Presidential Summit on Entrepreneurship

Some special action on my front next week! I am indeed most delighted that I am one of the 200 or so "experts" invited from over 56 countries to attend the Presidential Summit on Entrepreneurship that President Obama is organising on April 26-27. The purpose is to discuss and develop strategies for promoting entrepreneurship in countries with significant Muslim population. I believe I am one of the very few academics invited while most of the others are entrepreneurs, particularly with a huge social bent of activities. For me, this will be a great opportunity to listen and learn while of course, sharing whatever I know!

Something very unusual happened today. Several friends of mine had stared a housing project for us to live in the same neighbourhood, and had asked one of the members to take care of the discussion forward. Unfortunately, the land that we had negotiated and partly paid for fell into litigation due to multiple claimants. This is nothing unusual in certain parts of the country. The discussion, litigation and uncertainty have been going on for the past few years and some of the friends did not have any idea about the progress on the project. Some thought that it has taken too long and their priorities have changed. Since the friend who was taking care of the negotiations was not keeping all the members regularly informed about the constraints and progress, some had developed apprehensions about the future of the whole project.

He called all of us for a briefing session today when he explained everything in detail and said that he wanted to return our initial deposit back with interest at 10 percent per annum. All of us were aghast as except for two, nobody wanted to take the money back; people wanted information, that is all. He said he had sold personal property and raised the money to repay us for the time being and welcomed us back into the project once the legal matter was settled, with the same terms that we had originally. He said he has been feeling morally obliged to do so as he has been feeling very disturbed about the lack of progress of a project that he had initiated and in which people joined because of him. I mentioned that he should not return neither the principal nor interest because he had done everything as a trustee for the members. So long as there is consensus in purpose and transparency in deeds and thoughts, there was no question of him alone shouldering the responsibility for lack of progress in the project. All of us felt very sad about his decision to distribute the money from his pocket since he had already spent most of it to fight the litigation. Finally, we all were forced to accept the money for the time being with a proviso to restart the discussion soon.

To me, my friend behaved more than like a typical steward. He not only owned up personal responsibility for the slow progress of the project but also wanted to ensure that his friends were totally protected from any down side effect. This is sacrifice of the highest order.

excitement to frustration

Business family members get very excited when I tell them the benefits of keeping the family and business united. They understand the significance of proper governance mechanisms as in the context of a well run businesses. For instance, we had our annual training programme at the ISB for family business titled "Perpetuating The family Enterprise" (PTFE) recently. Prof John Ward (the GURU) and I co-directed it. Everyone was very enthusiastic about the possibilities of achieving peace and harmony. The same thing happened when I was interacting with a visitor yesterday, a third generation member of a highly diversified business family. He has been trying to convince his cousins about the need to bring governance in their conduct across family and business relationships. After two years of efforts, his family has decided to hire a consultant to help them with the drafting of a constitution and share holders agreement. They are also excited about the possibilities now.

Often, what many of them do not realise is that the peace and prosperity that I mentioned above do not come easily. There has to be complete buy-in from members about the fruits of creating and practicing governance. Since formalisation of such discipline in practice comes through shared values in the family context, there has to be convergence in thinking among all. Since family members particularly men, are constantly concerned about business performance, family governance related matters do not get any priority in thinking. The best way to begin to get over this inertia is to get one or two volunteers, preferably from younger generation to ensure that meetings of key family members take place regularly to discuss and decide on matters of high criticality about which people are dissatisfied. I have noticed that such inertia is due to lack of exposure and background in conducting such meetings. People tend to avoid such discussions and find excuses to postpone. I believe the only way is to collectively resolve that we would overcome the inertia and learn to bring family governance the way we do in the business context. Let the entrepreneurial spirit drive in family meetings too.

Growing curiosity in the strengths of family business

I was a speaker at the Family Business Conference organised by the Jain International Trade Organisation yesterday in Mumbai. The one-day event was meant to sensitise its members but quite a few non-Jains also attended it. The conference that had all essential aspects for building a sustainable family business had a sell out crowd at the ball room of Hotel Leela. I thought Jains with their values of harmoney, non-violence and sacrifice were naturally inclined to breathe the essence of family business. We need a large number of such initiatives to sensitise business families about the wonderful things a united family business can do. I initiated a new network recently under my Chair at the the ISB (Thomas Schmidheiny Chair of Family Business and Wealth Management) primarily with this objective. This is only a beginning.

