Download No Man`s Land 2

Relationship Dynamics
between Owners and CEOs
No Man’s Land 2
“There is no No Man’s Land here.
I take all the decisions.”
Foreword
Family businesses represent the vast majority of enterprises, not only in India but around the world. Given their preponderance in the
complex and interlinked global economy, family businesses likewise have complex and interlinked characteristics. They come in all
shapes and sizes, all industries, geographies, and generations. And like others, they constantly struggle to balance long-term and shortterm interests, internal and external constituents, and economic and social value.
In this ground-breaking study, Amrop India Partners and Professor Sunil Maheshwari explore how one of the most essential challenges
to family business – the overlap (or “No Man’s Land”) between family executives and hired professional managers – looks and feels
different depending upon whose point of view we take, and what that means for the actions of firms, family members, and those
responsible for the governance and performance of enterprises. In particular, the findings here about the differences between the points
of view of first and second-generation owner-executives, as well as how these may be changing over time, have important implications
for top management recruitment, development, and performance.
Ever since my first research visit to India some 25 years ago, when I studied a large family business group based in Chennai, it has
been clear to me that India’s growth into the modern manufacturing and service powerhouse it has become, has been highly linked
with the ability of family enterprises to engage with the broader society and with educated, non-family professionals to build globally
competitive firms. The present study adds depth, data, and thought-provoking questions to that multifaceted and critical set of
developments. I hope you find it as informative as I have.
By
Maury Peiperl, BSE (PRINCETON) MBA AM PhD (HARVARD) FRSA
Professor of Leadership and Strategic Change
IMD, Lausanne, Switzerland
(To visit IMD’s Global Family Business Centre, please see: http://www.imd.org/research-knowledge/global-centers/family-business/ )
Page 01
Abstract
This research report examines the concept of “No Man’s Land” and attempts to identify the reasons for its existence in organisations
by discussing the findings obtained from 12 well known family business houses of India. Three groups of executives participated in the
study: owner executives, next generation executives and external executives. In comparison, an earlier study conducted by Amrop
International in 2006, had examined the bilateral relationship dynamics between only owner executives and external executives. The
introduction of next generation executives (versus first generation “owner executives”) allows us to evaluate the tripartite relationship
dynamics and understand whether No Man’s Land as established in the earlier study is still in existence and to what extent today.
The study finds that while No Man’s Land (NML) does exist to some extent, it is not significant enough to hamper the performance of
people within the organisations. As many as 67 % of the owner executives, and 86 and 87 % of next generation executives and external
executives, respectively, deny the presence of NML in their companies. Moreover, there appears to be an increasing trend towards
professionalising organisations by hiring competent external executives.
External executives are given adequate recognition in these family owned business enterprises. About 58 % of the entire groups of
participants in the study (owner executives, next generation executives and external executives) believe, that the passion of an external
executive towards the company equals that of the owner executive.
The study concludes by discussing strategies to reduce No Man’s Land. These include bringing in role clarity, strengthening governance
and governance mechanisms, open communication between the three groups of stakeholders, creating a unifying culture, handling
succession concerns well, aligning family and business plans, creating norms, rules and systems, and careful selection of persons in
leadership roles.
The study is gender neutral and ‘she’ or ‘he’ is used for the ease of language and will always mean both together.
Amrop India Part
ners
Page 02
About Professor Sunil Maheshwari
Prof. Sunil Maheshwari is an alumnus of IIT Delhi and IIM Ahmedabad having more than 25 years of professional and academic
experience. He is the founder member of WOne Management Systems; a consulting organisation setup in late 2008, working in the
area of turnaround management and organisational restructuring.
He is working as professor of HRM and Strategic Management at the Indian Institute of Management, Ahmedabad since May 2000.
During his academic stint his research interest focused on Turnaround Management, Organisational Transformation, Strategic HRM,
Healthcare Management, Expatriate Management and Management of SMEs.
He is also the Chairman of the Board of Academy of HRD. He has been on the board of Andhra Bank. Prior to his joining IIM
Ahmedabad, he worked as Senior Personnel Officer in Indian Railways. He also worked as Professor at Railway Staff College in 1998.
Prior to working with Indian Railways, he worked as Engineer with BHEL. He received a gold medal for being among the best executives
in Indian Railways.
He has been a consultant to a number of organisations in India and abroad. His consulting has primarily focused on streamlining HR
systems and practises in entrepreneurial firms but at the same time his work spans several other sectors in the India and abroad. His
report on Governance at AIIMS has been widely acclaimed. He has been involved in the development of vision statement for many
organisations. He has conducted management development programmes (MDP) for companies such as Hero Honda Motors Ltd, Bank
of Baroda, HPCL, AVIVA, to name a few.
His key publications include a book on “Turnaround Excellence” published by Penguin, Tata McGraw Hill and several research papers in
national and international journals. He has presented papers in various international and national forums including in countries such as
the USA, China, South Korea, Singapore, Thailand and Bangladesh.
Page 03
Contents
5
Background
8
Incidence of
No Man’s Land
20
External Executive’s
Capability and
Professionalisation
6
10
26
Defining
No Man’s Land
Characteristics of
Family-Managed
Firms in India
Strategies
to manage
No Man’s Land
Please interpret, Quotation and Graphs marked in Red for Owner Executive, Blue for External Executive and Green for Next
Generation Executive.
Page 04
Background
In most countries including India, family business has been the
dominant form of business ownership and management. In fact,
as per a recent report by Credit Suisse1, India has the highest
percentage share of family businesses in Asia, accounting for
67% of total listed companies. As many as 663 out of 983 listed
Indian firms are family businesses and they account for half of all
corporate hiring. Family businesses in India account for 46.8% of
the total market capitalisation. These findings clearly indicate that
family firms are the backbone of the private economy and help
drive national socioeconomic and entrepreneurial development.
However, research indicates that family managed firms have
one major limitation. Despite the genuine desire to see the
continuation of the business in the family over a long term,
only 30% of family owned businesses survive into the second
generation and only 11% survive into the third generation, with
only 3% of all family businesses continuing through the fourth
generation or beyond. These grim statistics have much to do with
inadequate integration of the family system and business systems
and inadequate succession planning. In most cases succession just
happens rather than being planned, thereby resulting in less than
desired outcomes2.
However, some essential characteristics of family managed
businesses have changed over the decades in the Indian context,
which have led to favourable outcomes.
During the pre-liberalisation phase, the success of family owned
businesses came largely from the close-knit joint family structure
that fosters family values, teamwork, tenacity and continuity.
Under this structure, generations lived and worked together under
one roof, reaffirming the Weberian values and trust that have
built successful businesses. Wealth from the businesses supported
the joint family by providing a social safety net for members.
Businesses and families were intertwined though they were also
distinct entities with separate rules. Hence, survival of the family
cohesion became synonymous with the survival of the business.
However, the scene changed post the liberalisation of 1991.
Family businesses, which dominated Indian markets till then,
faced competition from multinationals that had superior
technology, financial strength and deeper managerial resources.
Thus, Indian businesses had to change their focus and re-orient
their outlook outward, while at the same time keeping their
strengths intact. Notwithstanding the serious challenges that
family firms face, there are numerous examples of companies
in India and abroad3, that have found the keys to longevity and
prospered over the generations, creating wealth and sustaining
their competitiveness.
For businesses to succeed in today’s age, the professionalisation
of management practises and systems has to be ensured. The
engagement of competent and experienced professionals is a
crucial step towards building an organisation that could excel in
a competitive environment. This requires a sound professional
relationship between the owners and its executives. They need
to trust each other’s capability and commitment and partner
in the strategy and culture of the firm. The owners and external
executives also need to understand each other and be clear about
each other’s beliefs as well as roles and responsibilities, failing
which, a “No Man’s Land” situation can occur.
Organisations Participating in the Study
This research report examines the concept of “No Man’s
Land” and attempts to identify the reasons for its existence in
organisations by discussing the findings obtained from 12 well
known family business houses of India. The business groups/
companies that participated in the study are:
Ashok Piramal Group
Bry-Air (Pahwa Group)
Future Group
GVK Group
Hinduja Group HT Media
JSW SteelKalpataru Group
Pidilite Industries
RPG Enterprises
Welspun Group Zuari Industries
In-depth interviews with Owner Executives (OE), Next Generation
Executive (NGE) and External Executive (EE) provided rich insight
into the organisational and family systems and their interlinkages. These interviews varied between 30 minutes to 3 hours
duration.
