Tricks to ensure the next generation becomes capable to take over the family business

This article was first published by the Economic Times, on November 15, 2022, Co-Authors: Sougata Ray, Navneet Bhatnagar

https://economictimes.indiatimes.com/news/company/corporate-trends/the-tricks-to-ensure-the-next-generation-become-capable-to-take-over-the-family-business/articleshow/95529582.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Leadership succession is a critical transition for family-controlled businesses. Successor selection is a crucial decision that determines the future strategic direction of both the business and promoter family. In practice, family businesses often do not realize the need and importance to plan for succession. Some that do recognize it, continue to postpone that decision. This happens primarily due to three reasons. First, often the incumbent leaders are engrossed in operational aspects of the business and do not feel an urgent need to plan for succession. Another reason, especially with large promoter families, is that the complexity of family dynamics and tangled interface with the business, render succession, a tough decision to make. Third, and most critical, is the lack of preparedness of the next generation leadership, which makes the incumbent leader hesitant to pass on the baton. This is often reflected in our interactions with senior generation participants of our executive education programmes for family business leaders. Senior family business leaders express their reluctance to transfer leadership charge as they lack confidence in the capabilities of their next generation members.

It is important to note that succession is not an event but a process which needs to be planned for years in advance. Promoters of a few large family businesses in India have experimented with non-family successors. However, successor choice for most family firms is often restricted to the family talent pool, which is limited to the family size. While non-family businesses can quickly replace a non-performing leader, for a family business this is not so easy because of kinship ties and lack of alternatives. For a next-generation family business successor, failure costs the survival of both the business and family. Hence, given the high cost of a failure, an incumbent family business leader must not only plan early for succession but also take effective measures to groom the next generation members. This is the biggest succession challenge family businesses face today.

Next generation leadership building takes time and careful planning. It requires diligent cultivation of mentee-mentor relationship between the senior and younger generation leaders. Our research studied 19 successful cases of inter-generational leadership transitions since 2004 in large Indian family businesses. We traced these transformational journeys to identify crucial leadership building measures adopted by these family businesses. The study found that these next generation members followed a systematic development pathway, which equipped them for the leadership role. These leaders were exposed to the family business and its operational challenges at an early age. After their graduation, they joined the family business at middle management level. They gained experience in business operations and developed an understanding of ground-level challenges. They also learnt manpower management and interpersonal skills. In the subsequent phase, they went to world-class institutions to obtain a business management degree, which equipped them with knowledge of strategic frameworks and leadership capabilities.

A critical part of this journey was the work experience they gained in large international organisations after obtaining their business degrees. Working outside the comfort-zone of their family business made these next-gen members independent business decision-makers. It built their leadership strength as they had to prove their capabilities and bear the consequences of their decisions. After 2-3 years of working outside, they joined the family business at senior leadership level. During this phase, they worked closely with family and non-family mentors. They understood the strategic and leadership challenges of the business. They became effective change agents, improved legacy systems and practices, and led their business to the next level of growth. Proving their leadership mantle within and outside the family business, with diverse work experience in India and abroad, these next-gen members earned respect and acceptance from internal and external stakeholders. In a span of 5-8 years, they took complete leadership charge. The senior generation leader stepped out of the executive role and continued to provide strategic guidance.

For succession to be effective the next-gen members must have the ability and willingness to take on leadership responsibility. This can only happen when they are equipped with a wide range of knowledge, experiences and capabilities. Structured training and outside work experience play a very important role in leadership development. Business families that plan early and take timely measures to groom their next-gen members, can implement effective intergenerational leadership succession. 

Why the Rs 4.6 lakh crore pledged promoter shares matter for India Inc.,?

This article was first published in the Financial Express, on November 14, 2022, Co-author: Sougata Ray; https://www.financialexpress.com/industry/pledged-shares-valued-at-rs-4-6-trillion-the-good-and-the-bad/2812080/

Gautam Adani, hailed as the richest Asian and the third richest person in the world in October 2022, acquired 63.15% stake in Ambuja Cements and 56.69% in ACC in September 2022. Part of the acquisition was funded through pledging the entire acquired stake in both the companies, worth $13 billion. It once again highlights the popularity and importance of pledging as a financing tool for the Indian family business owners who usually have the dominant or controlling stakes in the companies.

