ET Bureau Our family business is no more, but the Walton family business continues...,” says Craig E Aronoff, the cofounder of The Family Business Consulting Group, a Chicago-based family enterprise consulting firm. Aronoff has seen family-run businesses at close quarters. His father’s wholesale clothing business got wiped out when Walmart set shop in his hometown a few decades ago. Craig reminisces how his father accosted Sam Walton at a business event a few years later.
“Dad walked up to him and said: ‘Mr Walton, I just wanted to shake hands with the man who is putting me out of business…’ I wanted to crawl under the rug when I heard that,” Aronoff says wistfully. Drawing parallels with his own experiences, Aronoff explains, “Old businesses tend to be relatively small and enjoy idiosyncratic histories. They’re fascinating, but don’t really teach us how to operate successful firms in today’s hyper-competitive global environment.”
Craig Aronoff works with business families across the world, is an author of several books on family-run businesses, founded the renowned Cox Family Enterprise network and is a professor at the Kennesaw State University, Georgia. Aronoff talks about the Waltons, the Tatas and the Murugappa Group in an exclusive interview with ET. Edited excerpts:
What helps family firms survive for generations?
It’s all about doing what is necessary simultaneously to sustain a good family and a good business... That means developing structures and processes that promote family cohesiveness, strategically incisive business leadership attuned to the marketplace, and governance for both business and the family that assures discipline – to reach goals and attain highest standards of performance.
What’s your impression about Indian family-run businesses?
India being a large, growing and diverse economy, it is very difficult to make generalisations about Indian family businesses. Some are famously conflicted, others iconically harmonious. Family, community and ownership seem to be conceived differently in India than in the West, sometimes with positive and intriguing results.
What do you like about Indian family firms?
Well, their positives include the strength and importance of family and community, commitment to values, and ownership structures more familial and less individualistic than in the West. If I were to mention a shortcoming, great respect for the incumbent generation may leave Indian family businesses more vulnerable to rapid change.
Indian family businesses are promoter-controlled. The owners don’t want to cede control...
Significant Indian family businesses send their next generation off to the world’s best universities to become highly professionalised, and hire great talent. Control depends not only on inherited ownership but at success in the competition to fulfill market needs through innovation, efficiency and service. Failure to attract and utilise the very best talent carries its own punishment.
Management experts say professionally run companies are better managed than family businesses. What is your opinion?
No, I don’t agree with that premise. Family businesses outperform non-family companies on almost every performance metric. You simply have to compare listed firms controlled by family owners with professionally managed (widely owned businesses) to reach that conclusion. Significant family businesses are professionally managed but benefit from longer-term planning, relational rather than transactional philosophies, and the stewardship of multi-generational ownership. Family firms have a greater commitment to building rather than extracting value and see value as multidimensional, rather than exclusively in financial terms.
Many closely held Indian companies are under pressure due to familial conflicts and strained relationships...
I don’t know that Indian family businesses suffer more from family strife than do others around the world. Dealing with family conflict begins with sharing respect, promoting communication, establishing and articulating common goals, and balancing individual desires with collective well-being.
Business family patriarchs feel their successors – the younger generation – are moving away from “Indian family values”. How important are family values and traditions in business?
Family values are extremely important. However, values need to be reevaluated and adapted to the changing realities experienced by each successive generation. The challenge is to remain true to the spirit of values that have stood the test of time while understanding how those values apply to the future.
The scions, who take charge of business, make a lot of strategic changes that are not palatable to family patriarchs and elders. This becomes a point of conflict…
To remain viable, strategic change is required over time and across generations. Strategic adaptation should be a continuous process, not awaiting generational change for dramatic introduction. Evolution, not revolution, is a far less painful and destructive process.
Indian family businesses also face a lot of succession challenges...
That’s the case everywhere… Potential successors often leave the family business because the patriarch is unwilling to gracefully cede control. The dilemma solves itself with the sale or demise of the family business. Resolution requires a completely different approach practiced over decades.
The oft-quoted ‘family business survival ratio’ is 30:13:3 (where 30% of firms survive through second generation, 13% last the third generation and only 3% survive beyond fourth generation). Is this applicable to Indian companies as well?
The survival statistics on family businesses are accurate, but they are entirely misinterpreted. Family businesses last longer than non-family businesses. We shouldn’t be asking what is wrong with family businesses that makes them die so soon...we should ask what is right about family businesses that help them live so long. Companies survive when they effectively identify and fulfill dynamic market opportunities. This is true in all modern economies.
How have family businesses in the West survived so long?
Actually it is Japan that has the largest roster of family firms, hundreds of years old. Japan makes a practice of adult adoption which transforms able business successors into “sons” sustaining the lineage. Japan is also an old country with an old economy that has been relatively isolated for much of its history with a very homogeneous population. Even so, these old businesses are a tiny minority. Old businesses tend to be relatively small, operate in protected niches and enjoy idiosyncratic histories. They are fascinating but don’t really teach us how to operate successful firms in today’s hypercompetitive global environment.
Indian business families you respect the most...
