Sticky Situations in Family Businesses

By Asavari in Starting Up 08/10/2015

Getting into family business might mean getting into dealing with sticky situations.

 

Indian culture has a lot to contribute to the way joint family businesses operate in the country. Before the concept of “multinationals” even existed, businesses are a reflection of the society. Due to that, surviving in family businesses is trickier. Not only do conflicts, petty or huge, affect the overall market standing and success of the business, they also wreak havoc on a personal level. After all, it’s the family members that one is dealing with at the end of the day.

 

A recent study by Inc.com suggested that not even 30 per cent of family businesses are able to survive the second generation and quite sadly, only 10 per cent of them are able to break it through third. In a country such as India where there are exceptional examples such as Tatas, Birlas, Singhanias and even Ambanis for that matter, the family businesses are not able to sustain beyond the fourth generation (maximum).

 

Reasons are many and vary from person to person. Many a time, the Gen Next gets scared of getting into family set ups and even if it does enter a family business, the feeling of being “stuck” pertains. Adding to this thought; let us take a look at three common sticky situations that arise in a family business and how can they be managed:

 

Business feuds affect relationships directly

 
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Here’s a small example — The great granddaughter of a really successful businessman once revealed how her family business was fractured in the 1940’s after one of her uncles fired a sibling from the business. Even though the business didn’t survive, the rift in the family remains till date.

 

There’s no way one can assure that this step will not break a business or most importantly, a relationship. However before taking this big step, it is important clearly to outline the performance expectation or KRAs. Establish a strong reporting mechanism to make sure that lack of performance results can be identified quickly and without any bias. The GMR family in India has been a pioneer and has gone a step further to ensure, which discipline remains in the family business. They have a constitutional book for the family, with the entire do’s and don’ts for member who wish to join the business. This book was first read out to the women in the family on a family retreat. They believe that “women affect the judgment” of the men and thus strategically explained the women of the house first, how and why members will be given responsibilities.

 

Family businesses in the West, operate like any other multinational. Any sign of unprofessionalism, and you have an equal chance of getting kicked out! Did you know celebrity chef Gordon Ramsay fired his own father-in-law/business partner Chris Hutcheson back in October 2010 for allegedly taking money from their business (Ramsay’s restaurant empire) to fuel extra-marital affairs? Hutcheson, then, sued Ramsay for “unfair dismissal and unpaid wages”. The family reached a settlement out of court recently.

 

It’s a relief that mostly in India, the broader societal pressures ensure that trivial matters don’t lead to family feuds.

 

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When criticism cannot be avoided
 

No one likes to be criticized, let alone a family member who is a part of the business! In short, it bites harder than between usual employees. Family businesses today are competing with multinational companies, thus no matter how important it is, one should evade making a critical remark to close member who, by the way, isn’t expecting it. To avoid engaging in an insult-slinging match over grievances, it is important to make an effort for constructive criticism.

 

One should try to put it in a more professional context. Sometimes it is a good idea to bring a non-family member into the matter for a fresh, non-bias perspective. The Burmans (Dabur) finally handed over the management of the company to a non-family member in 2002. Putting across the issues on the table in a clear manner can ease things out. One doesn’t need to be rude or offensive. A simple, polite conversation around the problem will suffice to help the other person grab the hint.

“It is wrong to keep unrealistic expectations only because they are your family members.”

Puma & Adidas 

Founded in 1924 in Germany, Adolf and Rudolf Dazzler’s Shoe Company was divided into two after tension between the brothers arose during World War II. Stating different personalities as the reason, Rudolf went on to start Puma while Adolf formally registered Adidas in the year 1949. In fact, the rivalry between the two was so strong that it divided the town of Herzogenaurach, where their factories were situated, on opposite sides of the river! 

 

Handshake agreements? No!

 

Planning for involvement of members in advance, is the best way to structure a family business. One must remember that getting a legal contract in place is not a sign of “lack of trust”. When a business breaks up between family members, value destruction also follows.

Mostly, in family owned businesses all over the world, all the members who are a part of the business don’t get involved in the operational activities. But in India, any family member having the smallest stake likes to be involved with everything.

Ambani Brothers

They are the world’s richest siblings but that didn’t stop them from disputing bitterly for years. What started in 2006 concluded four years later after they ended accords completed in January 2006 that stopped them from interfering in their business interests! While Mukesh now runs Reliance Industries, younger brother Anil leads the Anil Dhirubhai Ambani Group.

 

“Never do business with friends or family”—this is an old saying. Why? Because both the relationships involve emotions essential for anyone! When personal feelings take a negative route into business, it becomes difficult to not only run the show but also maintain relationships. Hence even if it’s an old, prosperous family business, it is important to keep matters strictly professional and draw a fine line between personal and work relationships.

 
 

Asavari
Asavri is a content specialist. Supremely ambitious and self-driven. This erudite intellectual loves her daily dose of a hot cup of tea over which she enjoys debating profound subjects like women’s right and the misogynistic attitude prevalent in India.

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