so one of the best things about my job
is that I get to meet some really
interesting people in fantastic
locations around the world
and he liked to talk to me about things
really close to their heart case in
point a few years ago I was having
dinner with my friend Prakash
now Prakash is the head of a family
business when he inherited this business
it was about 100 million dollars and
since then he's grown it to a three
billion dollar business so we were
sitting in the Taj Hotel in Mumbai
overlooking the Arabian Sea having some
great food some great wine it was the
perfect setting for a great conversation
but that day something was wrong
Prakash was visibly upset so I asked him
what was wrong and he said Vikram you
know I've spent my life building this
company it's part of my identity I have
given it my all
but I think the time has come for me to
give it up the time has come for me to
bring a professional manager to lead
this company and I could tell he was
really upset with this decision so I
asked him why why do you think this is
the right thing to do and Prakash was
well prepared for that question
he said I've spent a lot of time
thinking about it I've met a lot of
people I've sought a lot of advice I
think it's inevitable
my company's become too big and my
family has become too complicated it's
inevitable and when I have looked at
examples of family businesses from the
developed world this is what they do
they bring in professional managers it's
inevitable
I remember ending that dinner with a
sense of unease I had completely
succeeded in confusing Prakash about the
way forward and he had succeeded in
triggering in me an interest in family
businesses that has consumed me
the last few years now if you think of
family businesses you might be tempted
to think that they are the small
mom-and-pop firms but you would be
mistaken
in fact family businesses represent some
of the largest companies in the world in
the developed world thirty percent of
the large companies are family
businesses companies like Walmart Koch
Industries Mars Cargill NewsCorp these
are all family businesses and when you
look at the emerging markets between 50
and 80 percent of the large companies
are family businesses family businesses
are a very relevant part of the
corporate landscape now there's a lot of
very good research on family businesses
and research from analysts from gurus
from business schools and these research
talks about many different things but
let me highlight two that might interest
you the first thing of the research
talks about is the performance of family
businesses okay so it talks about how
family businesses focus a lot more on
resilience rather than break out growth
on stability rather than break out
growth so when you compare the
performance of a family business with
non family businesses you find that they
grow slower than non family businesses
they tend to be more profitable they
take less debt and they do smaller
mergers and acquisitions now if you
think about it if you own the family
business this is probably what you would
do you wouldn't want to bet everything
in your business on some one or two big
decisions so really a focus on
resilience rather than break out growth
the second thing that this research
talks about is the role of the family in
the family business
now most families start with the family
being the owner manager but then over
time the role of the family comes down
so they've dumped the owner manager then
they become owner investors and
then they become pure investors again it
would seem quite logical if you had a
family business and your family became
really complicated and the business
became really big you might be tempted
to bring in professional managers to
take it forward but something has always
made me quite uncomfortable with this
research quite often this research is an
extrapolation of the developed world
being applied to the entire globe there
is a class of family businesses those
from the emerging markets that haven't
been studied in their own light and they
come from a very different context in
the emerging markets rules and
regulations are still evolving even the
families are very different they are
much larger they include the in-laws the
include cousins they include multiple
generations often all living in the same
house and even culturally these families
can be quite different in families the
sense of hierarchy is much higher you
don't talk back to your parents we don't
discuss many things you might talk about
in other places in the world we don't
talk about mortality and many topics are
really not up for discussion so the
context is very different so in the last
few years I decided to study family
businesses
I took a thousand family businesses from
Brazil India Southeast Asia and Eastern
Europe and I asked the same two
questions how do family businesses
perform and how does the role of family
change over time and here's what I found
family businesses from the emerging
markets perform and evolve exactly the
opposite exactly the opposite on every
dimension that we saw from the developed
world let me repeat that exactly the
opposite on every dimension now I was
really relieved to find that imagine
doing the years of research and you come
up with nothing
right so now let me tell you a bit more
about this family businesses from the
emerging markets are the fastest growing
large corporate entity in the world they
grow faster than non family businesses
they grow faster in good times and they