(1) http://in.finance.yahoo.com/news/India-highest-share-Asia-reuters-1860765646.html assessed on 07 November 7, 2011.
(2) Richard A. Vinci. (2005) Easing Family Succession: How a Tailored Recap May Be the Answer. Family Business Quarterly, Volume 15 , No. 2
(3) Indian Entrepreneurship And The Challenges To India’s Growth: How the Indian Family Business and its entrepreneurial spirit play an important role in India’s growth, assessed on
02 November 2011 from http://business.in.com/printcontent/28952
Page 05
Defining No Man’s L and
No Man’s Land (NML) is a term typically used for land that is
unoccupied or is under dispute between parties for reasons of fear
or uncertainty. The term was originally used to define a contested
territory or a dumping ground for refuse between fiefdoms4.
In the area of Management, ‘No Man’s Land’ is a term that is used
largely with reference to family owned businesses and refers to
the area of interdependence between owners and their external
executives and is thus used to describe the trust, relationship, and
it’s sustainability, between them (refer figure 1). In anticipation
that others will act, lack of trust, fear and role ambiguity lead to
inaction by both sets of executives.
Figure 1: No Man’s Land.
Complete No Man’s Land
Owner Executive’s area
of responsibility
Partial No Man’s Land
External Executive’s area
of responsibility
The light and dark grey shaded areas are actually the ‘grey’
areas of interdependence which leads to No Man’s Land. While
some amount of the partial No Man’s Land does get covered
up, the complete NML is often left unattended. When managed
with sensitivity, tact and focus, this interdependence area can
provide simple, yet profound solutions to the factors that cause
it. For instance, while the journey of the organisation is one of
professionalisation (the interdependence area in this context),
the very definition of professionalisation is viewed differently by
owners and executives. This difference may be subtle, but has
strong impact. For External Executives, existence of systems may
be a priority and define professionalism, while for owners it may
mean right capability and delivery of results. So, while owners
may lay equal emphasis on systems and processes, results may
be a priority. This incongruence can lead to one viewing the other
as less professional. NML is always open to interpretation. It is
not necessarily influenced by the degree of freedom that an EE is
granted, but is more a result of ambiguities in the boundaries of
responsibilities.
A study done by Amrop International5 in 2006 indicates that it is
this subtle divergent emphasis of priorities, that leads to fitment
issues and the EEs who focus on delivering, are rewarded by being
allowed to encroach on the owner’s side of “No Man’s Land”. Key
insights and conclusions from the study indicate that:
1.The passion of External Executives (EEs) for business is
generally lower than that of Owner Executives (OE). EEs are
likely to be more focused on their shorter-term professional
success, their careers and wealth creation than OEs and
NGEs.
2.OEs that were able to synchronise their motivations with EEs’
aspirations were able to bring out the best in them.
3.EEs that brought genuine passion became long term oriented.
4.While EEs expect independence and empowerment; when it
came to decision-making, they actually hesitate and prefer
not to take it. The real decision-making is delegated upwards
to owners who are also comfortable in that space.
5.OEs that groom and encourage their executives to
understand decision-making in their context, end up ensuring
a mature process of empowerment. However, in doing so,
they have to have the stomach to withstand the executive’s
failure.
6.Most EEs are stimulated by the speed of decision-making and
the desire to experiment – qualities that are more visible in
family run businesses than MNCs.
7. The EEs capabilities that succeed as CEOs in the family
business context are:
• Stature and leadership, which adds to the market
credibility of these companies
(4) Persico, Joseph E. (2005). Eleventh Month, Eleventh Day, Eleventh Hour: Armistice Day, 1918 World War I and Its Violent Climax. Random House. ISBN 0375760458. Assessed
from http://en.wikipedia.org/wiki/No_man’s_land#Reference-Persico on 02 November 2011.
(5) Amrop International, 2006. No Man’s Land: Relationship Dynamics between Owners and CEOs.
Page 06
Defining No Man’s Land
• Ability to commit to the long term agenda and hence
alignment with owner’s vision
• Execution ability and hence, performance and delivery
• Higher maturity indicated by patience and tolerance to
ambiguity
• Courage to take decisions and the humility to justify
them
• A pro-activeness to negotiate and manage NML rather
than seeking guarantees
Most of the insights obtained during the interviews in this study,
shed light on the causal factors for NML, and strategies to address
this challenge are discussed at length in subsequent sections.
They also lead to the conclusion that in order to reduce the area
of NML, both sides need to work on aligning and understanding
each other’s motives. This may sound easy, but it is a complicated
process that demands sensitivity and skill on both sides.
Organisations undertake two types of activities: task-oriented
and relationship-oriented. Family businesses are known to
spend substantial time on relationship-oriented activities. These
organisations are known to have high social capital. Frequently
family managed business is quoted as “family business is business
of relationship.” Lack of efforts to deal with issues in each of
these two areas could lead to undesirable business consequences.
Further, NML could be owing to either of two factors:
1.Delay in attending the business concern
2.Assigning inadequate importance to the issue
Both dimensions of NML cause inefficiencies and ineffectiveness
in organisations. By combining these two factors with business
goals and relational goals, NML can be classified into four areas
(table 1).
Each NML area poses different challenges and implications for
family firms. In cases where relational considerations dominate,
NML might have long-term adverse impact. However owners,
managers, and other family stakeholders might give different
levels of importance to business and relational issues.
Managing NML is the key to professionalise the relationships
between OEs and EEs. This essentially requires,
1.An examination of key characteristics of family-managed
organisations.
2.An examination of the various causes of NML, some of
which may be attributed to the key characteristics of family
managed organisations.
Both of these are discussed below:
Table 1: Types of No Man’s Land.
Delayed Action of the Issue
Lack of Importance to the Issue
Business
Delayed Business Response
Inadequate Business Response
Relational
Delayed Relationship Response
Inadequate Relationship Response
Types of Issues
Page 07
Incidence of No Man’s Land
In this research, wide variations were seen in perception of NML
across the three sets of executives. Though there was widespread
denial about the existence on NML, nearly one-third of OEs
accepted the existence of NML. However, only 13% of EEs and
14% of NGEs accepted the existence of NML.
Figure 2: Does No Man’s Land Exist? (% agreement)
33%
Owner
Executive
13%
External
Executive
In another company an EE at the top stated:
“There is little NML here. OE makes most of the decisions here.
He himself goes deep into the issues. He has created well-defined
systems. Hence the incidences of NML are very few in our company.”
14%
As there was wide spread denial of NML, we tried to measure
NML indirectly to validate the same. To measure the delayed
response to business issues, we asked, “Do we confront business
issues promptly here?”; the responses are as in figure 3:
Next Generation
Executive
Figure 3: Are business issues promptly confronted? (on a scale of 5)
It is interesting to note that while the viewpoints of the EEs and
NGEs are in synergy, the OEs differ from both the other groups
and perceive NML to be higher. This is possible because of the
following reasons:
• OEs are the ones who have toiled hard to set up the
company and have the highest stakes. Thus, they are
continuously vigilant about anything that may lead to
undesirable outcomes for the company and hence they
perceive the threat of NML more than the others.
• The visionary attitude, leadership qualities and experience of
OEs also make them more adept at identifying the not-sodesirable characteristics of their company.
• OEs’ passion for business is very high. One of the OEs stated,
“Business is my hobby. I do not get tired in business as I enjoy
it so much.” This also often leads to their higher expectations
from EEs. The mismatch between expectations and actual
performance often leads to the perception of NML.
In one organisation, the owner chairman stated:
“There is no NML here. I, myself, am a hands-on manager. I ensure
that no situation remains unattended.”
Interestingly, in the same organisation the head of HR stated,
“There are frequent changes of decisions by the owner. It has caused
high amount of NML in the company.”
Page 08
In another company, the head of HR stated:
“There is no NML here. We, the professionals at the top are very
vigilant. We take charge of the situation immediately whenever there
is realisation of any gaps or delay in decision-making.”
4.4
Owner
Executive
4.2
External
Executive
4.5
Next Generation
Executive
The diagram above shows an overall score of 4.4 and the
viewpoints of the EEs, OEs and NGEs show almost uniformity in
perception, thus indicating that incidences of NML on this aspect,
are low in these companies. Each group believes that the other
promptly responds to business challenges, which is a positive. This
could also be due to the core values and culture prevalent in the
organisations. These organisations are private entities and delays
in handling business issues is inconsistent with their core values
since it would be detrimental to their performance.
