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In the previous article, we discussed how governance structures built by family business owners enabled families to grow businesses across generations into long-standing institutions.

At times, however, despite having these structures in place, families are unable to preserve the business because of fissures within. These occur in later generations when the family has grown larger and the younger members lack an emotional connection with the business.

In such instances, the extended family drifts apart either through geography or differences in lifestyles and priorities. Some members see the business as a source of pride while for others, it is a financial investment. Some want to grow the business, take risks, diversify and introduce a meritocratic culture while others prefer to retain the old traditions and ways of running a business.

In our experience, family businesses that are able to foster solidarity, share a set of values, and are sensitive to changing equations are the ones that succeed.

FOSTERING SOLIDARITY

Families with mutual respect and trust within themselves are able to weather most storms. Building consensus, spending time together, and supporting personal growth, all help build solidarity.

Build consensus

Solidarity does not mean passively agreeing to everything that the owner or leader wants. It means fostering a culture of debate and discussion, where everyone has access to information about new developments and decisions to be made and is also able to participate in the decision making. When people are part of the decision making, they also take ownership of the outcome. The family thus takes shared responsibility for both successes and failures. An example of where it went wrong was with the former owners of Dow Jones and Co., the Bancroft family, who ended up selling the family business for much less than its business value in the early 2000s to a competitor because of a lack of family consensus on investment and ownership.

Spend time together

Building mutual respect and trust is easier if the family members stay connected and take the time out to get to know each other. Staying in touch in the virtual world is easy but meeting in person, for instance, by organizing an annual event, could be more effective. Family get-togethers are great opportunities for the next generation to seek guidance from their elders about their roles in the business and for the older generation to share advice and understand the next generation’s thought-processes. It is an opportunity to strengthen both business and family ties by committing to each person’s growth and development. A good example is the Burman family of the Dabur group, whose family council meetings often turn out to be family building exercises in cohesiveness. That keeps the two branches of the family together.

Support personal growth

Apart from informal events, some families have implemented formal processes to identify the individual strengths and passions of the next generation. Elders that are genuinely interested in making the younger generation successful share feedback collected from individuals’ managers and employers and have developmental conversations on a regular basis. They advise them on the right time to join the business, help them get external experience in the industry, build specific skills through training programmes. In the Dabur group where the family council looks at the family’s outside ventures, for instance, if family members are interested they can invest in each other’s ventures and this in turn gives the other family members an impetus to grow the business.

INHERITING A SHARED SET OF VALUES

Values are extremely important as they help link the past to the present and define the priorities that a family must honour. Values become the foundation of a family business and hold a family together.

Live by one’s values

All businesses define their values. The test is whether they also live by them as seen through the eyes of their employees, customers, and other stakeholders.

To illustrate, one Asian family promoted the role of women in their workforce but had a shareholders’ agreement that enabled only male members to inherit. After the youngest female member pointed out this discrepancy, the male cousins offered to give up a substantial part of their inheritance to honour this value and the senior members agreed to change the rules.

Another such instance concerns the OCS Group, a fifth-generation global facilities-management business based in the United Kingdom, and its founder’s vision to build trust through delivery. Holding this core value to its heart resulted in a situation where the frontline staff was considered the most important connection to the customer and everyone, from the CEO to the most junior employee, held themselves up to this commitment.

Pictet and CIE, the Swiss Private Bank, uses its marketing to communicate the owners’ three core values of respect, integrity and independence. Pictet’s actions are driven by these values and their work environment is based on them. In times of stress and uncertainty, these values were fundamental in demonstrating appropriate actions for employees and other stakeholders for the Bank’s continued success.

The Ayala Corporation family is committed to being engaged in the economic future of the Philippines and this value acts as a beacon in all their decisions.

Philanthropy is another value that has led several family-owned businesses to become highly respected institutions. The family members see themselves as part of the community. Even if family members are no longer involved in the day-to-day operations, they engage with and lead the family’s philanthropic efforts.

Share one’s values

Passing on the values from one generation to the next becomes easier if they become a part of the business’s language and institutional memory. Reminders in the form of a company’s theme for an event and/or celebration for members of staff who have done something exceptional also work extremely well.

A high impact example in this context is of a company in the Middle East, where the third generation videotaped interviews with their elders to gather stories that exemplified the family’s values and compiled these into videos and a book. The family shared the book and videos along with photos and artifacts from the founder’s era.

Another example is of a sixth-generation British company, which deploys long-term employees as “cultural ambassadors," who introduce new employees to the history and values of the company.

While there is also the example set by the Al-Muhaidib family, where the elders make it a point to narrate inspirational family stories to their children and grandchildren.

BEING SENSITIVE TO CHANGING EQUATIONS

Equations within the family are bound to change as the business changes hands. Inter-generational competition is a common issue. One founder addressed this by moving to another continent to build up a new business unit when his son took over the role as group managing director. While this is not possible for all families, it is important to define territories and avoid dependency.

There are situations when boundaries between work and family ties get blurred, and the only way to resolve them is through thoughtful and collaborative dialogue. Such a dialogue is successful only if the participants keep the business’s interests paramount and jointly agree on their roles in the future.

In fact, being sensitive to changing equations within a family not only helps strengthen family ties and build solidarity through mutual respect and trust, it can often be the difference between success and failure.

Creating alignment among family members is the responsibility of the owner. While it is not impossible, it requires a clear vision for the business and an understanding of individual vs. family needs.

This is a part of McKinsey Leadership Institute’s series of articles on family-owned businesses.

Avinash Goyal is a partner in McKinsey & Co.’s Mumbai office and leader of McKinsey’s Organization practice in India and Organization Design practice in Asia.

Faridun Dotiwala is a master expert and partner with McKinsey’s Organization practice based in Mumbai. He leads McKinsey’s Human Capital practice in Asia.

Gautam Kumra is a director in McKinsey’s Delhi office and leads McKinsey’s Organization practice in Asia. He is the founder of McKinsey Leadership Institute, which develops leadership capabilities to deliver transformational change; and he convenes the Bower Forum for CEOs across Asia.

Vimal Choudhary is chief operating officer of McKinsey Leadership Institute in Asia and is based in Gurgaon. He also leads the McKinsey Asia Center, a special McKinsey initiative on globalization.

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