Pledging at a varied degree is quite widely prevalent around the world. However, in countries where diversified ownership is more common, such as the United States, pledging is generally done by owners, directors, and executives to hedge and diversify their personal wealth or to meet personal needs. However, in India, pledging by family promoters often serves as a mechanism to generate financial capital for the firm or other affiliate firms belonging to the same business group. 

Promoters of almost a quarter of all companies listed on the National Stock Exchange (NSE) of India have pledged their shares to some degree. The average being a staggering 44 percent of the holdings of promoters in these companies. In the last quarter of financial year 2022 (January-March 2022), the value of shares pledged by promoters of NSE listed companies stood at Rs 4.6 Trillion. In a country like India, where more than 90% of the listed firms are family firms and concentrated shareholding is the norm, the exposure of investors and financial institutions to pledging can result in a systemic risk. It may not be so in many other countries where diversified firm is more of a norm when compared to concentrated ownership.

During the last couple of years, there have been many instances where promoters have lost ownership control in well-known large family firms. Of course, this outcome happened due to a combination of over-ambitious or bad decisions. But in many of them, the promoters had pledged their shares to financial institutions and when the share prices started to fall, the institutions sold the pledged shares in the open market. This resulted in the promoters losing ownership in their family firms. The situation was exacerbated due to the pandemic when the share prices of most companies took a hit. 

Just like the mark-to-market concept in the case of financial derivatives, when the share prices fall and the asset cover falls below a predetermined value, the financial institution raises a margin call to the pledging shareholder. Consequently, the shareholder is required to either top-up the loan with more shares or pay off a portion of the loan’s principal to increase the existing asset cover back to the pre-determined value. If the shareholder answers the margin call in the stipulated time, they will continue to own the shares. If the shareholder is unable to answer the margin call, the financial institution has the right to sell the shares in the market. The news of a margin call is generally perceived negatively by investors and the sale of a block of shares of a company in the open market accentuates the negative sentiment associated with the stock. Investors may indulge in panic selling of the stock. The increased supply of shares puts downward pressure on the stock price, thereby warranting further sale of shares by the lending financial institutions. 

In research conducted by the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, the authors found increased crash risk, lower return on assets, increase risk aversion, and negative investor reaction to the news of pledging. We observe that the potential loss of ownership control faced by many firms that have pledged their shares is overwhelming and would have significant impact on the promoting families and the other stakeholders of those companies if the promoters were to lose the pledged shares due to an unforeseen circumstance.

However, we also find many instances of family business promoters that have effectively used pledging as a tool to finance strategic initiatives for expansion, new venture creation, acquisition, etc., and to buy back shares in their own firms. Such promoters have not only used pledging for growth, liquidity, market performance, and ownership consolidation, but also reduced pledging thereafter in a systematic way. Examples include firms such as Asian Paints, Apollo Hospitals, and Granules India. Therefore, pledging per se is not bad – it is a legitimate, legal, and effective tool to raise funds by the promoters. When access to capital is limited either due to tight liquidity in the overall economy or stretched bank limits and high debt-equity ratio of the firm, the environment may not be conducive to raise equity or the promoters may not want to dilute their stake, in all these situations, pledging comes in handy.

Pledging has been around for decades in India. However, its impact has become more accentuated now due to the VUCA world that we live in. Awareness about its possible negative consequences has also gone up. It is amply clear that the promoters need to be prudent and strategic in using pledging as a financing tool. A decision to pledge must be associated with a clear plan for usage of funds, returns from them, and a path to de-pledge the shares. The promoters should avoid getting into a trap of excessive pledging, being overconfident about the prospects of the firm and under preparing and underestimating the external risks. The family business leaders taking the decision to pledge the shares must consult the family members and keep them updated. The funds from pledging should be used responsibly, with immense accountability and transparency. The Board and particularly the independent directors have an important role to play in this regard. Timely disclosures and effective communication will help calm the nerves of the other investors. Financial institutions should closely monitor the pledging situation in a firm, as well as that of the companies affiliated with the same business group, when deciding to buy, hold or sell their investments in a firm.

