More about family business

· Difficulty in the managing a family business occurs when there is clash between family values (harmony, emotional, inward, continuity) and business values (profits, rational, outward, adapt, change)

· Managing transformation is not easy as the transformation is never on a single dimension. Both the family and the business undergo a series of transformation.

· It is the dynamics of family, business and ownership which influences the success of a business. Dynamics of family includes elements such as grand parenting, launching children and coupling. Dynamics of business includes elements such as start up, growth, professionalization, regeneration, etc. Dynamics of ownership includes elements such as cousin collaboration, sibling partnership, etc. In the intersection of these dynamics the family has to formulate its goals, objectives and long term plan.

· The portfolio planning in a family business is intersection of the family and firm resources that are available, risk aptitude of the family and the attractiveness of the new business on market size and feasibility.

· A family business enjoys not only tangible resources but there are numerous intangible resources that the family has built over a long period of time such as Emotional ownership, Trust among members, Social network across generations , Vision and values, Family reputation, Collective thinking, etc.

· Family businesses have transformed with changing society. Individuality has taken the core position because of several societal changes such as more number of nuclear families, increase in materialistic values, youth's need for freedom, the popularity of concept of living today, attractive opportunities for entrepreneurship / jobs etc.

· There are three dimensions of togetherness: Familial togetherness, economic and operational togetherness and trans- generational togetherness that define the bonding of the family.

· Trust, Integrity, Confidentiality, and capabilities shape the triangle of business stakeholders (family, management and board)

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Power and politics in a business

It is important to evaluate and understand the structure of the family business and how was it developed. How is the relationship shared between various owners, what is the history of the business, how it evolved over period. It is critical to understand what keeps various elements of the business together; whether it is shared values or goals or shared business wealth. 

We should never remove the focus from the role of power and politics in an organization in ensuring effective decision making. We should learn how power can divert critical resources to accomplish specific goals. Now there can be variety of source of power. Depending on the context, the source of power can be

• Knowledge gained by an individual over a period of time
• Skills and the respect gathered
• Social network that the individual has built

In family business the source of power can be authority exercised by the family member which often comes from seniority. Power is contingent upon a number of factors such as relative scarcity, criticality and uncertainty removal ability of person or sub units of organization. Politics is the tool that helps in exercising power to meet the objectives. At the places, where power is not clearly segregated, politics is a nuance. This is probably the reason why power is common in family business, while politics is common in non-family business.

Another strategy that is clearly very important is selecting the right people. The difficulties lie in change management process and how new policies would be adopted to align with the new strategy. The need is always to create a culture where everyone can call each other by name and there is mutual respect for everyone. The board plays the most crucial role in realizing this strategy. The owners should believe that professionalism demands that even outsiders can become owners of the company and be a part of the board. In contrast to the encroachment threat, non-family executives should welcomed by the open culture of the firm.

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Importance of constitution in a family business setting

The importance of family governance in today's age is extremely critical. I myself have seen families drifting apart because of business conflict resulting due to poor set-up of constitutional rules. I have seen families fighting over compensation, ownership, inheritance and rights. It is often difficult to reach to a consensus and the impact is either division of business and/or loss of family love and relationship. Well the disputes can be settled through mutual discussions governed by unwritten constitutions, it is prudent to learn about the importance of family business governance.

One should be able to anticipate the problems that could arise with newer generations taking up the business which should prompt the business leader to draft and sign a constitution long before the possibility of any tension would emerge. The core of a constitution is in the fact that it is established in a collaborative fashion rather than dictated by the family leader. It is important to understand that with next generations taking control over business the issues like "Who would exercise the maximum control? How the roles and responsibilities would be defined?, etc" are bound to arise and it is in the benefit of the business that these are avoided with the help of tools like constitutions.  

  

Also, the role of board of directors as an agent is extremely critical to maintain professionalization in a family business. The formulation of board of directors is hence required to be done with great sensitivity. The board should not be under the complete control of the family else the purpose of the formation of the board stands defeated. The interference from the family have to be minimum for the board. On the other hand, the board is expected to maintain a balance in terms of accountability, supervision, and strategy formulation. However the fact is that this perfect board-family relationship is very difficult to find.

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