GOVERNANCE &PERFORMANCE IN FAMILY BUSINESSES

GOVERNANCE &PERFORMANCE IN FAMILY BUSINESSES

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  1 © Ram RAMAKRISHNAN1 GOVERNANCE &PERFORMANCE IN FAMILY BUSINESSES V.RAMAKRISHNAN © Ram RAMAKRISHNAN 2 IMPACT OF PERFORMANCE ON FAMILY BOARDS. THE FAMILY BOARD CONSTRUCT IMPACT ON ACCOUNTABILITY TRANSPARENCY INTEGRITY SESSION IV
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  2 © Ram RAMAKRISHNAN5 Source- The Economist Aug 17th-23rd 2002 © Ram RAMAKRISHNAN 6 The Family Dilemma PROSPERITY VERSUS LOYALTY COMPETITIVENESS vs COERCION PRODUCTIVITY vs PRIVACY PROFITABILITY vs POWER GROWTH vs GERIATRIC PRACTICES NEED FOR CAPITAL VERSUS LOSS OF CONTROL NAME LENDING vs NEED LENDING INTERNAL GENERATION VERSUS EXTERNAL FUNDS ORGANIC vs INORGANIC GROWTH
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  3 © Ram RAMAKRISHNAN9 DYNAMICS OF FAMILY OWNED AND MANAGED BUSINESSES GENERATIONAL CHALLENGES THE FAMILY BUSINESS MODEL & ITS VARIANTS THE SOLUTION © Ram RAMAKRISHNAN 11 Family Businesses are Emotional Swamps FAMILY BUSINESSES ARE FIRST EMOTIONAL ATTACHMENTS SECOND THEY ARE SAFE, STEADY SOURCES OF MONEY THIRD THEY ARE SOCIAL UMBRELLAS ALL ‘IRRATIONAL’ NEEDS TYPICALLY LOYALTY IS A VIRTUE PERFORMANCE IS A THREAT UNDERPERFORMANCE IS TOLERATED IF NOT EXPECTED TENDENCY TO LIVE ON PAST SUCCESSES PATIENCE & COMPLIANCE ARE VITAL & VALUED VIRTUES
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  4 © Ram RAMAKRISHNAN15 Coming to Terms with Generational Characteristics THE GENERATIONAL CHARACTERISTICS FOURTH GENERATION THE DIFFICULTIES OF BEING A SCION THE LIMITING CHARACTERISTICS- 2ND/3RD GENERATION ONWARDS SOURCES OF CONFLICT BASIC CONFLICT- INWARD FOCUS TELL ME THE GOOD NEWS..& DON’T…(THE DOUBLE WHAMMY) DIFFICULTIES IN ASKING THE RIGHT QUESTION © Ram RAMAKRISHNAN 20 The Difficulties of Being a Scion AS A STUDENT ENVY PRIDE IN SAHAVASAM RESTRICTS CIRCLE NO PEER SUPPORT MECHANISM AS AN EMPLOYEE PEOPLE DON’T LET YOU FAIL PEOPLE ALWAYS HAVE AN ANGLE AS A COLLEAGUE NOT POSSIBLE AT ALL AS A BOSS FROM DAY ONE UNDER THE MICROSCOPE COMPARISONS WITH FATHER, GRANDFATHER, BROTHER ETC. AS A OWNER CONSTANTLY BEING WATCHED PEER GROUP SUPPORT CAN BE HIGH OVERSEAS DON’T GET THE SERVICE WE SEE AS BIRTHRIGHT
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  5 © Ram RAMAKRISHNAN25 Tell Me The Good News……& Don’t….. (The Double Whammy) 1ST GENERATION INTOLERANT OF CRITICISM “IF ONLY YOU KNEW WHAT WE WENT THROUGH…” 2ND GENERATION ONLY HEARS PRAISE ‘CHIP OF THE OLD BLOCK’ MOST ARE TOLD ONLY WHAT THEY WANT TO HEAR THE TIME SERVERS OTHERS ARE TOLD WHAT IS FELT THEY NEED TO HEAR THE ROLE OF THE GREY EMINENCE © Ram RAMAKRISHNAN 26 Difficulties in Asking the Right Question LOYALISTS AFRAID OR CANNOT ASK DIFFICULT QUESTIONS EMPLOYEES COVER UP FAMILY ERRORS NEWLY HIRED ‘PROFESSIONALS’ SELDOM HAVE ANY EXPERIENCE DEALING WITH SIMILAR SITUATION CONSULTANTS SELDOM UNDERSTAND ROLE OF FAMILY DYNAMICS IN THE MANAGEMENT
