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What Next–Gen Members should do for Responsible Ownership? They can facilitate better governance structure and oversight mechanisms in the business

By Kavil Ramachandran

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The next generation members in a family business face several challenges in rightfully discharging their duty as responsible owners. One of the issues is that they do not find the family business "glamourous' enough to associate with. Usually, the next generation members have had the privilege of going to world class institutions. They obtain advanced knowledge and skills in technology and business. However, when they come back after obtaining their degrees, they find that their family businesses do not have much use of their advanced skills. In some cases, the businesses are already overcrowded with multiple family members.

Another major challenge is the difficulty in overcoming the pain of unpleasant relationships of the past and their emotional baggage that individuals continue to carry. More importantly, it may be difficult to work together with family members who have very different work styles, need for control and orientation towards business and family. In addition, next generation members may also find themselves in an internal conflict regarding paying respect for age versus for capabilities. Most next generation members find it very difficult to work in their family businesses if the setup lacks a clear strategy. Another reason that adds to their challenge is the difference in their thinking compared to that of other family members. This often occurs due to the generation gap.

Be the Change Agent

The next generation member's interest in family business can be viewed on a continuum ranging from "low' to "high.' Depending upon their level of interest in the family business there are two approaches that the next-gen members can adopt. If they are really interested in the family business, they may directly join it, understand its challenges and complexities, and gradually work towards its transformation. However, this can happen only when there is a high degree of alignment between the objectives and orientation of the business and those of the next generation member joining the business.

For instance, in one specific case, the son of the owner a traditional bakery decided to redefine the strategy of the business completely on his return from studies. He found that the firm continued to have huge brand equity but needed to expand the scope of its activities. With the help of his father, the firm not only expanded the product range but also opened five new air conditioned outlets across the city. An alternative approach that next generation members can adopt when they are not very keen to join their family business is to become a facilitator and a change agent who ensures that gradual transformation happens in the family business. This can be done if the next generation leader adopts a hands-off approach while getting the business operations managed by professional managers. In this case, the next-gen member can share global practices with the management and advise it on creating appropriate systems and processes for all functional areas and departments of their firm.

Yet another contribution they can make is by facilitating better governance structure and oversight mechanisms in the business. In the case of an MBA from a top business school, the challenge for him was to take care of a three generation old family business since he was not interested in the manufacturing business they were engaged in. The father almost gave up hopes of retaining the business, but soon, the next generation member came up with the idea of appointing an experienced senior executive to manage the business, while he provided strategy and governance oversight. Success of products and markets is determined by the competitive landscape they are in. None of them are eternal. Prudent business families will consider themselves as families of entrepreneurs.

Next generation should recognize this as the reality and facilitate change, including the eventual possibility of selling an existing business and starting another, or even monetizing it if nothing else works.

(This article was first published in the June issue of Entrepreneur Magazine. To subscribe, click here)

Kavil Ramachandran

Professor and Executive Director

Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business
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