the dawn of enterprise, one thing has survived the relentless transformation
of businesses: It's the business family. Even as the economy moved
from cattle and plough to steam and machines to now computers and
telecommunications, the constant driver of these changes has been
the enterprising family. Even today, more than 80 per cent of the
businesses worldwide are owned by families, and a large number of
them are also family managed. That's more or less the case in India
too. While all businesses are prone to conflicting pressures of
the changing market environment, the family business must also contend
with challenges from within. For instance, balancing the interests
of the various members of the family, separating ownership from
management and, most importantly, to ensure acceptable standards
of corporate governance.
One man who's been tracking these issues
for more than three decades now is Ram Charan, a US-based advisor
and coach to CEOs of Fortune 100 companies. An alumnus of the Harvard
Business School and winner of the Best Teacher Award at Wharton
and Northwestern (Kellogg), Charan was recently brought to India
by international search firm, Egon Zehnder, to talk about corporate
governance in family-owned businesses. In an exclusive round table,
BT brought together Charan with Thermax's Anu Aga, Marico Industries'
Harsh Mariwala, and Egon Zehnder's Rajeev Vasudeva to talk about
the future of family-owned businesses and succession planning. The
round table was moderated by BT's
BT: Welcome to all of you. Let me start
by asking Ms. Aga a sacrilegious question. Is the era of owner-managers
coming to an end?
|"The automatic right of an owner
to be a manager is not there any more"
Anu Aga: No, but the automatic right
of an owner to be a manager is not there any more. That does not
mean that an owner who's qualified, like my husband (Rohinton Aga)
was, shouldn't join business. I think he was the most qualified
person to head the company, even though we happened to own it. That
was not relevant. If through merit you are the best, then there
is no problem. But if you want to manage the company just because
you are the owner, it's a recipe for disaster.
Harsh Mariwala: I don't think there's
one answer to whether the era of owner-managers is coming to an
end. As Anu was saying, you need the right person for the responsibility,
whether it's from the family or outside the family, it doesn't matter.
I think as much as businesses are getting complex, families are
getting complex too because of the fact that newer generations are
coming in and aspiration levels are rising. So how complex is the
family is also important. From generation to generation, there are
different levels of aspirations and ambitions.
BT: Dr. Charan, what are the trends
globally, particularly in a mature market like the US?
Ram Charan: You're going to find that
a very significant portion of phase one companies don't make it.
These are the smaller owner-managed companies. And the major reason
is that when you begin to go to the second phase, the skills of
many of these people don't make a good fit with what is required.
So the question is one of fit-what is required and how well the
talent of the person matches it. The word professional does not
necessarily imply that this professional's talent at this stage
matches the requirements of the company at this stage. Neither does
it mean that the owner has the talent that cannot grow. Look at
Sam Walton. He started with one store, but today that company is
the world's largest company.
|"A burning desire to win is very critical.
That's most important to us at Marico"
Rajeev Vasudeva: I agree. I don't think
the forces at play out here (in India) are any different from those
at play in family-owned companies in the rest of the world. And
I don't agree that the owner-manager era has come to an end. You
can be a global company even if you're family-run or family-managed.
I think the issue that every family company needs to deal with is
really managing three constituencies: there's a group that's going
to be family managers, then there's a group that's going to be professional
managers, and there's a group that's going to be family, not as
managers but as shareholders. To my mind, the success of whether
you're owner-managed or not is this: have you been able to divorce
the family issues from the business issues? And I think that's the
key challenge facing most Indian family companies, especially in
the second generation.
BT: Some family-owned businesses that
handed over the reins to professionals seem to be worse off for
that. Mr. Vasudeva, what do you think went wrong?
Vasudeva: The reason for that is really
the aspirations of the family. What limits groups is a global aspiration
or vision, whether or not they are family-run. Some of them are
also in the third-generation situation, there are lots of cousins
and lots of family-members involved in the business, and there isn't
enough vision coming through from the family. What are the people
around us doing? Am I at the cutting edge of technology? Have I
got left behind? The family does bring a certain amount of entrepreneurship,
there's no question about that, but at the same time, it also makes
(the organisation) pretty insular at times.
|"What limits groups is global vision
and aspiration, not family ownership"
Aga: This is something that we often
ask ourselves: does the family want growth? Because usually families
are not so interested in growing fast, and I'm saying I'm very interested
in growing fast. But I want to go slow to go fast. I want my basics
to be in place: my quality, my costs, my customer satisfaction.
Without it, I can do some things temporarily, but it will not be
sustained. So I think sometimes people who are running it, and I'm
not saying professionals or family, get excited by numbers. To me,
being a global company is important. But not to ever compromise
my brand is possibly even more important.
BT: Dr. Charan, how does a family ensure
that it's not disconnected or insulated from what is happening outside?
Charan: There are two questions here:
One is about the family's aspirations and continuity. What's going
to happen is, as more money flows into India, you're going to see
a huge change in less than 10 years, when family companies are going
to decide about selling out. There are more ways than one to get
some familiarity, education, ideas. All of it, in fact, can come
from the board-that is, if they want to use the board. If they don't,
however, it's a different story. You can have an advisory board.
But that's not enough. The family person or whoever is driving it
has to have some drive, motivation to understand what's happening.
Mariwala: Certain basic level of intelligence
is required, but the burning desire to win is very, very critical.
I don't know how to identify it. That commitment, that achievement,
I think that's the most important thing for us at Marico.
|"Matching skills with the challenges
ahead is really the issue for firms"
Charan Associates Inc.
BT: How important is succession planning
in this whole issue of continuity and vision?
Aga: Well, this is something I strongly
believed in and advocated, and at 62, I think I've already overshot
(my retirement) by two years. I think I've implemented the values
I believe in. Personally speaking, if you don't move out at this
age, you'll never be able to get anything meaningful out of yourself.
I've seen people who stayed on till they were 75 or 80, because
they thought nobody was good enough to take over from them. And
for me, I want to leave when I want to, not when people are tired
of me and say 'when will this woman leave?'.
BT: Mr. Mariwala, you are only in your
early 50s, but do you have a succession plan in place?
Mariwala: Do I have a succession plan
in place? The answer is no. Am I worried? The answer is yes. But
sometimes I wonder when I should start planning. Even if I find
a successor, will he be willing to wait for five or seven years?
When should I begin my succession planning process, now or later?
Frankly, I'm a little confused.
BT: Dr. Charan, would you say that's
a usual situation?
Charan: No, it's not unusual. If I were
to give Harsh any advice, I don't think succession planning begins
when you are ready to leave the company. It's actually building
the leadership pipeline, even 10 or 15 years before somebody is
ready to take over. The ideal situation to my mind is, let's look
at the top 20 guys that I have in my company and see who is the
one who can assume my role 10 years from now. And that's the guy
that I want to go after. If there's a situation where you can't
do that, you start looking outside.
Vasudeva: If I can add to that, the
first step before any company can actually get into a formal succession
planning job is to recognise what is it that you have in the company.
Sometimes you don't give it enough thought. The company has been
run for many years, and you have a very top-level view, but it's
not broken down into: this is what I want to be five years from
now. What is it that I want my manager to look like if he's going
to deliver on this objective five years from now? And then, on those
particular competencies or whatever you want to call them, how does
my organisation stack up? Do I have people who've got the required
operational skills, and if I don't, let me find those two or three
jewels who have those skills and bring them as change agents to