clear job description, RACI framework and entitlement structure. We had additionally planned, designed and implemented the setup of a Board – Business head meeting structure. It was also agreed that the current business head (family member) would handhold the new hire. We laid down clear communication rules between the family board of directors and the newly appointed business head along with clear hand-holding plans for the family board members for their everyday activities.

    Summary

    The family ought to collectively agree to employ external professionals: – NO forced fixing.
    For sustainable and viable family business management, Start from the top.
    Follow 5 Cs to bring in professionalism in family business
    Seek the help of external specialists.

    Author : M R Rajesh Kumar (Founder and Lead Partner GatewaysGlobal LLP)

  • Cognitive Dissonance in Family Owned & Managed Business

    Cognitive Dissonance in Family Owned & Managed Business

    Across the globe, while some of the notable business entities are owned by family.

    Why successful professionals from professionally managed organisation hesitate to join Family owned and managed business even if the compensation & other related benefits are attractive?

    What reduces the career longevity of professionals who join the business owned and managed by Family?

    Cognitive dissonance is one of the reasons for most ambitious and successful professionals reaching the threshold of quitting the family business, specifically owned and managed by family members from first & second generations.

    In my interaction with most of the leaders, I have noticed the presence of cognitive dissonance. Most of them feel uncomfortable to accept it as they feel its linked to one’s own integrity and career choices. In some cases, they don’t even identify it. Let’s take a deeper look at it.

    Meaning of “cognitive dissonance” in the Cambridge English Dictionary is “an uncomfortable feeling that comes from believing or thinking two different things that cannot both be right. This feeling might be caused, for example, when someone wants to or has to (or is asked to) do something that they believe to be wrong”

    As mentioned, in Wikipedia, In the field of psychology, cognitive dissonance is the mental discomfort (psychological stress) experienced by a person who simultaneously holds two or more contradictory beliefs, ideas, or values.

    In A Theory of Cognitive Dissonance (1957), Leon Festinger proposed that human beings strive for internal psychological consistency in order to mentally function in the real world. A person who experiences internal inconsistency tends to become psychologically uncomfortable, and so is motivated to reduce the cognitive dissonance, by making changes to justify the stressful behaviour, either by adding new parts to the cognition causing psychological dissonance, or by actively avoiding social situations and contradictory information likely to increase the magnitude of the cognitive dissonance.

    One of the common situations in family business is, leaders hired by offering complete autonomy in decision making has to consult the owners for even small and trivial matters and (mostly forced to) accept their decision. For example, a business leader hired as Head of Business (with a fancy designation of Chief Operating Officer) of a large business was offered complete freedom of decision making. However, when it came to the recruitment of a finance department head, owner-director questioned the decision and removed the hired candidate. In the beginning, newly joined Business Head took it as his judgment error. But when similar situations repeated, he understood the real meaning of autonomy in that organisation.

    If professionals can continually adjust the correspondence of their mental attitudes (cognition) and personal actions, survival is easier. Such continual adjustments, between cognition and action, could lead to loss of identity at least for some. For others, it’s the beginning of a new identity.

    In the real world what is the effect of cognitive dissonance for a professional? It’s challenging to define, however, it’s a true sense of discomfort, most of the time its proceeds as a burning issue progresses as days go by. Various instances and incidents create and aggravate this uncomfortable feeling. Slowly, if not addressed, the leader becomes dysfunctional, negative and reach the resignation zone. At last either the organisation or the professional will have to take the tough choice.

    Who loses out in this entire situation? In reality – both organisation and individual. The organisation loses its credibility, potential employee and engaging work environment. And for the individual, their peace of mind.

    There are several solutions and practises that help reduce cognitive dissonance. An Executive coach can help the professional in identifying the right solution and support in practising it until finding the result.

    So, start by identifying the existence of cognitive dissonance and the move towards reducing it. With the help of a coach, this transition will be enjoyable.

    M R Rajesh Kumar PCC
    Managing Partner, GatewaysGlobal LLP