Resetting of Conscience, Priorities, and Emotions

Book: To Hell and Back: Humans of COVID

Author: Barkha Dutt

Price: 699/-

Pages: 288

Year: 2022

Publisher: Juggernaut Books, India

Usually, I have a wisecrack to crack on every occasion. Today, I have none. Even my posts post getting Covid in the second wave in May 2021, were full of humour [Post 1 Post 2]. I was able to laugh at myself. Not today. My pain, my experiences, seem too small today.

Sometime in April 2022, I ordered and got Barkha Dutt’s book, To Hell and Back: Humans of COVID. I was reluctant to start reading it, even though I wanted to. I didn’t want to refresh the memories of what I went through. But finally, I did start reading it last week [3^rd week of July, 2022].

There were a lot of things I reminisced while reading the book. Like wondering, during the period that I was hospitalized, that how would someone who doesn’t know someone get a bed like I had? What if the oxygen supply ran out? What if I was taken to the hospital a couple of hours later? And many such questions.

During that period, I knew of a junior, who had a two-year-old kid, not reaching the hospital on time, and then not even getting a proper funeral. I knew of an uncle who was brilliant and taught me accounts but did not get the right treatment. My thoughts lingered on an aunt who was never diagnosed with Covid but had all the symptoms and passed away soon after. I remember questioning that why did I deserve to live when they could not be saved?

Post Covid, suffering from Long Covid- chronic insomnia, anxiety, hair loss, pain in the bones, palpitations- I constantly battled my symptoms and tried to be normal and move on. Barkha Dutt describes my conversation with her on the Mojo Story on page 255 of her book. She calls me Nutan Banga. When I started reading the book, I realized that I had really moved on.

Barkha Dutt’s book is a solemn reminder of what the pandemic was and gives us a view that none of us could have had individually. The experience of a migrant labourer was very different from the experiences of a cow herder from that of a funeral service provider, to a doctor, and to a well-connected upper-class person, like she herself is. The inequalities that she has presented in her book, even in the way one faced death, are unimaginable to people like us who live in urban bubbles, disconnected from the grassroots, disconnected from our roots, and disconnected from how people outside such bubbles live.

I went to Kundli once and enjoyed the Murthal parathas with white butter and daal makhana. But did I know about the toxic yellow water that the people of this village got? No. The water that caused serious skin diseases, how would they drink that water when even buying drinking water became difficult? 

Or consider the corpses of 20 tribal migrant workers who were so exhausted from all the walking that they went to sleep on the railway tracks where “they thought they would not be noticed or disturbed by the police. A goods train ran over them an hour later.” [Pg38] A chill went up my spine.

Most of us were helpless in the case of covid deaths to a large extent. Whether it was the availability of beds in the hospitals, medicines, oxygen, testing, what could most of us do? How could I help the migrants or those who lost their jobs? Sonu Sood did it. Many others did. But let’s just say that I am a more ordinary person. At least it was a good excuse to console myself. But I could not stop my tears for a long time when I read about Aishwarya.

The girl from Shadnagar, 50kms from Hyderabad, Aishwarya, committed suicide. She committed suicide because her parents could not afford to buy her a laptop or a smart phone to continue her education. “If I can’t study, I can’t live”, she wrote in her suicide note [pg 233-234]. Probably because of the geographical proximity, probably because she got an admission at the Lady Shri Ram College despite the poverty and circumstances, probably because I feel strongly for the cause of girl education, my tears would just not stop. Could I have helped if I knew what she was going through? Would I have helped? The fact is that I did nothing. Not for her. Not for anyone.

I would gladly give away all my hair if I could save Aishwarya.

The pandemic was sudden, but not improbable. Bill Gates warned against “the next outbreak” in 2014. National Geographic warned of how deforestation was causing bats to have “no other option than to fly elsewhere in search of food, carrying with them a deadly disease” in a 2019 article. But the world at large was not prepared for the Covid19. Some events need to be prepared for due to the severity of their impact. The governments must build their Afsluitdijks to prepare for such events. The quantum of impact, the number of people impacted, the physical, emotional, economic, and societal disruption is of catastrophic scale. Life cannot go back to normal.

To understand the severity of the catastrophe that Covid19 unleashed on humanity, each one of us should read the book. It will make us realise that there is life beyond our bubbles. While everyone’s sorrow and difficulties are exactly that- sorrows and difficulties- and thus, cannot be undermined, different situations have very different impact on the different strata of society. And in some cases, survival itself becomes a challenge.