We further asked the question about the pro-action in the
company to assess NML. The responses are as in figure 4. On
this account, OEs response was 3.6, EEs was 3.9 and NGEs was
3.7, which indicates that family managed firms have significant
scope of improvement. This also reflects the prevailing zone of
NML in organisations. As most of the OEs and NGEs are involved
in strategic decision-making, EEs might be waiting for OEs and
NGEs to take a call on important decisions.
Incidenceof No Man’s Land
Figure 4: Pro-action in the company to assess No Man’s Land?
(on a scale of 5)
3.6
Owner
Executive
3.9
External
Executive
3.7
Next Generation
Executive
However, withdrawal of EEs from active involvement in the
companies makes it difficult for OEs and NGEs to respond very
effectively and ensure organisational pro-action. To overcome
this challenge, one of the EE who was the head of an important
business in a Group stated:
“It is important to keep OEs and NGEs involved in all the important
operational and strategic matters. Though I am completely
empowered to make decision, I ensure that they are either informed or
involved in all the important decisions.”
The OE and NGEs in the same company stated:
“We feel very assured and comfortable as the CEO shares all the
important decisions and information with us almost on real time
basis.”
To validate this further, we asked, “do managers hesitate in taking
decisions?” the responses were as under.
Figure 5: Do Professional hesitate to take decisions if given the
freedom? (% agreement)
75%
Owner
Executive
22%
External
Executive
40%
Next Generation
Executive
The findings were noteworthy and need to be delved into further.
Over 75% of the OEs believed that professionals hesitate to
take decisions if given the freedom. This finding is consistent
with previous research. OEs are generally capable of taking
decisions which involve high stakes and which may be called
‘risky decisions’ and this is where their interest lies as well,
from a business expansion point of view. Their experience and
interactions with EEs may lead them to believe that EEs do not
take decisions which are critical at strategic level (and their area
of interest and concern), though they may take decisions at
day to day operational level. There is also a general belief that,
most of the professionals are not encouraged to take critical
decisions involving reasonably high stakes and their risk taking
appetite in this regard is likely to be lower than that of the OE.
Understandably, an EEs preparedness to face failures is likely to
be limited because of the possible long-term implications of any
failure to their career, which they can ill-afford.
Ironically, the study found that while the OEs believed that
professionals hesitate in decision making, most EEs and NGEs
did not think so. As many as 78% of the EEs and 60 % of NGEs
(figure 5)felt that, professionals are becoming increasingly more
self-confident and are willing to take decisions. This may be
explained by the fact that all the organisations’ in this study, were
relatively large and well-known companies, where systems and
processes are already well established and OEs did not involve
themselves in operational decision making. Nonetheless, the
discrepancy in the findings between the OE on one hand and
EE and NGEs on the other indicates that while the EE may be
satisfied with his/her involvement in decision making, the OE still
expects more. This again has implications for NML.
Discussions during interviews revealed that NML on the
relationship dimension was perceived to be non-existent.
Consistently in all the companies, managers in all the three
groups typically responded in following words:
“The need to spend time on relationship building with external
network has reduced over a period of time. The required time is
adequately spent by NGEs and EEs. Internally, the acceptability of
NGEs is high. There is no delay and lack of response on relationship
related matters.”
To understand the concept of NML and reasons for differences
in perceptions of OEs, NGEs and EEs, it is essential to closely
examine the characteristics of family-managed firms in India. We
describe that in the next chapter.
Page 09
Characteristics of Family-Managed Firms in India
Family businesses present a paradox. They are often perceived to
be prone to nepotism and conflict. Yet, research indicates that
family businesses out-perform other firms on return on equity
criteria.
Family businesses have unique features in structure, relationships,
and decision-making. They simultaneously carry two systems:
the business system and family system. Families are about caring
and businesses are about money. Planning for these two, oftenconflicting systems, is complex and critical to family harmony and
business success. The complexity of the issues increases when the
Next Generation Executive (NGE) enters into the business.
Family business organisations typically have three groups of
internal stakeholders:
1.Owner Executives (OE)
2.Next Generation Executives (NGE)
3.External Executives (EE), who are also often referred to as
Professional Executives.
Understanding how family-organisations manage the dynamics
between these three groups of stakeholders, has both theoretical
and practical importance. While in some companies, the NGE and
OE think alike, in others they may differ significantly. The next
generation might give higher priority to economic considerations
than to the non-economic considerations. In one company, the
EE shared:
“OE did not believe in public share and borrowing. He believed that
entrepreneurs should not risk public money in business and thus
should not borrow for business expansion. However the NGE believes
that borrowing is essential for ensuring growth.”
Increasingly in India, NGEs are able to carve out an independent
business path for themselves. In one of the company, an EE
stated:
“OE’s influence in business is low. NGE has taken an independent
approach”.
In another company, an EE stated that people could relate more
to the OE who was highly driven, a role model and yet a people’s
man. He said,
“There is little NML with the OE. However there is significant NML in
Page 10
matters that are looked after by NGE. Many people are loyal to the
OE who is highly energetic. Clarity of roles with Chairman is high. It
is important to be honest with him and plead ignorance if not aware
of facts. EEs know what he expects. However, this is not true with the
NGE.”
The study also reveals that the imprints of OEs’ decision-making
style remains in the organisation, even after NGEs taking over
the management. In one business house, an EE stated about the
relationship between NGE and OE:
“The MD carries profound impact of his father. When confronted with
tricky situations, he often asks in the midst of the meetings, “What
would my father have done in this situation?”
It is essential that the top team works united. The adverse
impact of possible conflict between EEs, NGEs and OEs could be
disastrous. One of the EEs stated:
“In a family run business, alignment with the top is a must.”
The continuity of family members at the top, does not always
ensure continuity of practises; although the traditions and legacy
established by previous leaders may carry legitimacy. Successors
face the difficult task of deciding how much to conform or
deviate from the decisions made by their predecessors. This could
be a source of NML when the EEs who had worked with OE were
still employed. In one of the companies NGE stated:
“Many times, I have difference with the views of EEs on important
matters in the meetings. I have often decided to remain quiet to
avoid the risk of getting them emotionally hurt. I do lots of homework
to present my data-based analysis to them, to share my views in
meetings.”
Family firms are often started with intentions for the transgenerational sustainability of family involvement. Such intentions
partially mediate the relationship between family involvement in
ownership and management.
The tendency to behave altruistically towards family members
can make monitoring futile and upset the relationship between
the contributions and compensation of family members. The
other important family issues in Family-managed firms are:
• Long lasting influence of family on the dominant coalition
Characteristics of Family-Managed Firms in India
• Longer leadership tenures
• Desire to accumulate socioemotional wealth for future
generations
• Strong identification of the family with the firm
• Desire to maintain a positive reputation of the family
• Relational conflicts that can adversely affect strategy
implementation and relationships
Separation of Ownership and Management
Business houses in India are traditionally known for being
managed by family. There is an emerging trend in the country
where owners are able to differentiate between ownership
and management. Increasingly owners are willing to transfer
management to the professionals.
One of the first generation entrepreneur stated:
“I do not visualise any role in the current businesses of the Group for
the next generation. The members of the next generations will have
to start new ventures. Family members should be responsible for
creation and maintenance; growth of their creation should be left to
professionals. This approach utilises the capabilities of the two key
groups of people to the fullest.”
In one business house that had entered the fourth generation, the
NGE mentioned,
“There is no family member in business now. Competence cannot be
compromised and family members can often hamper the business if
they are not equally capable. I will be surprised if my children come
into business.”
Confirming the increasing trend of transferring management of
organisations to professionals, one OE stated:
“My role is that of providing Thought Leadership. I do not foresee a
situation when family members will hold substantial positions in the
existing Group companies. They will have to create new entities for
themselves. Once created, professionals need to manage them”.
He further stated:
“Entrepreneurs are creative people. Their creative energy can be
destructive, if not channelised properly. The large number of ideas
has potential to create chaos in the organisations. It is essential for
professional managers to balance the creative energy with their
patience and perseverance.”
In another group where the NGEs were still to be meaningfully
engaged in the business, the OE stated:
“The management of the company should be left to professionals.
The OEs role should be restricted to strategic decisions. Trust and
empowerment of EEs reduces NML and ensures success of business. I
am concerned about the aspirations of my two sons and their career.