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  6 © Ram RAMAKRISHNAN27 Consequences of Generational Infirmities ACCOUNTABILITY IS IRRITATING MANAGEMENT BECOMES ADHOC DIRECTION INFIRM TRANSPARENCY DROOPS COVER UPS & DEVIOUS RESPONSES BECOME THE NORM SYA STARTS BIG TIME- PROBLEMS DELEGATED UPWARDS SYSTEM AND INDIVIDUAL INTEGRITY FLAGS RELIABLE AND HONEST PEOPLE MIGRATE CANNOT ATTRACT AND RETAIN HIGH PERFORMERS © Ram RAMAKRISHNAN 28 The Stakeholder Business Model BUSINESS (MANAGEMENT) OWNERSHIP (BOARD OF DIRECTORS)
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  7 © Ram RAMAKRISHNAN29 DIRECTION BUSINESS (MANAGEMENT) FAMILY The Shareholder Business Model OWNERSHIP 1 2 3 © Ram RAMAKRISHNAN 30 The Family Business Model- Family Managed BUSINESS (MANAGEMENT) OWNERSHIP (BOARD OF DIRECTORS) FAMILY ADAPTED FROM GENERATION TO GENERATION- KELIN GERSICK & JOHN DAVIS 1 2 3 4 5 7 6 4 FAMILY MEMBER NOT EMPLOYEE 5 DIRECTOR & EMPLOYEE NOT FAMILY 6 FAMILY MEMBER, CEO BUT NOT ON BOARD 7 FAMILY MEMBER , DIRECTOR & COMPANY EMPLOYEE
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  8 © Ram RAMAKRISHNAN31 OWNERSHIP (BOARD OF DIRECTORS) MANAGEMENT The Family Business Model- Professionally Managed BUSINESSFAMILY 1 4 3 12 2 8 7 6 11 9 10 5 6 © Ram RAMAKRISHNAN 32 Rules of Engagement- Ownership, Family, Board Balance 1. FAMILY & OWNERSHIP 2. OWNERSHIP & MANAGEMENT 3. OWNERSHIP & DIRECTION ( BOARD) 4. FAMILY, OWNERSHIP & MANAGEMENT 5. FAMILY, OWNERSHIP & BUSINESS 6. DIRECTION & BUSINESS 7. DIRECTION & MANAGEMENT 8. FAMILY MEMBER NOT EMPLOYED & DIRECTION 9. DIRECTOR & EMPLOYEE NOT FAMILY BUT ON BOARD 10. FAMILY MEMBER –CEO/COO- NOT A BOARD MEMBER 11. FAMILY MEMBER, EMPLOYEE & DIRECTOR ON BOARD 12. WHERE ALL CONVERGE
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  9 © Ram RAMAKRISHNAN34 Vital Questions HOW DO THE FAMILY ,THE BOARD AND BUSINESS INTERACT ? HOW SHOULD THEY INTERACT? WILL THESE RELATIONSHIPS CHANGE OVER TIME? IF YES HOW AND WHY? WHAT IS THE CHECK & BALANCE? WHO IS GOING TO ADMINISTER THE CHECKS AND MAINTAIN THE BALANCE? © Ram RAMAKRISHNAN 35 MNC’s versus Family Businesses STRATEGY STRUCTURE SYSTEMS POLICY PEOPLE PROCESSES PLANNED COMPLEX SOPHISTICATED DO’S & DON'TS PERFORMANCE INTEGRITY VITAL FLEXIBLE HIERARCHICAL MINIMAL * ONLY FOR TRIVIAL LOYALTY IGNORED •I GENERATION MENTAL MAP •II GENERATION EYEBALL COMPASS •III GENERATION ????????? OVER MANAGEMENT UNDER MANAGEMENT
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  10 © Ram RAMAKRISHNAN36 The Middle Road for Family Businesses THINKING VS PLANNING ADAPTIVE PRACTICAL PRODUCTIVITY DRIVEN ACHIEVEMENT ORIENTED INTEGRITY PRESERVED PLANNED COMPLEX SOPHISTICATED DO’S & DON'TS PERFORMANCE INTEGRITY VITAL FLEXIBLE HIERARCHICAL MINIMAL * ONLY FOR TRIVIAL LOYALTY IGNORED •I GENERATION MENTAL MAP •II GENERATION EYEBALL COMPASS •III GENERATION BUILD A CULTURE OF PERFORMANCE © Ram RAMAKRISHNAN 38 Direction- 3 Dimensions DIMENSION 1 – HOW THE BOARD RUNS AND WORKS DIMENSION 2- DELIVERY OF GROWTH AND PROFITABILITY DIMENSION 3- IMPROVING THE COMPETITIVENESS AND PRODUCTIVITY