Some books move you. Leave an indelible mark on you. And this is one such book. I am not going to comment on the writing style, what the government did or did not do, the organization of the chapters, etc. Sometimes, the message is far too important, the story is so powerful and compelling that how it is delivered doesn’t matter.

I cried many a times while reading the book, choked many times, sometimes just happy to be alive, while at the other times questioning why I was alive? What was I doing? And what am I going to do now? These questions are haunting me. Something in me changed after Covid. Something in me has changed again after reading this book.

Efficiency is the name of the game

This book review was first published in the Financial Express on June 27, 2022, https://www.financialexpress.com/lifestyle/book-review-the-ambuja-story-how-a-group-of-ordinary-men-created-an-extraordinary-company-by-narotam-sekhsaria/2573658/

Book: The Ambuja Story: How a Group of Ordinary Men Created an Extraordinary Company

Author: Narotam Sekhsaria

Price: 699/-

Pages: 368

Year: 2022

Publisher: Harper Business, India

Once upon a time, there was a boy, named Narotam. He was born in a Marwari family in Chirawa, Rajasthan. His family took him to Bombay (now Mumbai) when he was three. There, he was adopted by his grandfather’s younger brother who did not have a son of his own. This practice was a way to ensure the continuity of lineage in a patrilineal society. Destiny had plans for him. This is his story and the story of the company that he built.

Ordinary is relative

Narotam and his family were ordinary. Ordinary compared to the Bajaj’s who were their neighbors. But living in the same building as the Bajajs, who owned and managed one of the biggest business houses in the country then and now, cannot be ordinary for sure. Similarly, Narotam had an ordinary upbringing. A boy next door. He struggled at school yet finished at the top of the class. Was aimless and non-ambitious yet went on to study at some of the top colleges in Bombay.

Joining the civil services or getting a job in a bank or a multinational company was the dream career for those joining the workforce in the India of 1960s and 1970s. Not so for a lad growing up in a Marwari household. Working for someone else was unthinkable. So, he joined his family’s typical cotton trading business. He proved his mettle in various ways. Whether it was getting orders from Finlay, having the foresight to buy extra for his customer when prices started to rise and the customer was holidaying, being fair even when he could have made much more money, and making, maintaining, and tapping into social networks, were at display in the way he functioned.

Nothing that he did was extraordinary. Just ordinary things done well to achieve extraordinary results.

Bigger shores beckoned

Narotam’s “dil” wanted more. Forty years back, entrepreneurship was not a buzz word. Nor was ease of doing business. The Ambuja Story is not the usual start-up story that we are used to reading in the twenty first century.

Narotam grew up in a family of traders. The DNA needed to manufacture is very different from that for trading. After spending a decade being a trader himself, to set up a manufacturing unit for a commodity product about which he knew nothing, could not have been easy. And it was not.

The book brings out the vulnerabilities and the many uncertainties faced by the founder. It also shows how he adapted at each step of the way. He recruited the best, treated them with respect, and retained them. Did not compromise on quality of the plant, even though he placed his trust in newcomers, rather than well established players. Financial management, credit policy, and high ethical standards were all consciously made a part of setting up Ambuja. While there are many learnings from the story, the three that I would like to highlight here are efficiency, innovation, and brand building.

Efficiency: Cement is a commodity. There is little scope to differentiate the product itself. But there is ample scope to differentiate on efficiency. Efficiency in processes, tweaking the plants to enhance productivity, dust management systems, and each person doing their job well, are just a few examples. The company has efficiency written all over it.

Innovation: Innovation does not mean usage of artificial intelligence and machine learning to solve problems with digital solutions only. Innovating, doing things differently, to achieve better or cost-efficient solutions such as transporting cement through sea when no one else was doing it in India, and making small changes to the plants to achieve big impact, played a big role in making Ambuja profitable from the very beginning.

Branding: In a product where it was difficult to charge a premium, the investment in brand building from the very beginning, like it was a consumer product, helped Ambuja establish itself even in the presence of existing giants. Ambuja kept building and improvising on its branding as they grew. The results were all too visible.