However, I would be reluctant to assign them regular executive
positions in the Group.”
The responses indicate that, there is an increasing trend of
separation of ownership and management, though this trend
appears to be still in its nascent stage. In this study, all but three
organisations were willing to employ the next generation into
business. However, there were NGEs who believed that they were
born to take over the management of the companies at some
stage.
In another company where the second generation had entered
the business, the EE stated,
“All the roles except technology are occupied by EEs here.”
When asked about career options, NGE stated:
“I never thought of any career except to work in this company.
Since childhood it was known to me that I would be responsible for
managing this company.”
In another firm where many relatives were employed, the secondgeneration entrepreneur stated:
“All the family members in the company are professionals. They are
graduates in Chemical Engineering from the best colleges. Yet, we will
not recruit anyone from the third generation in the current business.
This would save the business from family’s relationship complexities.”
On the related issue of assigning roles to NGEs, one of the OEs
stated:
“Assigning leadership roles to my two sons has been bothering me. I
will have to ensure peace in the family and growth of the business by
appropriate allocation of ownership to them.”
Page 11
Characteristics of Family-Managed Firms in India
On the whole, it appears that OE’s are becoming slowly open to
hiring EEs in senior management positions. The emerging trends
are:
• There are variations in OEs’ individual preferences for NGE
over EEs. Over a long term, the choice is likely to be governed
by the capability, competency and commitment of the
NGEs and EEs. NGEs who dream of joining their parents’
business may be required to prove themselves’ to be capable,
professionally qualified, and thus “professionals like EEs”.
NGEs that succeed in doing so may continue to assume
a significant role in the management of family managed
business groups.
• OEs who are visionaries and want to make their business
empire big, understand the complications that sibling rivalry
and other relational factors can bring into the business and
act as roadblocks to expansion plans.
• The decreasing family size of business families (which is
restricted to one or two children in most of the families)
warrants the increasing involvement of professionals.
recruitment of relatives in their organisations. In a company
where a relative was employed, the OE stated,
“The relative is just like any other employee. I do not discuss any
business matter with him. Any attempt of discussion with him would
create serious problems for business.”
Involvement of Spouses and Relatives in
Management
Figure 6.1: What kind of role does OE play in the firm?
For effective execution of roles, decision-making powers are
defined in organisations. However, certain stakeholders can
wield considerable power owing to their proximity with the OEs
despite lower position in the organisational structure. Spouses
and children are the most influential among the family members.
The influence of other family members is dependent on criticality
of the relationship. Hence, in-laws, cousins and uncles and aunts
often gain legitimacy in family firms. Successful firms have
systematically protected themselves from relationship pressures.
In many of the business families, women are assigned the task of
maintaining family harmony and undertaking social activities. The
head of HRM in one of the companies stated:
“This is a Marwari company. In Marwari traditions, women are kept
outside the business. They are expected to maintain family relations.
This helps in maintaining balance between relationship and business
concerns.”
Eight out of twelve firms stated that they have strictly avoided
Page 12
Structure and OEs’ Role
In most of the firms, family members occupy critical positions.
However, the positions that are held by family members
change with progressive generations. In first generation family
organisations, maintaining network with financial institutions,
key policy makers, suppliers etc. is among the key roles of
promoters. However, in subsequent generations in family owned
organisations, this role is gradually taken over by EEs.
To manage NML effectively, it is essential to have clarity about
the roles of OEs. Hence, specific questions were asked about
the role of OEs in family managed firms. No manager in any
organisation was of the view that an OE has no role in the
company.
a ) As a Major Investment Decision taker: (% agreement)
60%
78%
80%
b ) As an Advisor or Consultant: (% agreement)
100%
Owner
Executive
89%
External
Executive
100%
Next Generation
Executive
Characteristics of Family-Managed Firms in India
When asked what kind of role does OE play in the organisation?
They all unanimously expected two important roles for the OEs:
1.Major investment decisions and
2.Advisory and consulting services.
One of the prime responsibilities of top management relates to
allocation of role to members of the leadership teams. This helps
the leaders in adequate governance of the workplace. Almost
all the respondents agreed, that this is an important role that
OEs should perform. However, the allocation of work to these
members should be undertaken by EEs or NGEs. Nearly 33% of
EEs and 60% of OEs expect to have little role in work allocation
at the top. This seems to be a risky trend from governance
perspective.
Further, this has implications for NML, since unanimity in this is
useful to minimise confusions related to work allocations. OEs
are seen as leaders who could be trusted for advisory role in
organisations. Their rich experience and past success makes them
extremely acceptable in this very important role.
Figure 6.2: What kind of role does OE play in the firm?
c ) As a Work Allocator to Team Members (% agreement)
40%
67%
Owner
Executive
20%
External
Executive
Further, companies viewed purchasing as an important role
that should remain either with NGEs or OEs. This overall trend
indicates that, OEs are willing to let go off the management of
organisations to EEs and NGEs. However, they ensure governance
through their involvement in key hiring, financial investments,
strategic decisions and purchasing
Family Members’ (NGEs and OEs) Role
In almost all the organisations, family members (OE, NGE or
both) were intensely involved in strategic decisions. As an EE
mentioned,
“Vision and Strategy are with family. Rest is with EE. Family provides
thought leadership.”
20%
The decisions that relate to the following areas were conceived as
strategic by OEs and NGEs:
• Large investment
• Diversification
• Key technology decisions
20%
Finance: In all organisations, the Chief Financial Officer (CFO) is
among the key members for decision-making. He is among the
most trusted persons of the business. Yet, the family members
personally review the financials of the company on sustained
basis. In one of the companies the OE stated:
“I have empowered the executives to take decisions on matters
related to one-time expenses. Any decision that involves recurring
expenses over a large period of time needs my approval.”
d ) As a Chief Decision Maker: (% agreement)
40%
With regard to the role of chief decision maker, about 40%
of OEs believe that this is their major role, whereas most EEs
and NGEs don’t treat this as a key role for OEs. On further
exploration, the managers stated, that OEs are not chief decision
makers for day-to-day issues of the organisation. They are left to
EEs. OEs are involved in periodic strategic decisions. Hence, major
financial decisions are taken either by OEs or in consultation with
OEs.
Next Generation
Executive
Another OE stated:
“Any payment over the specified amount needs my signature. This
enables me to keep good control over finances.”
Page 13
Characteristics of Family-Managed Firms in India
OE in another company stated:
“I review cash flow on a daily basis. This is critical for my business.”
Yet another OE said:
“Public Money is involved. It needs to be protected and ensure better
returns to investors. Careful decisions need to be taken.”
Thus, while perspectives may differ, the common point is that
decision making in matters relating to large financial investments
rests with the family.
Purchase: In almost all the companies, OEs are either directly
involved in purchases, or they keep a close watch over the same.
Some of the responses of OEs are listed below:
“The raw material in our product constitutes more than 60% of cost.
It is essential for me to ensure the purchase of raw material at the best
possible price. I cannot leave this decision to anyone. I myself take all
raw material related purchase decisions.”
EE in another firm stated:
“Being in trading, we operate with very thin margins. All purchases of
products are risky. Even a slight incorrect purchase decision can ruin
the organisation very quickly. Such risky decisions are necessarily to be
undertaken by the entrepreneurs.”
Key Staffing Decisions: OEs and NGEs are very sensitive about
the staffing decisions at key positions. They spend good time and
resources to identify and develop personnel for such roles. In all
the companies, in this study, OEs and NGEs take deep interest in
this function.
In fact, the importance of this function is clearly reflected in the
verbatim of one NGE, when he was asked what the key roles in
the company were:
“Roles of CEOs and HR are the most important in the company.”
A critical factor in the family’s participation in ownership and
leadership roles is ensuring, that qualified members are selected
and that they perform on the job. In all the organisations, OEs
stated that, their primary role was to ensure selection of capable
people in leadership roles and give them space to perform.
This is where family agreement plays an important role in
mediating disputes over how family members are selected,
for roles in family and business. It is important to have clear
criteria and a well-communicated nomination process, that
is applied consistently to avoid damaging conflicts between
family members. The next section discusses the ways that family
managed firms have adopted to overcome this challenge in
India. Effective family-governance and business-governance
mechanisms can prevent family members from claiming roles,
they are not prepared for or from continuing in roles where they
are not performing.
