Staying Power: Maintaining Resiliency In Family Businesses
In any setup, succession is difficult because it means letting ago. If all involved parties can come together and establish a continuity in terms of respect for elders, remove the fear of the unknown for the future, establish clear business goals and directions, resiliency will triumph-across generations and time
Photo Credit :
It may not come as a complete surprise to many, but the relevance and the importance of family-owned businesses in India can be gauged from the simple statistic that of its top 20 businesses groups, 15 are family owned and run. In fact, according to the much-vaunted Credit Suisse Research Institute's (CSRI) latest "CS Family 1000" report which came out in October 2017, with an average market capitalisation of $6.5 billion, India ranks fifth in the Asia-Pacific region excluding Japan, and 22nd globally, in terms of average market capitalization for family businesses. At 108 publicly-listed family-owned businesses, India comes in at #3 globally, with China and the US taking the first and second spots respectively. The report also lauded the fact that 60 per cent of Indian family businesses are in their third generation as compared to just 30 per cent of Chinese companies.
So, what is that makes Indian business families stay together? Resilience. This is both the cause and the effect. With effective succession planning, building robust organization structures, value-based long-term vision and commitment, and leadership respect and communication, some Indian business families may have found the mother-lode of sustainability. The sustaining of a multi-generational family enterprise has no road-map or blueprint. It is, to many, both an art and a science. There are, of course, innumerable and unforeseen challenges on the road to longevity, but with sincere communication, and an appreciation of the underlying common welfare and benefit, families will thrive.
Let us take two families to understand from real life examples, how resilience is built, and success crafted in the Indian business context. One, the 90-year old Nalli Sarees family, now in its fifth successful generation, and the second, the family behind the more than five-decade old C&S Electric, one of India's market leaders in the switchgear business, and now in its second generation.
Nalli Sarees-resilience with integrated expansion
Dr. Nalli Kuppuswami Chetti, Chairman and the grandson of the founders of Nalli, is the family patriarch today, and still sits in the first store in Chennai, where the whole journey commenced. Today, at more than Rs 700 crore, Nalli is the largest saree retail business in India and is being jointly overseen by Dr Chetty's grand-daughter, and Nalli's 5th generation scion, Lavanya Nalli, Vice-Chairman. Today, Nalli's business focus has broadened, to include manufacturing and export of fabrics, apparel and home furnishings and a very strong on-line and digital presence. Nalli has also forayed into Jewellery and women's ethnic wear sector as well. This resilience emerged from a very sound strategy of growth and consolidation that has marked all dimensions of this family ever since its origin.
According to Dr. Chetti, a Padam Shri awardee, the primary anchor for Nalli is the value system comprising of the Gandhian-like principles on customer orientation-quality, trust, commitment, frugality, and delivery. This manner of doing business has been central to the Nalli code and is the primary reason for the business to have achieved what it has, according to its Chairman. The business expanded with Dr Chetti's son opening additional stores across India while maintain the original set-up intact and flourishing. Similarly, Lavanya, a Harvard-educated, former McKinsey and Myntra employee who returned to her family business, extended her father's business both geographically and format-wise by stepping into the on-line arena. Today, she works smoothly alongside her father and grandfather, and her brother has also joined in.
With 34 stores, Rs 700 crore revenue, and a thriving online business, the Nalli group is moving from strength to strength. In fact, Dr. Chetti is thoroughly convinced that their online business being led by Lavanya will become much larger than the store business! The family has also tweaked its succession tradition by allowing for girls to join family business, the first time this has happened in five generations. The model here is expansion without replacement. The landscape changes externally, but the values remain. In the Nalli case, the succession works with the next generation doing well with expansion, being better educated than their forbears, and at the same time, doing better business without disturbing the existing business assets.
C&S Electric: resilience through coalition
C&S electric is a Rs 1,300 crore power and controls company which is a leading manufacturer and exporter of switchgears and is one of the top four players in its category in India. Started in 1967 by two brothers Ravi Khanna and Ashok Khanna, it is now run by their sons Rishi (son of Ravi), and, Aditya and Anuj (sons of Ashok). The cousins joined the business in 1998 when the revenue was Rs 100 crore and have since helped this grow to more than thirteen times. In this case too, the second generation was educated abroad and returned to family business after imbibing global trends and practices.
The transition to the next generation occurred in 2009 with the founding brothers moving to board roles and the active operations taken over by the cousins. In the interim, Anuj's brother, Aditya had also joined in and the trio started calling themselves 'ADRIAN', an epigrammatic appellation taken from the first two letters of the names of the trio of cousins. Here, the transition was based on a clear communication between the two generational representatives relating to the growth and well-being of the company. The three cousins were able to present a viable and vibrant working-together and business growth direction model along with a clearly contoured functional responsibility allocation amongst themselves while doing so. This gave enough confidence to the founding generation about the fruits of their labours and their dreams and visions being well taken care and made their letting-go easy and smooth. The ensuing performance levels have been remarkable. In fact, the growth and expansion of the company post the passing of the baton have hugely vindicated the trust of the founders in this succession decision.
Today, ADRIAN is the primary platform for deciding major issues internally. Responsibilities are clearly allocated. The business has leaped magnitudes, and the cousins, now four in number with Rishi's sister also being a passive owner, are working together quite well. The underlying robustness of the business is also due to the transparency and cooperative working together of these cousins. From emoluments to benefits to expenses, the thorough, above-board, fiscal governance and unambiguity is not only a given, it is a pre-condition to best practices among the ADRIAN members. The great learning here is that succession will feed resiliency if there is understanding and clarity among the two generations and between the same generation too. The 2nd generation at C&S has brought in increased professionalism and buttressed the basic organizational superstructure to reflect globalization and technological advancements in ways of doing business.
Resilience is a key for survival and growth in businesses run by families. Always, mutual understanding, mutual respect, and the ability to continue creating and delivering customer value are enduring and inalienable resiliency determinants. This needs constant and proactive instilling in family members and professionals. According to Rishi Khanna, one of the three MDs at C&S Electric, "I always ask myself: Are we for the business or is the business there for us? The answer is ever the same--We are here for our business." This attitude, clearly, wins.
The mantra for creating and sustaining resiliency, therefore, comprises of five key factors:
" Capability: demonstration of capability takes time-years and years. Use this.
" Accretion: grow, add to the business. Do not replace the core.
" Accountability: the benefits accrue to all, but failure will not win if accountability reigns
" Transparency: partners have to be fair AND transparent, especially on emoluments
" Accommodation: being flexible in meeting diverse needs always helps
In any setup, succession is difficult because it means letting ago. If all involved parties can come together and establish a continuity in terms of respect for elders, remove the fear of the unknown for the future, establish clear business goals and directions, resiliency will triumph-across generations and time.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.