grow faster in bad times the trade of
profitability for growth they take on
more debt and they do significantly
larger mergers and acquisitions they are
pursuing breakout growth exactly the
opposite and then I shifted my attention
to the role of the family in the
emerging markets ninety percent of
family businesses are run by family
members and then I say let's look at
this question over the last 200 years so
I went back a time and I studied the
evolution of family businesses over 200
years in the developed world the role of
the family in family businesses has come
down with different generations but in
the emerging markets the role of the
family actually even goes up in many
families and in many countries exactly
the opposite so now if the context is
different if the performance is
different and if the role of the family
is different
why do lessons from the developed world
why would benchmarks from the developed
world apply to these companies from
emerging markets I don't think they do
so when I meet my friend Prakash and
others like him from the family
businesses I asked them to chart out
their own course I asked him to do many
things differently but let me highlight
three that are really important the
first thing I tell them is stay don't
leave I don't think it's essential that
every family leader of a family business
should leave their business quite often
you bring something distinctive to that
company one of the companies I work with
is in the construction industry so I
asked them
what is it that you bring to your
company that is distinctive and gives
you the right to stay here and here's
what he said the victim people trust me
and my family we been around for
generations and this trust matters a lot
especially in emerging markets banks are
willing to lend to us customers are
willing to talk to us governments are
willing to meet us the trust really
matters he also said I know this
business like it's in my DNA
we talked about this business at
breakfast at lunch at dinner I sleep
thinking about this business we've been
doing this for generations I know it so
well it's a comparative advantage he
also said and I can take fast decisions
for the long term I don't have to worry
about pleasing the analysts every
quarter so if you bring those kind of
advantages to your business you should
stay not leave the second thing I talked
to my family business friends is to
define not copy family businesses are
growing really fast in the emerging
markets and very soon you hit a stage
where it becomes impossible for the
Superman or the superwoman entrepreneur
to manage the business purely on the
basis of hard work and charm and
charisma you have to put in place some
systems and processes but quite often
what happens at this stage is again we
look to the large multinational
corporations from the west and we bring
in place all the systems and processes
and the KPIs and the committees and the
meetings and the you know IT systems and
you get a mess all you get is a mess you
don't get the entrepreneurship that you
had and you don't get this discipline
that you wanted you would just get the
mess what companies and family
businesses need to do at this stage is
really define their own ways of working
when you can combine the
Entrepreneurship that you need in some
places and the discipline you need in
some others
one of the families I work with is in
the shipping industry and that family
has an instinct for when and where and
how to buy ships it's a big decision and
they know how to get it right now
imagine putting a committee on that
decision with 12 people sitting around
who have not done it before and are
learning on the job that is going to
create a mess you know someone actually
said a donkey is a horse designed by a
committee right so in this family you
want to let them be entrepreneurial on
these decisions and bring the discipline
somewhere else define your own ways of
working the third thing that I think
about and this is probably the most
important to me is stewardship not greed
leading a family business is hard work
you have to deal with the emotions of
the family and the complexity of the
business it requires a special quality
of leadership apart from the core
instances of leadership and
entrepreneurship you need this quality
that I like to call stewardship it's the
quality of patience of generosity of
equanimity it's the quality of putting a
sense of purpose before the sense of
pure greed and money and wealth creation
family businesses faced a lot of turmoil
specially around succession and
transition now most families put in
place governance rules and family
constitutions and you certainly need
them and they are certainly useful but
they are not sufficient what you need in
addition to that is this quality of
stewardship and a sense of values that
says we are building something for the
future we are trustees for the future we
are doing this for a purpose not just
for our wallets stewardship
I continue to meet Prakash Prakash his
business continues to grow and thrive he
is doing exceedingly well still at the
helm of his business I strongly believe
family businesses are going to be the
growth champions of the future in
industry after industry
you see family businesses from the
emerging markets becoming market leaders
they're taking over the world
they're here to survive they're here to
thrive but only but only if they
recognize their distinctiveness but only
if they choose the right benchmarks but
only if they chart their own course
thank you