NGE’s Role
Family managed firms carry sound business strategies, but
lack of planning for the family, is perceived as a concern and
a serious threat to sustaining the family’s commitment. They
face challenges of finding ways to share the ownership among
NGEs along with deciding their roles. We found in the study that
successful firms plan well for the family to safeguard business
from any possible family conflicts.
Table 2: Action taken by one OE having 4 sons to safeguard the business from possible family conflicts.
• OE systematically planned and handed over different businesses to his sons. He allowed full freedom to his sons for expansion
and day-to-day management. He formed a norm that anyone could borrow from brothers but would have to return money.
• Brothers were made co-owners in the business. Every company’s shares were divided into 5 parts. Each brother got one part
and OE retained the fifth one. This fifth part was transferred to the mother after the death of OE.
• The fifth share, currently held by the mother will be eventually transferred to the operating son.
• Brothers are not inter-locked in the boards. They have no direct or indirect say in business.
Page 14
Characteristics of Family-Managed Firms in India
In one of the companies, following initiatives (described in table
2) were undertaken to protect the firm from possible conflicts in
the family.
In another Group, the OE carefully grew the businesses very
independently. The interdependence and inter-linkages of
businesses with each other was extremely low. This enabled the
OE to distribute the ownership among the NGEs successfully
without any family complexities.
However, NGEs do not have active roles in all the familymanaged business groups. In our study, four Groups had planned
to transfer the management to the professionals. The NGEs were
expected to play strategic and monitoring role on the board. In
the fourth Group, NGEs were not to be members of the Board.
They were expected to create new businesses. However, in some
of the Groups, taking over of business leadership position by the
NGE was taken for granted. In one company the MD (also EE)
stated,
“I was looking for my successor. I have surpassed the retirement age.
Three functional heads could have succeeded me. However, I had
my preference for the Head of Marketing. On a particular day the
Chairman called me and told me that he wanted his son to be the next
MD.”
The MD further stated,
“The NGE had graduated from a leading college in US. He had respect
in the Group for his behaviour and maturity. He had already worked
for nearly 7 years in the Group at different positions. I had been
instrumental in his grooming for leadership role. I announced it to my
head of Marketing.”
The marketing head replied to MD:
“I have no problem in reporting to the NGE. In family businesses one is
expected to report to family persons at some stage of their career.”
Family organisations are characterised by intimate involvement
of OE, NGE and EE. Each of them carries different levels
of aspirations and organisational expectations. During our
interviews, we observed that an NGE in one of the Groups was
finding it difficult to justify his involvement and aspirations. He
genuinely felt that he could have been more deeply involved in
the business that was already transferred to professionals. Such
attributes of stakeholders and their dynamics have significant
implications for NML and organisational performance. NML is
shaped by the blending of differential power, self-efficacy and
stakes between OE, NGE and EE.
Grooming of NGEs:
As the business Groups in India are increasingly becoming
dependent on professionals, the acceptance of NGEs in the
top managerial position remains a challenge. Inadequate
development of NGEs carries high risk of NML. Family managed
firms have been adopting a systematic approach to groom them.
Most of the NGEs unanimously stated:
“I have been listening to the business discussions since childhood
days. I have also attended the important meetings informally. This has
helped me a lot to shape up my business acumen.”
In this study we found that all the NGEs were technically
qualified. Majority of them received their qualifications from
top schools in US and Europe. Some of them had worked in
organisations outside the Group. Most of them had worked at
different levels before occupying the top management positions.
NGEs were aware of the possible conflict with the EEs who were
much more experienced and older in age to them. To overcome
this challenge, one of the NGEs stated:
“I look at them as my guides to learn from their wisdom. I respect
them. I prepare well with detailed analysis if I were to present a
different view on any matter in a meeting.”
Governance-the Board
Adequate governance is essential to minimise incidences of NML.
In family firms, traditional business goals of growth and profit
co-exist; with objectives of maintaining relationships among
family members and associated non-economic goals. Inadequate
governance can lead to possible conflict between the two, leading
to NML. Hence they need strong governance. However the family
managed firms are often criticised for having weak boards. The
Groups were asked whether the boards in family managed firms
were rubber stamps. The responses of the executives are indicated
in figure 7 (next page).
Page 15
Characteristics of Family-Managed Firms in India
Figure 7: Does Board act as a Rubber Stamp? (% agreement)
43%
Owner
Executive
50%
External
Executive
52%
Next Generation
Executive
About half of the NGEs and EEs believed that the board
was indeed a rubber stamp though the number of OEs who
believed the same was slightly less (43%). The difference on
this parameter partly owes to different expectations about the
role of the board. OEs’ expectations about own involvement in
the decision remain critical. Denial on the part of the OE about
weaknesses of the board, can lead to NML (linked to assigning
less importance to the issue) between them on the one hand
and the NGEs and EEs on the other, which can lead to delayed
business responses. To overcome this paradox, EE in one of the
companies stated:
“I am fully authorised to take business decisions. I am expected to
present my decisions to the board where family members are also
present. It is not essential, yet, I ensure to present my decisions before
implementation. This makes them comfortable in board meetings.
To manage their expectation, it is important for me to keep them
completely informed.”
An NGE who had seen a family split that hampered business,
stated:
“Boards should be more active, and only qualified family members
should be there on the Board.”
However, the NGE believing that the board should play a more
important role, is indicative of the increasing tendency for
preference of professionalisation of management and functioning
of the board.
Decision Making Speed
Family managed firms are known to be very agile in decisionmaking. The centralisation of authority and strong sense of
Page 16
Figure 8: Very agile in Decision Making? (% agreement)
100%
Owner
Executive
100%
External
Executive
100%
Next Generation
Executive
ownership makes them quick in their responses to the changes in
the environment. When asked about the quickness of decisionmaking as compared to large MNCs, all the respondents were
unanimous to agree that family managed firms were quicker of
the two. This also indicates that NML in family firms is perhaps
lower as compared to that in large MNCs. While family managed
firms are confronted with the challenge of balancing family
system and business system, MNCs carry multiple authorities at
different levels of decision-making with often contradictory goals
and objectives.
Long Term Orientation
The chief executives in family managed firms continue in their
roles for long term unlike shorter tenure of CEOs in other forms
of organisations. Family firms are known to value collective
benefits, reciprocity, long-term commitments, and relationships.
Non-family firms, on the other hand, are likely to be driven by
contractual relationships leading to short term orientations.
Figure 9: Chief Executives has a long term orientation in family
run companies? (% agreement)
67%
Owner
Executive
60%
External
Executive
60%
Next Generation
Executive
Characteristics of Family-Managed Firms in India
Figure 10: Advantage of working in a Family run firm: (% agreement)
a ) Encourage Ideas, allow experimentation:
67%
60%
91%
b ) Continuity of core values:
67%
80%
64%
c ) Passion for organisation:
67%
100%
91%
d ) Ownership feeling among the employees:
100%
60%
91%
e ) Higher risk-taking:
100%
80%
82%
f ) Empowerment and trust:
100%
62%
82%
g ) Network with stakeholders:
100%
80%
91%
h ) Sensing business opportunities:
100%
60%
60%
Owner
Executive
External
Executive
Hence it is expected that family managed organisations would be
more long term driven in their business decisions as compared to
MNCs.
The above result shows that, in majority of family-managed
organisations, the long term orientation is better than that of
MNCs. This unity of direction and purpose helps in achieving
higher performance.
Advantages of Family Firms over MNCs
Family managed firms carry many distinct advantages over
MNCs and other forms of organisations. The list of advantages
with percentage of respondents agreeing to the same is shown in
figure 10.
All the three groups believe that family managed businesses are
better than MNCs and other forms of large organisations on
all of the above mentioned traits. However, there is unanimity
Next Generation
Executive
about networking with stakeholders and risk-taking. Passion for
the organisation is believed to be high particularly by NGEs and
EEs and ownership by OEs and NGEs. OEs believe very strongly
that family businesses are good at sensing business opportunities,
networking with stakeholders, offering empowerment and trust,
and risk taking.
There is a difference of opinion between the three groups; all
differences are in the positive direction. EEs feel significantly
less positive on the two parameters of ownership, and trust and
empowerment. This is significant and indicates that expectations
of EEs in many cases are not being satisfied on these two
parameters. However, NGEs and OEs seem to be satisfied on
these parameters.
The above listed advantages also potentially explain the better
performance of family-managed firms despite the possible
complexity of family system.