Values and responsibility

Being born in a Marwari family, I have often heard about and witnessed philanthropy without anyone knowing about it. Left hand should not know if the right hand is giving. Such beliefs leave an indelible mark on everyone around. It was no different for Narotam. He writes of how the values and spirituality kept him “calm and centred even in the most turbulent of times. The values of ethics and compassion that he [his father] taught me steered me in everything that I did in my career” (Pg. 134). The Ambuja Cement Foundation has been way ahead of its times in adopting impactful corporate social responsibility projects and transforming the lives of communities around which they operate and going beyond those communities.

Resilience

An entrepreneur starts when he spots an opportunity. But the time at which he/she should exit is also important. Exit does not only mean selling the business. It could also mean redefining the role of the founder to ensure continuity beyond him/her. The confidence that the company would survive beyond the founder is what makes them long-lasting. Even without planning for it, Narotam had built a company that did not need him on a day-to-day basis when he had cancer.

Conclusion

There are many books on industrialists and entrepreneurs. Not many of them go into so much detailing regarding the thought process on each aspect of setting up and running of the business. This book is focused on the building of Ambuja, easy to read, comprehensive, and depicts the trials, turbulations, and triumphs at each step.

Shareholder capitalism to stakeholder capitalism: Are Indian family firms prepared?

This article was first published in moneycontrol.com, April 18, 2022, Co-authors: Sougata Ray & Navneet Bhatnagar; https://www.moneycontrol.com/news/business/shareholder-capitalism-to-stakeholder-capitalism-are-indian-family-firms-prepared-8371801.html

The debate whether companies should be governed with the sole objective of maximising shareholder value (shareholder capitalism as reflected in the shareholder primacy model advocated by Prof. Milton Friedman) or balancing the interests of multiple stakeholders (stakeholder capitalism as reflected in stakeholder primacy model advocated by Prof. R. Edward Freeman), including shareholders, has been raging for several decades.

Climate disasters, rapidly rising inequalities and COVID-19 have perhaps put to rest the shareholder vs. stakeholder primacy debate and tilted the balance firmly in favour of the latter. Modern corporations, irrespective of ownership, have an obligation to act in the interests of multiple constituents -- viz., ecology, environment, society, and shareholders.

It has been argued in literature, with some empirical validation across country contexts, that family firms are generally more influenced by the ideals of stakeholder capitalism and less by the idea of shareholder capitalism.

Anecdotal evidence in India suggests so. Many times in the past, when there has been the need, family firms in India have risen to the occasion and swiftly aided government and people, be it during the Independence movement, wars, floods, famine or pandemics.

How family firms fare

To measure how family firms fare with various stakeholders, we analysed them on various parameters and found interesting results.

Using a sample of over 6,000 firms, over the last 30 years, we found that family firms underperformed non-family firms in terms of return on assets. This indicates that family firms are, in fact, not very focused on returns. This is congruent with the socio-emotional wealth theory of family firms which suggests that they, at times, compromise on economic gains for non-economic goals of the family. This may not be something non-family shareholders want.

Pledging of shares by family owners is an example. Here, the goals of the family and non-family shareholders may deviate. Pledging of shares enables the family to raise funds against shares as collateral. The funds can be used for the same firm whose shares are pledged or for personal use. This results in a limited downside risk for family shareholders as they have already got the funds, but the minority shareholders risk losing a significant amount of their investments, if margin calls are not met.

Such situations are detrimental to minority shareholders. The behaviour of the dominant shareholders may lead to loss of wealth for other shareholders, and ultimately loss of wealth and control of the firm for dominant shareholders, too.

In the recent past, there has been a significant loss of wealth for all shareholders due to the misguided ambitions and decisions, clubbed with the pledging of shares, by promoters of family firms.

Low scores on social, environment fronts

It is, therefore, not surprising that the governance scores of family firms in the ESG (Environment, Social and Governance) rating, as per Reuters and Sustainalytics data, were found to be lower than those of other firms.

Family firms were also found to have relatively low scores on environment and social categories as well as consolidated ESG parameters. The low social score is somewhat puzzling as family firms in India are known to care for the community in which they operate.

In fact, among a larger sample of firms from a different database, we observed that the CSR spends of family firms are higher than those of non-family firms, suggesting that family firms are more compliant to CSR regulations.

It is important to note that the debate around primacy to shareholders vs stakeholders is not about the reaction of corporations to exigencies or CSR spends. It is not the primacy of other stakeholders over shareholders, but about achieving balance on sustainability principles.