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  11 © Ram RAMAKRISHNAN55 Accountability & The Family ACCEPT ACCOUNTABILITY OF PERFORMANCE USE OF CAPITAL, CASH, TANGIBLE & INTANGIBLE ASSETS LEVERAGE FAMILY VALUES TO BUILD PEOPLE- HIRING OUTSIDERS SELDOM DELIVERS RESULTS DON’T DELEGATE FAILURES! WORK AT DEFINING AND REFINING STRATEGY, STRUCTURE AND SYSTEMS RESPECT COMMUNICATION HIERARCHY; DON’T CREATE CHAOS OR BOTTLENECKS © Ram RAMAKRISHNAN 56 Transparency & The Family IF FINANCIAL PERFORMANCE IS EXPECTED STRATEGY & NUMBERS MUST BE TRANSPARENT CLEAR AND UNIFORM SET OF STRATEGIC & OPERATIONAL POLICIES STRUCTURES SHOULD BE VISIBLE AND REASONED- NOT WHIMSICAL PAY FOR PERFORMANCE MUST BE OBJECTIVE AND RATIONAL SYSTEMS PROCESS INTEGRITY MUST BE GUARANTEED & ENCOURAGED
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  12 © Ram RAMAKRISHNAN57 Integrity & The Family STRATEGY HAS TO BE REALISTIC AND GOALS SET ACHIEVABLE COHERENCE AND COGENCY VITAL- AVOID MBLBR STRUCTURES MUST BE VISIBLE AND UNDERSTOOD AIMED AT LEVERAGING TALENT FAIRLY SYSTEMS MUST BE ADHERED TO FAITHFULLY FAMILY CANNOT SUBVERT SYSTEM © Ram RAMAKRISHNAN 58 If you Can’t Measure it, you Can’t Control It “People Respond To What’s Inspected Not What is Expected” MEASURE WHAT YOU MUST; NOT WHAT YOU CAN……. THE BOARD, THE DIRECTORS, THE ENTERPRISE, THE INDIVIDUAL MEASURE WHAT IS TO BE CONTROLLED. EMBED CONTROL IN SYSTEM LINK ALL CONTROL & MEASUREMENT TO STRATEGIC OBJECTIVES DESIRED (OUTCOME) “Being metrics driven is an important part of scaling to be a very large company. In the early days you could feel it, touch it. Now that is more difficult, so it has to be measured” eBay CEO Meg Whitman
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  13 © Ram RAMAKRISHNAN59 THE SOLUTION FRAMEWORK © Ram RAMAKRISHNAN 60 CREATING A DIALOGUE MECHANISM -A FORMAL, PARALLEL “FAMILY” BOARD CREATING THE FAMILY CONSTITUTION ROLE OF THE FAMILY BOARD TASKS OF THE FAMILY BOARD FAMILY COUNCILS- MECHANISMS FOR BUILDING TRUST ROLE OF THE ELDERS ROLE OF TRUST STREAMLINING FAMILY BOARDS EQUIPPING FAMILY MEMBERS TO DIRECT THE BUSINESS
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  14 © Ram RAMAKRISHNAN68 Family Boards –Answer to the Ownership-Direction Dilemma ESTABLISH A CONSCIOUS BALANCE BETWEEN: PERFORMANCE AND COMPLIANCE DIRECTION AND MANAGEMENT STEERING THE CONTROLS AND CONTROLLING THE STEERING OVERSIGHT AND INTERFERENCE (HAND ON STEERING, FOOT OFF THE ACCELERATOR AND BRAKE) © Ram RAMAKRISHNAN 69 Essence of Leadership “I have learned that it is necessary to navigate rather than rule,” …… “I have learned that we all have strengths and weaknesses, and a leader needs to evaluate that personally and in others, and play to their strengths. It really means knowing your own limits and that of other people.” …… “I learned not only to build neighborhoods but to be a good neighbor. I learned that one needs a moral compass, that loyalty and respect are earned and that good communications are vital.” Lynda Barness, president of The Barness Organization, home builders based in Bucks County, Pa., After five and a half years of running her family business – a company founded nearly 80 years ago by her grandfather and run for 50 years by her father
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  15 © Ram RAMAKRISHNAN71 NOT FOR USE WITHOUT THE WRITTEN CONSENT OF V.RAMAKRISHNAN Managing Director Organisation Development Pte Ltd 150 Cecil Street, #09-02 Singapore 069543 Tel: (65) 62222129;Fax: (65) 62222126 Hphone: (65) 97309365 email: [email protected] [email protected] http://www.odpl.net