Page 17
Characteristics of Family-Managed Firms in India
Figure 11: Disadvantage of working in a Family run firm: (% agreement)
a ) Loyalty to family is more important than performance:
40%
b ) Limited growth opportunities at the top:
0%
c ) Forced decision making:
40%
d ) Ego overrules, dissent voice is not encouraged:
40%
e ) Family issues cause problems:
40%
43%
Owner
Executive
External
Executive
Disadvantages of Family-managed firms
The family managed firms are often criticised for reasons listed
in figure 11 (next page). Interestingly, majority of people disagree
with these disadvantages as indicated by the low percentages.
About 57% of EEs believe that family loyalty is more important
than performance in family managed organisations, though OEs
and NGEs do not agree with EEs as much on this. While none of
the OEs believe that there are limited growth opportunities at
the top, a few NGEs and EEs think otherwise. However, a majority
of them largely disagree with this statement. On the whole, like
in the case of advantages, despite some variations, most do not
agree to the disadvantages of family run businesses.
The above results indicate that family-managed firms in India
through professionalisation of their management practises have
overcome traditional weaknesses.
Page 18
57%
25 %
43%
29 %
42%
25 %
58%
33 %
33 %
Next Generation
Executive
Owners’ Commitment
The owners’ investment decisions represent their level of
commitment to the future of the family business. Owners directly
influence the business through their financial investment and
active participation in ownership and governance roles.
In this study we found that the commitment of First Generation
Executives was found to be highest. When asked about hobbies,
two Owner Chairmen stated:
“Business is my hobby. I live business, dream business and breath
business. It is my source of energy.”
Through active ownership and capable leadership, family
members’ personal commitment to supporting the family
business was reflected in plenty. The presence of qualified
family members in the business as executives or board members
strengthens the business’ ability to act and to mobilise its
stakeholders around critical decisions and actions.
“I never thought of any career except to work in this
company. Since childhood it was known to me that
I would be responsible for managing this company.”
EEs’ Capability and Professionalisation
Varying concerns may be of priority to the OEs, NGEs and EEs,
and each may be unaware of the others’ priorities or perceptions,
thus widening the No Man’s Land. The causal factors are
embedded in:
• Passion and involvement
• Decision-making and empowerment
• Capabilities of EEs
58% of the people believed that the passion was same. However,
in comparing the passion of OEs and NGEs, 5% felt that the
passion of NGEs, was more as compared to OEs and as many as
69% felt it was the same.
Figure 13: How does the passion of NGEs compare with OEs?
Passion and Involvement
Lack of passion of EEs and NGEs is known to be an important
factor that leads to NML. The level of passion and involvement of
OEs towards the organisation and business per say is known to be
higher as compared to EEs. In more than one company, the OEs
stated, “Business is my Passion”. For the OEs and NGEs business
is also a symbol of wealth and prestige. It leads to their long-term
orientation and possessiveness.
The earlier study done by Amrop International, found the passion
of OEs to be more than that of EEs. Further, many EEs also agreed
that passion towards the organisation would be higher in OEs as
compared to them. The passion of EEs can be driven by multiple
factors such as:
• Job Satisfaction (which is influenced by opportunities for
growth, respect and recognition and so forth)
• The position they occupy in the company
• Family security and need for job security
• Length of stay in the company
Interestingly, in this study, when OEs, NGEs and EEs were asked
“How does the passion of EEs compare with that of OEs?” about
Figure 12: How does the passion of EEs compare with OEs?
0%
More
Page 20
58%
Same
42%
Less
5%
More
69%
Same
26%
Less
In the former case, while 42 % believed that the passion of EEs
was less, the findings nonetheless show an increasing trend in the
passion of EEs. This may be indicative of their satisfaction with
their work, work environment and relations at workplace. A senior
EE mentioned that business was his passion. Yet he would not
start his own independent business. His verbatim was:
“I never felt like starting my own business. I always felt it to be my own
company. I get high respect from both OEs and NGEs. Professionalism
and merit bring respect from NGEs.”
The passion of an EE is driven partly by the passion for work
and partly by family security. It is not necessarily tied to any
organisation per se. Their level of involvement and passion can be
governed by other multiple factors as well:
• The fact that they have an ultimate boss who will remain the
prime owner and decision maker, can lead to lower passion
towards the organisation in some people.
• EEs’ level of passion for the business can be dependent on the
stage of the firm’s life-cycle they join and stay on. Those who
join when the going is good may leave during the bad times,
if they have a better opportunity elsewhere. However, those
who grow with the organisation show greater passion and
commitment.
Those who join at the start-up phase and grow with the
organisation show higher involvement. Those who stick to the
EEs’ Capability and Professionalisation
organisation beyond 7-10 years are likely to develop a bonding
with the organisation that leads to higher commitment.
The passion is also reflected in long tenures of EEs in family
businesses. EEs’ length of stay on an average was 12.8 years. This
high tenure of EEs at the top level indicates their high level of
commitment. EEs seem to believe themselves to be “a part” of
the set-up. This could well explain their involvement and passion
towards their companies.
Figure14: Average number of years in current position.
30
24.7 years
12.8 years
7.3 years
20
Family managed firms will have to create an organisational
climate that is attractive to high-quality EEs with high levels of
passion. Research by Amrop International indicates that highly
successful, entrepreneurial organisations can be built if Relative
Executive and EEs are passionate about their work and place of
work.
Decision-making and Empowerment
10
0
Median
to the EE and the EE in turn realises, that he can use his personal
and professional skills for the benefit of the company. In one
company, the founder shared:
“Professionals are responsible for management of the company and
they can take all the important decisions. You have to respect people;
then only you can be happy. I believe in humanity. We respect them.”
Owner
Executive
External
Executive
Next Generation
Executive
28 years
7 years
6 years
11.6 years
5.3 years
Standard 14 years
Deviation
While the average length of stay of the NGEs in the sample
was 7.3 years, their level of passion is nonetheless perceived
to be very high as seen from the chart above. NGEs are bound
to have greater passion than EEs for the company due to the
relational aspect - the family connection. However, 26% of
the people believe that the NGEs passion is lower than that of
OE’s. This may be attributed to the fact that they were not the
founding generation, but are simply next in line to lead an already
established organisation, by virtue of their relationship with the
OE.
NML will be higher in case of incongruence between the passion
of the OE and EE. However, it will be reduced greatly if each side
appreciates and addresses the other’s concerns. For instance, the
OE provides ample opportunities for growth and development
This is a critical issue that creates NML on which both OEs and
EEs have to reflect upon, since it has significant impact on how
it is managed. This research demonstrates how attributes such
as knowledge, values, and beliefs influence people’s perceptions
and priorities and thus, the decision-making. Inconsistency of
decisions, domination and power differentiation add to creation
of NML. In one of the companies the head of HR stated:
“OE in our company often keeps changing his decisions. It creates
confusion and inaction among the EEs. NML is high here.”
Ironically, in the same company OE stated:
“I take all the important decisions here. Owing to business model, it
is important for me to involve myself in all the important decisions
Hence the scope for NML is low here.”
Figure15: Objectivity in Decision Making? (on a scale of 5)
3.3
Owner
Executive
4.3
External
Executive
3.7
Next Generation
Executive
Such problems could be significantly controlled with increasing
thrust on objectivity in decision-making. Interestingly, in this
study it was found that OEs gave lesser importance to objectivity
in decision-making as compared to EEs. On a scale of 5, EEs gave
Page 21
EEs’ Capability and Professionalisation
it an importance of 4.3, whereas OEs gave it an importance of
only 3.3 (figure 15). OEs seem to rely more on their heuristics.
Perception on empowerment, an important factor that can
impact NML significantly, is also found to be different. OEs
believe that EEs are significantly empowered (4.8). However, EEs
and NGEs believe it to be 4.3 and 3.8 respectively. In one of the
organisations the OE stated:
“I used to take all the important decisions till two years back. I have
started to withdraw.”
Figure 16: Empowerment? (on a scale of 5)
4.8
Owner
Executive
4.3
External
Executive
3.8
Next Generation
Executive
In this study, most OEs and NGEs agreed that the founder played
the role of the advisor and key decision maker. However, most
also felt that they gave the professionals enough empowerment
to take decisions. Promoters, despite claims of delegation and
empowerment, continue to hold high power based on control
over financial and other resources. Under such environment in
family businesses, EEs often seek legitimacy for their actions
through internal norms. In younger organisations where such
norms are inadequate, NML is experienced. However, in older
organisations, intensity of NML reduces significantly as norms and
systems get developed. In one of the organisations, the promoter
stated,
“I have been creating systems and norms in the company. These
systems leave little scope for NML.”