It is not about one heroic act catching media attention, but their every action, every day. It is also not about one bottom line – profit. It is about the triple bottom line – people, planet, profit -- and generating and sharing value for all constituents in a fair and equitable manner.

It is about being purposive without losing focus on profit in day-to-day activities. Therefore, to be a multi-stakeholder-friendly and sustainable organisation, family firms need to adopt the principles of triple bottom line and make ESG their strategic ally. It is no longer an option. It is needed for the long-term sustainability of the firms as well as the business families in order to create and pass on the wealth to the next generation and build and sustain the family legacy.

The authors are from the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business.

Family Firms in India: Performance and Relevance

This article was first published in moneycontrol.com, April 05, 2022, Co-authors: Sougata Ray & Navneet Bhatnagar; https://www.moneycontrol.com/news/business/family-firms-in-india-performance-and-relevance-8320491.html/amp?ajaxcall=yes

Concentrated ownership of a firm in the hands of a family presents unique opportunities and challenges that impact its performance.

In India, family firms are a dominant force in the economy, contributing significantly to nation-building, the exchequer, creation of jobs and asset creation. Their footprints on the Indian economy are indelible. It is imperative for family firms to perform well, grow profitably, create value and contribute to economic progress if India has to realise its full potential.

Researchers have argued that family firms have better monitoring and lower agency costs than non-family firms, have incentives to take long-term views of maximising firm value, and are value-driven organisations. Yet, many of them are found to be plagued by rent-seeking behaviour, succession issues, lack of transparency and governance, lack of professionalisation, and family conflicts. Understandably, therefore, there is mixed evidence globally on whether family firms perform better than non-family firms.

Using a unique proprietary database of scientifically classified listed family and non-family firms, the team at the Thomas Schmidheiny Centre for Family Enterprise conducted a study on all listed firms in India over the past three decades. The analyses overwhelmingly reveal that on an average, family firms underperform non-family firms.

What are the reasons? Lapses in overall strategic planning by family firms, conflicting intrinsic motivations of family members, lack of professionalisation and governance, and opposing utility functions of management (non-family professionals) and the promoting family could be responsible. Many a time, maintaining control and influence over the firm also pushes the family to take decisions independent of financial considerations. These idiosyncratic strategies and irrational choices, mainly due to the emotional ties that the family has with the firm, may overpower the advantages of being a family firm. The analysis also reveals a negative impact of family leadership on performance among family firms.

While the average trend is negative, there are family firms across industries that have performed exceedingly well. They have withstood the licence raj as well as the winds of change that swept the nation during the economic liberalisation in 1991. There had been widespread apprehensions about the capabilities of family businesses to withstand the pressure of the newly created “freedom” that made them vulnerable to competition for resources, markets and capital. However, many family businesses transformed themselves by taking stock, restructuring their operations, taking advantage of new opportunities, putting the right governance systems in place, and professionalising.

There is much to learn from these businesses.

90% of the listed world 

Despite the underperformance of family firms on an average, their dominance in India continues. Ninety-one percent of all listed firms in India are family firms. Large family firms and business groups have consolidated their positions even more in recent years. As these business families and the firms owned by them are firmly embedded in the society and institutional context and develop patterns of trust and confidence among stakeholders, they have better access to social and financial capital and are willing to embark on enterprises involving considerable risk with a reasonable chance of success. This reinforces the continued cultural, political and social importance of family firms in India, which is not going to diminish any time soon.

However, a vast majority of family firms in India does not possess these constructive characteristics exhibited by the more successful ones. These underperforming family firms must be open to learning from the select others who have been performing well, put in place family as well as business governance systems, professionalise as they grow, delegate management and operating responsibilities to the right persons outside the family, and change with time to adapt and modernise. They need to be made aware of the enormous opportunities and be nudged to overcome their challenges building on their inherent strengths.

Policymakers must be open to framing targeted interventions that are required to create favourable conditions for improving the performance of family firms. Given the importance and significance of family firms in an economy like India, more family firms across industries have to undergo a transformation and start pulling their punches to make India Aatmanirbhar.