Our firm has had the privilege of consulting with several Indian business families. Our work is always confidential. Some large Indian family firms for whom I have great respect include Tata, Murugappa and the Hindujas. Each is different, but their entrepreneurialism, strategic vision, and multigenerational culture and values are most impressive.
“Dad walked up to him and said: ‘Mr Walton, I just wanted to shake hands with the man who is putting me out of business…’ I wanted to crawl under the rug when I heard that,” Aronoff says wistfully. Drawing parallels with his own experiences, Aronoff explains, “Old businesses tend to be relatively small and enjoy idiosyncratic histories. They’re fascinating, but don’t really teach us how to operate successful firms in today’s hyper-competitive global environment.”
Craig Aronoff works with business families across the world, is an author of several books on family-run businesses, founded the renowned Cox Family Enterprise network and is a professor at the Kennesaw State University, Georgia. Aronoff talks about the Waltons, the Tatas and the Murugappa Group in an exclusive interview with ET. Edited excerpts:
What helps family firms survive for generations?
It’s all about doing what is necessary simultaneously to sustain a good family and a good business... That means developing structures and processes that promote family cohesiveness, strategically incisive business leadership attuned to the marketplace, and governance for both business and the family that assures discipline – to reach goals and attain highest standards of performance.
What’s your impression about Indian family-run businesses?
India being a large, growing and diverse economy, it is very difficult to make generalisations about Indian family businesses. Some are famously conflicted, others iconically harmonious. Family, community and ownership seem to be conceived differently in India than in the West, sometimes with positive and intriguing results.
What do you like about Indian family firms?
Well, their positives include the strength and importance of family and community, commitment to values, and ownership structures more familial and less individualistic than in the West. If I were to mention a shortcoming, great respect for the incumbent generation may leave Indian family businesses more vulnerable to rapid change.
Indian family businesses are promoter-controlled. The owners don’t want to cede control...
Significant Indian family businesses send their next generation off to the world’s best universities to become highly professionalised, and hire great talent. Control depends not only on inherited ownership but at success in the competition to fulfill market needs through innovation, efficiency and service. Failure to attract and utilise the very best talent carries its own punishment.
Management experts say professionally run companies are better managed than family businesses. What is your opinion?
No, I don’t agree with that premise. Family businesses outperform non-family companies on almost every performance metric. You simply have to compare listed firms controlled by family owners with professionally managed (widely owned businesses) to reach that conclusion. Significant family businesses are professionally managed but benefit from longer-term planning, relational rather than transactional philosophies, and the stewardship of multi-generational ownership. Family firms have a greater commitment to building rather than extracting value and see value as multidimensional, rather than exclusively in financial terms.
Many closely held Indian companies are under pressure due to familial conflicts and strained relationships...
I don’t know that Indian family businesses suffer more from family strife than do others around the world. Dealing with family conflict begins with sharing respect, promoting communication, establishing and articulating common goals, and balancing individual desires with collective well-being.
Business family patriarchs feel their successors – the younger generation – are moving away from “Indian family values”. How important are family values and traditions in business?
Family values are extremely important. However, values need to be reevaluated and adapted to the changing realities experienced by each successive generation. The challenge is to remain true to the spirit of values that have stood the test of time while understanding how those values apply to the future.
The scions, who take charge of business, make a lot of strategic changes that are not palatable to family patriarchs and elders. This becomes a point of conflict…
To remain viable, strategic change is required over time and across generations. Strategic adaptation should be a continuous process, not awaiting generational change for dramatic introduction. Evolution, not revolution, is a far less painful and destructive process.
Indian family businesses also face a lot of succession challenges...
That’s the case everywhere… Potential successors often leave the family business because the patriarch is unwilling to gracefully cede control. The dilemma solves itself with the sale or demise of the family business. Resolution requires a completely different approach practiced over decades.
The oft-quoted ‘family business survival ratio’ is 30:13:3 (where 30% of firms survive through second generation, 13% last the third generation and only 3% survive beyond fourth generation). Is this applicable to Indian companies as well?
The survival statistics on family businesses are accurate, but they are entirely misinterpreted. Family businesses last longer than non-family businesses. We shouldn’t be asking what is wrong with family businesses that makes them die so soon...we should ask what is right about family businesses that help them live so long. Companies survive when they effectively identify and fulfill dynamic market opportunities. This is true in all modern economies.
How have family businesses in the West survived so long?
Actually it is Japan that has the largest roster of family firms, hundreds of years old. Japan makes a practice of adult adoption which transforms able business successors into “sons” sustaining the lineage. Japan is also an old country with an old economy that has been relatively isolated for much of its history with a very homogeneous population. Even so, these old businesses are a tiny minority. Old businesses tend to be relatively small, operate in protected niches and enjoy idiosyncratic histories. They are fascinating but don’t really teach us how to operate successful firms in today’s hypercompetitive global environment.
Indian business families you respect the most...
Our firm has had the privilege of consulting with several Indian business families. Our work is always confidential. Some large Indian family firms for whom I have great respect include Tata, Murugappa and the Hindujas. Each is different, but their entrepreneurialism, strategic vision, and multigenerational culture and values are most impressive.
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