Previous research indicates that often, EEs may hesitate to take
decisions, even if they have been given the freedom to do so. By
training and grooming, most of them are not encouraged to take
critical decisions involving reasonably high stakes and their risk
taking appetite is likely to be lower than that of the OE. Their
preparedness to face failures is limited because of the possible
long-term implications of any failure to their career, which they
Page 22
can ill-afford. The level of hesitation may be higher in small as
compared to big family run enterprises. This is because the OEs’
level of involvement in day to day activities and decision making
will be higher in small as compared to big businesses, where
systems and processes are well in place. Moreover, in large or
rapidly growing organisations, the distinction between deciding
strategy and its execution, lessens simply by virtue of the sheer
scale and complexity of operations.
As in the case of synchronising passion, it is the responsibility of
the OEs to design procedures and mechanisms to encourage and
force EEs to take decisions. One OE believed,
“Thoughts are the sources. They need to be valued…”
However, not only do systems and processes need to be
strengthened, but also EEs must be given reason to believe that
OEs will stand by them and guide them in case of any errors in
decision making.
EEs’ Capabilities
The ability to manage NML through empowerment of EEs would
essentially require high professionalism. The study done by Amrop
International, discussed earlier, revealed that the challenge for
family managed organisations lies in OEs’ handling their working
style, putting transparent performance management systems in
place and institutionalising decision-making processes without
diminishing the key attractions, such as speed of decision-making
and scope for experimentation.
Professionalism may mean different things to the OE and EE. For
instance, when asked about what professionalism means to an
OE, he replied:
“Professionalism to me implies the ability to let go, introspect,
Indianness and open mindedness…”
While the OEs may believe they are running the company
professionally, the EEs may have different opinion. The
perceptions of each, in turn, will determine the attitude and
behaviour towards the company and work per se. Well-aligned
orientation, goals and vision of OEs, NGEs and EEs will reduce
the intensity of NML in organisations. To determine differences in
perception towards the meaning of professionalism, NGEs, OEs
EEs’ Capability and Professionalisation
and EEs were asked questions pertaining to different parameters
of professionalism. The value that the three groups assigned to
each of the parameters is reflected in figure 17:
OEs value leadership the most, giving it a clear 5 rating on
average, whereas the other groups trail slightly lower. This
could be possibly explained by the greater average time spent
in leadership by OEs versus that for NGEs and EEs, which
allows OEs to appreciate and value leadership as a key facet of
professionalism as compared to the other groups.
Figure 17: Perception towards the meaning of professionalism
(on a scale of 5)
People
Orientation
Transperancy
4.8
4.5
4.6
4.2
4.3
3.3
Stakeholder
Orientation
4.5
4.2
3.3
Leadership
5.0
4.2
3.9
Owner
Executive
External
Executive
Next Generation
Executive
Any mismatch in orientation deserves more attention from
both sides in order to create a mutually acceptable view on all
parameters, thus minimising the NML.
All the groups have a similar total score on different parameters
of professionalism. However, an overall score of 7.4 on
professionalism indicates, that EEs need to reorient themselves to
be more professional. Business schools, engineering colleges and
other professional institutions will have to reflect on their training
content and processes to improve the score on professionalism of
executives.
We explored the question about the competencies that were
sought by family managed firms, while hiring managers at top
managerial positions. This indicates the strategic direction
in which the firms would like to move in the future. This is a
strategic issue and carries significant implications for NML in
these firms.
Figure 18: Professionalism Score. (on a scale of 10)
7.3
Owner
Executive
7.4
External
Executive
7.6
Next Generation
Executive
In this study, OEs perceived the right technical capability to be
very crucial for their success, whereas EEs and even NGEs gave
it relatively lower importance. This indicates that OEs believe
that execution of their strategic plan requires higher technical
capability of EEs. Interestingly, all OEs, NGEs and EEs look for high
leadership capabilities in EEs at top managerial positions. In fact,
in the context of professionalism, OEs rated leadership as one of
the most important indicators of a professional.
The urge for leadership among the NGEs and EEs is so high that
they value technical capability requirement lower than that
by OEs. Hence, the intensity of NML in these firms will reduce
over a period of time. However, currently there seems to be an
expectation mismatch between OEs, NGEs and EEs.
On an important parameter of integrity, OEs and NGEs carry
no compromise with a score of 5. However, EEs’ score was 4.5.
This is also an indication of preparedness of OEs and NGEs to
empower EEs and thus the required high trust in them. However,
some of the EEs still believe that such empowerment may take
some time.
Page 23
EEs’ Capability and Professionalisation
Figure 19a: Competencies sought for hiring at Top Management Level? (on a scale of 5)
Owner
Executive
External
Executive
Next Generation
Executive
Owner
Executive
External
Executive
Next Generation
Executive
Right Technical
Capability
4.5
3.6
3.8
Mission
Congruity
4.4
4
3.6
Leadership and
Respect
4.4
4.3
4.5
Business
Acumen
4.2
4
4.8
Integrity
5
4.5
5
4
3
4
Humillity
3.8
4
4.3
4.6
4
4.4
On another important parameter of Humility, the overall rating
is 3.6. EEs believe that this score should be high (4) as compared
to the same for OEs and NGEs at 3.8 and 3.3 respectively. The
delicate balance between business system and family system
requires extremely high sensitivity among the EEs and they rate
humility high. However, this challenge is not perceived high by
NGEs. As NGEs begin to get ready for leadership positions in
these firms, they will have to realise this need. The prevailing gap
between NGEs and EEs on this account might lead to higher NML
in years to come unless addressed soon. Similar difference is seen
on the important parameter of vision and mission congruity. The
group as a whole rated 3.9 for mission and vision congruity. NGEs
trended a little lower than average, at 3.6, while EEs and OEs
were somewhat higher at 4 and 4.4 respectively.
Business acumen seemed to be a unifying theme, for all the subgroups in rating the capability of EEs. All the subgroups seemed to
find business acumen as a defining quality for EEs on average. The
average group rating was 4.5.
All three groups rated team orientation ability high. On
entrepreneurial skills, which received a group average rating
of 3.8, EEs seemed to give it lesser importance than OEs and
NGEs. EEs continue to perceive themselves in the execution role.
They do not visualise themselves into entrepreneurial activities.
Page 24
Entrepreneurial
Skills
Team
Orientation
However, the expectation of OEs on this account is higher. Unless
addressed, this could lead to NML in organisations.
There are differences in importance given to effective change
management and approachability, as capabilities, with OEs again
rating both these capabilities the highest and EEs, the lowest.
OEs clearly have expectations that EEs should be effective change
managers as well as approachable, whereas EEs don’t have similar
perceptions, more so with regards to change management.
Interestingly, while NGEs gave it substantial importance, one of
the NGEs mentioned,
“Some people are very comfortable with me in my professional role,
some are not so comfortable.”
Ethical business practice also reflects differences in the thinking,
which in turn can impact attitudes. Interestingly, while the group
average rating is 4.7, EEs perceive it to be extremely important,
rating it a perfect 5. OEs rate it the lowest at 4.2. However, the
overall score is very high. NGEs and EEs seem to be extremely
concerned on this account and are unwilling to compromise at
all. OEs, due to their higher number of years in leadership roles,
are concerned about the environmental challenges, yet, they
want highest level of ethical business practises. During the study,
one of the OEs stated:
“I ask everyone here not to get terrorised by inspectors from various
EEs’ Capability and Professionalisation
Figure 19b: Competencies sought for hiring at Top Management Level? (on a scale of 5)
Owner
Executive
External
Executive
Next Generation
Executive
Owner
Executive
External
Executive
Next Generation
Executive
Effective Change
Management
3.8
2.8
3.3
Diplomacy
2.8
3
3.7
Approachable
4.6
3.8
4.3
Process
Orientation
4.2
3.3
3.6
Ethical Business
Practice
4.2
5
4.8
Experience
3.2
2.8
3.8
Passion
4.8
4.3
4.8
Clear
Communication
4.4
4
4.1
Government departments. I ask them to be extremely transparent and
follow the laws of the land completely.”
Diplomacy is not rated high by any of the groups. It is relatively
rated highest by NGEs and lowest by OE’s. On the other hand,
process orientation sees OEs placing somewhat more importance
than EEs and NGEs. This might indicate that EEs do not perceive
process orientation to be as important as OEs would want them
to. This shows that OEs are willing to empower EEs and exercise
control through processes in organisations.