Family firms: Preordained to be governed by passion and purpose

This article was first published in moneycontrol.com, March 29, 2022, Co-authors: Sougata Ray & Navneet Bhatnagar; https://www.moneycontrol.com/news/business/family-firms-preordained-to-be-governed-by-passion-and-purpose-8283921.html 

In the face of the challenge posed by phenomena such as global warming, climate change, poverty and inequality, and rapid depletion of natural resources, calls have grown louder for putting stakeholder capitalism over shareholder capitalism that has been practiced by companies for ages.

Social and political unrest in many countries, increased frequency of natural disasters, and finally the COVID-19 pandemic have laid bare the fault lines on which the global economic order rests and vulnerabilities of modern societies.

These developments reinforce the urgent need for companies to widen their canvas of responsibility, do more good, and do good for more constituents by embracing the sustainable development goals (SDGs) of the United Nations.

Corporations and family businesses in India, and elsewhere, have little choice but to shift their focus from only increasing profit to balancing profit with increasing net positive impact on the Environment, Society, and Governance (ESG), marrying profit with purpose.

Corporate governance under shareholder capitalism has traditionally been mandated and designed for maximizing shareholders’ wealth and minimizing agency costs.

Empathy, sensitivity, perseverance and adaptability have, however, emerged in recent years as key traits that board members individually and the board collectively must possess to govern a company from a multi-stakeholder point of view.

Interestingly, these are called feminine traits because women across cultures are found to possess these qualities more than men. Greater presence and participation of women is more likely help a board to discharge its mandate in the new paradigm more effectively.

Reducing inequality and discrimination has also been one of the most formidable social challenges, of which gender is the most pervasive one. Greater gender inclusivity and diversity in every level of corporate hierarchy is going to be a source of competitive advantage for some time before it becomes sine qua non for modern corporations.

In her article for the inaugural issue of the Family Enterprise Quarterly, Dr. Sangita Reddy, joint managing director of Apollo Hospitals, put it eloquently: “In today’s hypercompetitive marketplace, gender diversity is good business.”

How well are family businesses in India positioned in the emerging environment?

Our research at the Thomas Schmidheiny Centre for Family Enterprise, ISB, reveals that family businesses listed on the National Stock Exchange of India showed a greater propensity to comply with the mandate of the Companies Act, 2013, that certain public companies must appoint at least one woman-director on their boards. This demonstrates the resolve of family-run companies to embrace and adapt to changing regulatory requirements.

The identity and image of the family is closely tied to the functioning of the family business. We observe that family firms in India, on average, have a greater than 50 percent stake in their firms, making them personally invested in the reputation of the business, its longevity, and image as a socially responsible, sustainable contributor to society. The ownership control enables them to influence decisions and reorient the board-level discourse towards better outcomes for all stakeholders.

Our research also shows that women directors in family firms are mostly executives. And a family member is at the helm of affairs at more than 90 percent of such firms. The combined effect of these two factors provides business families the management control to implement required changes at the strategy and operational level to adopt ESG-friendly practices.

Demographic changes in business families and at the societal level in India, in recent years, have nudged many family-run companies to adapt, discard primogeniture, promote gender equality and evolve with time to be a responsible corporation.

The enterprising one have defied “from shirtsleeves to shirtsleeves in three generations” while the others have fallen to the adage. It is time more family firms understand that what is good for the society is good for business, and, therefore, good for them too!

Firms founded by enterprising business families are preordained and wired to be long-term-oriented, driven by values, and led by passion and purpose. In an era dominated by shareholder capitalism, family firms, being more patient and not driven by quarter-on-quarter results, were significantly disadvantaged compared to other companies barring state-owned enterprises.

As the world of business swings towards stakeholder capitalism by incorporating an ESG framework, family businesses in India and elsewhere have the opportunity to leverage corporate governance as a competitive advantage. It is time for them to recognize this and seize the momentous opportunity.

Give Her Wings to Fly

This article was first published in the Times of India, March 08, 2022

Men are from Mars. Women are from Venus. There is no denying the differences.

There are obvious differences in size and anatomy. They did matter when it was required that people went hunting to provide food for their families. It also mattered, and still matters, when hard labour or physical strength was/is required. But does the physical strength matter so much when most of the work is automated, digitized, and brain power has become more important than muscle power in most of the industries?

Psychological differences also exist. Research has consistently shown that women are more emotional, sensitive, anxious, and friendlier. Men are more assertive and open to new ideas. This has been found to be true across cultures, indicating that the difference is biological rather than cultural.

