Addressing the 'novel' fault lines in family business

Family businesses, the predominant systems of business organization, are complex systems at the best of the times. Family dynamics involving issues of ownership, succession and treatment of family assets are deeply intertwined with the manner in which the business is run. The business in turn affects the multi-generational business family as well. The novel coronavirus pandemic may have added to the complexity by revealing fault lines invisible hitherto, which we term ‘novel’ fault lines.

The geological definition of a Faultline is a crack on the Earth’s surface where layers of rock have become separated from the main layer of rock and where earthquakes sometimes happen. The cracks in family businesses may emerge due to multiple factors, stemming from both the family and the business side.

Family Fault Lines
Fault lines in the family, which have been revealed during the pandemic go beyond the typical problem of ‘Letting go’ and succession. These novel fault lines pertain to the fissures arising within the family sub-system, with its potential to affect the business and ownership sub-systems as well.

Double X Fault lines: One set of novel fault lines pertain to the role that women belonging to the business family have been expected to play in the family business. Euphemistically referred to as the ‘CEOs’, an acronym for Chief Emotional Officers, women – wittingly or unwittingly- have been typically relegated to the family sub-system. They are unprepared to take up ownership roles and know little about the business. While business family ‘women CEOs’ may be a global phenomenon, cultural factors in the Indian context and the associated gender biases may result in the problem being far more pronounced. What happens when the three senior male members- brothers- leading the family business succumb to the virus, as happened in one of the Indian Tier 1 cities, leaving behind women who had no clue ‘where the money came from and where the money went’?

Health of Key Family Members: Family businesses are lean units, with family managers taking on multiple roles and responsibilities. Such concentration of power in the hands of a few manifests itself in the form of key person risks in the business sub-system. More importantly, it challenges the oft-ignored aspect of ‘health’ of the family sub-system in the literal sense. The physical health of key family members who spend long hours on the business is often compromised, bringing with it co-morbidities and associated lifestyle ailments. The pandemic has revealed fault lines with regard to health within family businesses. Many a business scion we spoke to during the pandemic referred to the senior-generation having to take a backseat on account of high vulnerability to the virus due to such co-morbidities. Such vulnerabilities are equally high for members of the next-generation who emulate similar working styles. The risk of the entire family falling prey to the virus has been extremely high, given that most business families work together, besides being joint families.

Unclear Communication: There is also the emotional health of family businesses to contend with. Family businesses are often characterized by lack of sufficient and clear communication among key members active in the business. This may appear paradoxical, since after all kin relationships based on blood and marriage, should call for highest degree of close communication compared to other kinds of relationships. The leadership style of the founder patriarch may be responsible for unclear communication. Other reasons for lack of clear communication among family members may include deep-held biases within business families regarding the role of explicit communication in setting roles and responsibilities for family members and for demanding accountability. Simmering conflicts over difficult issues may cause members to avoid difficult and contentious discussions and deliberations. The cocktail of shocks posed by the pandemic has revealed the fault lines associated with such unclear and inadequate communication.

Deeply buried resentment and acrimonies have come to the fore with business and health crises affecting family members, exacerbating tensions and challenging the business family as a cohesive unit. The pandemic and the ensuing uncertainty has provided a sense of direction to members of the next-generation, who have felt cloistered and possibly even ignored within the family business despite being meritorious. They can safely decide to opt out to pursue their own passions elsewhere, without the emotional baggage associated with such decisions as would have been expected in the pre-pandemic era.

Mending Fissures
The pandemic may actually have proven to be a blessing in disguise for several family businesses contending with such fault lines. Business families should make use of this time of togetherness forced on them to relook at some of the underlying issues. Women in business families need to be treated as assets, who should be expected to contribute even when there is no crisis, so that they are better prepared to take charge in case of any unfortunate circumstances.

Family business managers, especially those belonging to the next-generation, should work at improving their physical health. More importantly, they need to actively plan for a time when they are physically incapacitated and may not be available 24*7. These measures can mitigate considerably the vulnerability of the family business to health-related risks of key family members.

Finally, family governance is as important as corporate governance in family businesses, if not more so. A clear understanding of the vision and mission of the family business in line with the family goals, clarity in roles and responsibilities of individual members, and fixing of accountability through open and continuous lines of communication would go a long way in improving the family’s ‘emotional readiness’ to take on the pandemic.

Family businesses can prevent the tremors caused by such fault lines with adequate introspection followed by attention to these fault lines.

*The author is Chairperson, Family Managed Business at Bhavan’s SPJIMR. Views are his personal.

[This article has been reproduced with permission from SP Jain Institute of Management & Research, Mumbai. Views expressed by authors are personal.]