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Towards Professionalizing Family Business

Need for outside advisor increases to take the business on ‘auto-run’ mode. Formal education and continuous learning of business and family expectations by the upcoming generation becomes pivotal.

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Family business, the most substantial and dynamic form of business, is considered as the growth engine of global economy due to its important contribution to the GDP, community development, financial indicators and job creation. One can observe family businesses ranging from mom-pop shops to fortune 500 conglomerates, from the oldest businesses to the largest ones controlled and managed by families, from one generation old to 42 generations old. Family business is known for care and concern for its stakeholders, especially the employees. However, family business is considered to be the most complex organization across the globe.

Ownership and leadership succession, sustenance across generations, governance, talent pooling and retention are some of its key challenges. Various researches reveal that only 4% family businesses survive beyond 3rd generation. As the family size changes due to marriages and kids, the business moves from one generation to next generation, complexity in relations increase and it adversely affects performance and longevity of the business. Professionalizing business is one of the important ways to protect the family and business from such turbulence. Here professionalizing family business is not always changing from family management of business to non-family management (by professionals).

The first step of professionalizing family business is to imbibe separate identity concept i.e. to understand and accept that business and family, both have different objectives. A family is developed based on social system and the business fundamentals are based on capital system. In family, everyone is treated equally; emotions and expectations play vital role, while in business, performance evaluation and return on investment are crucial. In a business, one must act in the best interest of the stakeholders and should not get influenced by personal wants and goals. A business is considered professional when it has individuals striving to achieve high internal standards of performance and ethics. Firms should not develop two class of employee i.e. family (always favor, high salary and position) and non-family; but develop common standards for performance measurements for all employees (no nepotism).

A business firm can achieve these standards by developing proper organizational culture and stewardship. Professional culture can be nurtured through the efforts of leaders and through formal and proper roles and responsibilities setting, policy for promotion, employee performance measurement, and rational bases for career growth. Firm should have clear purpose and well-defined objectives. The purpose of working together and the policies and processes for decision making should be clear in the minds of family members.  

Leader must takes the decision on the basis of their value system and encourage others to do the same. Leader must imbibe the qualities of a steward instead of bring owner and should encourage high levels of performance and ethics in business. Such protective environment increases professionalism in business. Leader should strengthen family discipline and commitment towards the business, which is the foundation of professionalizing business. It was found in research that when family interest is more dominating, business can’t grow and sustain in long run.  Instead, business leader should develop feeling of ownership among the non-family employees and provide them better career growth, empower and involve them in decision making and recognize & reward their contribution. This becomes the ‘journey from family business to business family’ and acts as the foundation for professionalizing business. In India, Tata is one of the examples working on such code of conduct. Tata believes that business competes on its talent and family members in business must be ethical and honest in their role. Tata considers community as a partner of their business. Employees understand the values of the family and business keeping them in view while taking decisions. The professionalization of business can be built on the foundation of ethical dimension and performance dimension. The family leader and employees must exemplify the core values of the business and the ethical standards. Such employees are business drivers who lead and be the owner of their work.

Once a business is transferred from entrepreneurship stage into the threshold phase, the emphasis shifts to management and focus becomes long term growth from survival. Need for outside advisor increases to take the business on ‘auto-run’ mode. Formal education and continuous learning of business and family expectations by the upcoming generation becomes pivotal.

Thus, family business can be professionalized by well-defined objectives, well-laid policies and processes, appropriate organizational culture and to top it all, ethics and faithfulness.

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.

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family business

Hitesh Shukla

Hitesh Shukla is a professor in the Department of Business Management, Saurashtra University, Rajkot

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