There have been women who transcended all biases, disadvantages, and segued into territories reserved for men. This article is about the norm. The norm is that the Gender Inequality Index shows vast inequality between men and women. That many governments and organizations such as the UN are taking steps to bring about gender equality. As a result, we have come far from where we were a few decades ago. Yet, we are far from equality. Change is happening. It’s just not happening at the speed we want it to. Why?

Mindset: We have come a long way from the days when most girls did not go to school and formal school education for girls was a rarity rather than a norm. The male-female literacy gap has consistently reduced from a peak of 26.62 per cent in 1981 to 16.68 per cent in 2011. The Census 2021 data is awaited but this gap is expected to have reduced further due to the enactment of the Right to Education Act in 2009, ongoing efforts for hygiene, separate toilets for girls, and slowly yet steadily changing cultural and societal norms. A good education is the steppingstone to a good career. It gives one the foundation to think creatively and the confidence to charge ahead.

Consequently, women are charging ahead. Though, the gap remains huge. Many corporations are now starting to recognize the gap, acknowledge it, talk about it, and pledge to narrow it. For example, HDFC Bank published data on representation of women at different levels of management in their annual report and set a target for improvement.

All the above are welcome improvements. But there are biases that keep many girls from pursuing an aggressive career. Statements such as, “your place is at home”, “you must come back home by 7pm”, “you must not travel”, impede growth at work and prevent women from utilising their full potential. These are not things people would say to a man.

It is time the society realises that women are not a subset of men. They are their own identities and have their own aspirations. Don’t weigh us down by biases, expectations, and preconceived notions of what is appropriate for us to do.

Mental Load: It is a known fact that women take on greater burden of household chores. Increasing levels of education, awareness, and changing demography has also resulted in larger percent of women in managerial and senior management roles. The gradual shift in mindset has made households more open to seeking external help for chores, outsourcing day care of children, and technology is aiding in reducing time taken to do many chores. Though none of this can be generalized, there is certainly a positive shift in general.

Yet, the percent of women that reach the top management teams in organizations remains dismal. Why? Even though many of us manage to keep afloat when at relatively junior levels in the organization, at senior levels of management, it becomes difficult to balance the requirements of the job along with the expectations at home. Our hands are freer. Our minds remain cluttered. Our load has changed its form, like energy. We may not be doing a lot of work on our own, but we need to get it done. At senior management levels also, most of the work entails getting work done, guiding, and crisis management. Women do that at work, and also at home.

The challenge is that it is difficult to explain mental load. I get asked many times, “what do you do at home? You have help for everything. What challenges?” At other times we are told to simply “ask for help”. The assumption when we are told to ask for help is that we are responsible for that task, not our partner. So, the burden of getting something done remains with the woman.

Another challenge is that we women ourselves have grown up seeing our mothers do more physical work at home, be physically present, and a “Mother India” image of being an ideal parent. This notion leaves us in a shroud of guilt for not being a “good parent”, for having fun, for not sacrificing enough, and for being ambitious. This leads us to greater anxiety, worrying, trying to compensate in different ways, and generally, unhappy.

Men: I asked a few male friends to read Indira Nooyi’s book, “My Life in Full.” None of them said No. But to the best of my knowledge, none of them did. On the other hand, many of them did read Harsh Mariwala’s Harsh Realities. Why? This is a loaded question and points to the unconscious bias that exists in the minds of men, as well as women.

Discounting women and their achievements is the biggest disservice that men, and even women, inflict on women. When men succeed, and their career is their only job, most of the times, it is due to their skills. When women succeed, despite taking on unreasonable share of household responsibilities, it is “because” they have a supportive husband. Family support is a must to be able to work uninhibitedly, for men, as well as for women. Most husbands who help their wives at home make it sound as though they are doing a favor to their wife. They are not. The house and the household belong to the men as well and so must its responsibilities.

While many of us try and create an external support system of creches and daycares and nannies, it only helps us do a 9 to 6 job. Not beyond that.

Last Word: To bring about any meaningful change and achieve true gender equality, mindset must change at the societal as well as individual level, mental load should be acknowledged and shared, and men must equally involve in bringing about change rather than treating it as a “women’s issue”.

Educating a girl child is like giving her wings. But then not supporting her to give her best, is like not giving her the sky to fly, despite the wings.