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India Knowledge@Wharton | Engaging the middle to go forward

India Knowledge@Wharton | Engaging the middle to go forward
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First Published: Mon, Jun 16 2008. 12 26 AM IST

Illustration: Malay Karmakar / Mint
Illustration: Malay Karmakar / Mint
Updated: Mon, Jun 16 2008. 12 26 AM IST
Almost every company has them. They may number six or 6,000, and they are often referred to as the “glue” that holds companies together, bridging the gap between the top management team and lower-level workers. They implement strategy and organizational changes, keeping workers engaged during both good and bad economic cycles.
Illustration: Malay Karmakar / Mint
However, middle managers can also be a challenging group of employees to develop and retain. According to a 2007 Accenture survey of middle managers around the world, 20% reported dissatisfaction with their current organization and that same percentage reported that they were looking for another job. One of the top reasons cited was lack of prospects for advancement.
“Many companies are seeing significant turnover in middle management ranks, and with significant turnover, they don’t have the ability to execute strategy,” says vice-dean of Wharton Executive Education Thomas Colligan. “Top management can spend all their time creating strategy, but without someone there to implement it, where are you at the end of the day?”
In addition to strategy implementation issues, the cost of turnover is extremely high for companies. Colligan notes that one large partnership facing a 20% turnover rate did a calculation in which it concluded that for each 1% it could reduce turnover, it would increase partner earnings by $80,000 (around Rs34 lakh). “Middle managers are very important to attract, develop and retain, and some companies are becoming painfully aware of that.”
These observations are even truer in an economy that is down. According to Joe Ryan, a lecturer in Wharton Executive Education, as companies go through economic cycles, such as the current one, middle managers get hit with the elimination of rewards and incentives and, in some cases, layoffs. This is particularly true now in the financial services industry, he says. “In cost-cutting times, knee-jerk reactions happen. There is a paradox where middle managers are essential, but end up sacked when restructuring occurs. It is a rough situation because the people needed to run the most important projects are in the middle.”
If companies don’t manage change well, they will confront a “frozen” middle management and “vicious cycles of low morale and low engagement”, Ryan says. “Regardless of the economic climate, companies need to build a resilient workforce and engage the middle to go forward, because this is where change occurs.”
How the richest families manage their wealth
For many of the world’s richest families, SFOs — single family offices — play an essential role in their investment strategy. SFOs manage the family financial portfolio, and often provide other services such as handling children’s college applications, hiring domestic staff or managing the family fleet of jets.
Around 1,000 SFOs are in operation around the world, catering to families with at least $100 million in assets. More than half the SFOs are managing family wealth of more than $1 billion.
Until now, little has been known about these powerful entities. New Wharton research, however, shows that they play an important role in managing major investment portfolios, guiding significant philanthropic endeavours and maintaining a core set of values across generations of extremely wealthy families. The study, conducted by the Wharton Global Family Alliance (GFA), in collaboration with other researchers, included a survey of 138 SFOs and 40 in-person interviews.
Wharton management professor Raphael Amit says the survey’s most important contribution is a better understanding of why families set up SFOs. For the most part, he says, it is to manage investment portfolios, but to do so in a way that is customized to the families’ objectives. “First, and what surprised me most, is that family offices turn out to be private investment offices,” says Amit. “The soft responsibilities, like coordinating the education of the next generation, is not as important as the financial wealth management issues.”
Stacy M. Dutton, a managing partner at Brandywine Global Investment Management Llc. and former president and chief investment officer of the Manhattan-based Park Agency — the successor company to the SFO Joseph P. Kennedy Enterprises — says family offices are trending towards more emphasis on managing money than managing the family compound.
“There is a divergence between new family offices being established today — with their greater focus on investments—and more established family offices which continue to provide more traditional services to the founding families,” says Dutton.
Amit says the new research is just a first step in gaining a better understanding of how family wealth is managed. GFA plans to continue its studies and hopes to examine the financial performance of families with SFOs against the investment performance of private banks or other investment professionals. “The vast majority of businesses around the world are indeed family businesses, and there are a number of distinguishing aspects that make family firms unique, raising issues that we as academics must look at — such as succession and governance,” says Amit. “The link between the family and the family business deserves more interest.”
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First Published: Mon, Jun 16 2008. 12 26 AM IST