I have seen three categories of FB members: one, those not at all aware of the possibilities of having a unified and wealthy family business; two, those aware of the benefits of having good overnance principles etc but do not know how to go about practising them; and three, who do not start doing anything though they are aware of what to do. Hence there is a social need to "sell the concept" of healthy family business.

I asked the audience to start the practice of good governance at home immediately without a lengthy agenda. I suggested that they identify a list of key areas of concern that they are bothered about and start discuing the reasons. This way they will be able to find solutions to major challenges soon. If this exercise is continued on a regular basis for about six motnhs, they would have identified the major building blocks of a constitution. Never start writing a constitution first; what you need is to identify solutions to pressing problems and execute them effectively.

do family businesses really last long?

One of my professional friends asked me yesterday for my views on the sustenance of family businesses. He believes that family businesses, including his wife's family's, do not have a chance for survival because of the inherent weaknesses of the family business system. I told him that there is no dispute about the internal contradictions in family business such as absence of choice of the family to be born into for anyone unlike joining a publicly owned corporate. However, since family is an integrated unit with love and caring among its members, I said, the idea is to make a lasting pool of love and wealth with the family business lasting longer. The discussion progressed on to institution building. We agreed that institution building is not at all easy and there are only a few institutions that have survived the test of time. Besides having a clear strategy, organisations need a clear balance among structure, systems/processes and values on a dynamic basis to become institutions, besides a clear vision and the team. It i not easy but it is possible! We try to pracrice the best values of all religions though we know that it is not easy, primarily because we feel happier that way. I am convinced that trying to reach the ideal forces us to reach somewhere near it. If our goals are much lower, there is a huge chance of our attaining something mediocre. Hence, if keeping unity and tolerence of family business is our goal, we should try our best to attain the same and not get disheartened by the break up stories of some families.

Lehman Brothers not any longer a family business

The fall of Lehman Brothers from the pinnacle also reflects the extent to which the organization has lost its character after the departure of Robert Lehman in 1969, the last member of the family to hold the top post. He served as the Chairman for 44 years until his death in 1969. Since then the organization has ceased to be a family business though the name was retained. (please see the following links for more relevant information: www.library.hbs.edu/hc/lehman; http://en.wikipedia.org/wiki/Lehman_Brothers ).

A close look at the history of the company would reveal that it started losing the trust element, that is the core of banking. One of the core values of such an organization is stewardship, which means that the individuals involved, particularly the leadership, feel themselves as stewards, who are there to offer selfless service. The core value of a family is also the same. Families that last generations honestly believe that they are the trustees of their respective family’s wealth and play only a custodianship role. They own nothing but have a responsibility to preserve the wealth and grow it to transfer to the subsequent generation, but not to destroy it in anyway.

With the passing over of the management of Lehman Brothers into leaders who, unfortunately, did not share the same core values of trusteeship, the organization was inviting trouble. Incidentally, the Wikipedia link (above) gives a lot of information on recent developments. One quote that reflects the lack of trusteeship value from it is reproduced here:

On October 6, 2008, CEO Richard Fuld testified before Congress. Rep. Waxman pointed out that Fuld had made nearly $500M since 2000, a salary incomprehensible to the average taxpayer, while Fuld was guiding Lehman to bankruptcy. Waxman said to Fuld, "My question is a simple one. Is this fair?" Fuld did not give a straight answer to the question, but only a meandering reply.

It is difficult to imagine a family member who is proud of the family’s reputation and integrity doing the same. We all know that the root cause of the current crisis is extreme greed to show quarter-to-quarter performance without looking at the implications for the people whose money banking institutions hold.

Families and businesses that are built to last have a combination of values and processes: trusteeship, otherwise called stewardship, coexist with strong systems and processes. All their decisions are guided by the core value of trusteeship but they do not lose sight of their commercial competitiveness.

The lesson for family businesses is clear: Remember the trusteeship role they are expected to play while taking business and family decisions. Family and business will naturally perpetuate. As noted by Prof John Ward of Kellogg School of Management (http://www.johnlward.com/), family businesses that last several generations are not driven by short term performance goals but long term growth and asset creation goals because they are clearly guided by the values of trusteeship in their members.

Trust is fundamental

Trust is the fundamental value that builds any relationship. For that matter, all relationships are governed by trust. This is much more in organizations such as families where one does not have the freedom to choose its members. I tend to believe that trust keeps not only families but also communities together. For instance, the recent upsurge in violence in Orissa and Jammu & Kashmir raises questions about the extent of trust communities have for each other. Same is the case with the Ambani brothers.