Experience scored relatively low on average as a desired capability
for EEs (3.4). Further, EEs gave it least importance while NGEs
gave it maximum importance as a capability. One of the EEs
stated:
“In family managed firms, professionals can expect to grow very fast
as OEs are willing to pass on large responsibilities to capable and
energetic managers at an early stage of their career. I became head
of Finance and Account Function at the Group level. I was preferred
over many senior colleagues. Such decisions are possible in family
managed companies. Having received such recognition, I stayed back
with the group all through my early career. ”
All groups rated clear communication to be an important
capability with OEs giving it maximum importance as compared
to the other groups.
In addition to the 16 capabilities discussed above, one NGE
counted aggression and execution to be important qualities in
EEs. It would be worthwhile for the OEs and EEs to appreciate
these underlying differences and use that as the basis to manage
NML.
Conflict Between Family and Business Systems
Family expectations and business demands often result in conflict
and NML. All businesses demand well-trained and capable
executives to fill management roles in the firm. However, most
parents see their offspring as capable and their logic is simple: “we
own a family business that needs people and my child requires a
job.” In one company, an NGE narrated,
“Businesses were planned for distribution among the two sons.”
Next-generation career is potentially a source of
misunderstanding and stress, thus leading to NML. This study
indicates that incidences of NML owing to this are low. Family
managed firms have discovered ways to manage the two systems
simultaneously. The report so far has discussed the various factors
that lead to NML. The concluding chapter focuses on strategies to
manage NML.
Page 25
Strategies to Manage No Man’s Land
NML is bound to exist to a greater or lesser extent in any
organisation. This is likely to be so, due to differences in thinking,
beliefs and perceptions of different individuals. The owner has
his own perceptions about what is important for his company,
the NGE has his own (though they may be influenced by family
thinking to a certain extent) and the professional executive,
who has no relationship with the owner except for professional
relationship, brings in his own values, attributes and cognition to
the company, thus influencing the work environment in his own
way. Hence, the views of OE and EE will differ on various issues.
The NGEs in this study showed similarity in thinking on some
aspects with the OEs and on others, with the EEs. This primarily
owes to the fact that the NGEs of today, are joining their family
businesses, after having obtained the required professional
qualification or training and so understand as well as show, an
increasing preference for professional management of their
company. However, due to the family environment and culture
they were brought up in and influence of their parents, they still
think similar to their parents on some issues, especially when it
comes to the issues of loyalty and passion for the company and
leadership, as seen in this study.
NML are reflected in this chapter. These are:
• Clarity of roles
• Strong governance
• Handling succession at top positions
The previous study done by Amrop International found that NML
did exist in companies. Moreover, passion for the business was
one issue on which EEs and OEs differed, since passion of OEs
was much higher than EEs. This is one place that the findings of
this study differ. While all did believe that EE could not be more
passionate than the OE about the company, as many as 58%
participants from all 3 groups believed that the passion was same.
This can be explained by the fact that all the EEs in this study had
very long associations with their respective company and most
were in senior management positions. Secondly, the companies
in this study are also well established and reputed and run quite
professionally. Perhaps because of this, there is congruence of all
the three groups on mission and vision, leading to lower NML as
compared to the previous study. More research needs to be done
to establish the link between the company size, reputation, hiring
procedures, professional attainment of the company and NML.
In another company, the OE stated:
“I am hands-on here. I visit the work place almost every day and take
a review of performance. Hence there is little room for NML in my
Group.”
One strong point of agreement between the study done by
Amrop International and this study is, that in order to reduce
NML, it is most crucial for owners to focus on securing the
external executive’s buy-in, so that their own approach and style
is aligned to an enterprise wide agenda. The strategies to reduce
Page 26
Clarity of Role
Clarity of roles is frequently seen as an effective response to
NML. This research also demonstrates how attributes such as
knowledge, values, and beliefs influence manager’s perceptions
and priorities, thus decision-making. Domination, power
differentiation and novelty as well as inconsistency in decisions by
an owner add to creation of NML.
To minimise role conflict, and thus NML, two types of views were
taken by OEs in this study. These related to:
• Comprehensive involvement of OE and little discretion to EEs
• Complete empowerment of EEs
When asked about NML, OE in one of the companies stated:
“There is no NML here. I take all the decisions here.”
However this approach puts constraints on organisational growth,
as OEs would be left with little time for decisions relating to
Growth and exploitation of business opportunities. Another OE
shared this when he stated:
“I used to take all the important decisions till two years back. I have
started withdrawing.”
A trend of separation of ownership and management is observed
in the study. In this study, at least 4 companies’ OEs/NGEs
mentioned that the management was completely transferred to
professionals. In one of the companies, an EE said,
“Promoters have delegated the responsibility of managing the
organisation to professionals. They seek alternatives/options from
managers. Their suggestions are sought. Rarely decisions from the top
are imposed. Hence risk-taking appetite of the managers is high. They
are not scolded for genuine mistakes.”
Strategies to Manage No Man’s Land
It is vital for EEs to align their style of functioning with family
members, especially when many family members are involved in
the business. EEs also need to have clarity on the extent of family
involvement and should be clear about whom all in the family
are they answerable to. EEs who clearly define the limits to their
relationship with other family members will be more comfortable.
While some owners choose to have many family members
involved in the family business, others may choose not to. As one
OE stated:
“In my company, family members have no operational role. They
cannot be held accountable owing to relationship risk.”
Interestingly, in the same company, one EE stated:
“Professionals want family members to enter into business. However
the Chairman does not want it to happen.”
Empowerment of EEs could potentially lead to disaster in the
absence of governance. The adequate governance mechanisms
ensure minimisation of NML in organisations. However, it raises
another potentially risky issue. How to manage the career
aspirations of NGEs? In some of the firms, NGEs were destined
to occupy the leadership positions. In other firms, NGEs struggled
to justify their involvement in business as CEO roles were handed
over to EEs. This potential risk is addressed in few firms by
involving NGEs in creating new businesses and managing them.
Governance
Governance in the context of companies consists of a set of
processes, policies, structure, culture and laws that affect the way
people respond effectively in the larger institutional interests.
Governance mechanisms ensure the accountability of key
members and thus have an extremely crucial role to play in the
running and growth of any company/institution.
Governance structure is composed of four pillars:
Key Systems: This includes development of appropriate
systems for smooth running of the organisation. Appropriate
Hiring, Staffing and Growth of Key Personnel, and Performance
Management Systems, have a crucial role to play in ensuring
minimal NML. Hiring at the top level should ensure that the
values and mission of those hired are congruent with that of the
company.
Organisational Structure: This defines the role, responsibility,
reporting relationship and communication system within the
organisation. Four major aspects of the organisational structure
that need to be considered include
• Centralisation: This indicates the extent of centralisation of
decision-making powers within organisations.
• Formalisation: It defines how the level of formality in
various components of decision-making units is created in
organisations.
• Vertical Differentiation: This refers to the hierarchy within
organisations.
• Horizontal Differentiation: This refers to the differentiation
based on functions and specialisations.
Too much or too little of each of the centralisation, Formalisation
and vertical differentiation can be problematic and therefore,
optimal level of each is most conducive, and this is what the OE
should strive to achieve.
Appointing Key Personnel: People in key roles like members
of the crucial decision-making bodies and top administrative
positions play an important role in the governance of any
Institution. Hence, appointing experienced and appropriate
people, whether NGEs or EEs, in these roles is extremely
important.
Organisational Culture: Culture is an intrinsic mechanism of an
organisation that governs the behaviour of its members. A strong
and appropriate culture creates an invisible control over the
people, which is beneficial to the organisation.
Appropriate governance ensures NML is kept under control
and organisations are protected from possible shirking of
responsibilities by the EEs at the top managerial positions.
It was observed during the study, that following are some
of the governance mechanisms that have been employed
by organisations in this study. Closer examination of these
mechanisms shows that all the four pillars of governance
discussed above are addressed in some way or the other in the
following:
• Creating Governance Structure
• Aligning Family Plan and Business Plan
• Creating Norms, Rules and Systems
• Careful Selection of Personnel for Leadership Roles
Page 27
Strategies to Manage No Man’s Land
• Creating Unifying Culture
• Open Communication between OEs, NGEs and EEs
In view of the relevance of the above mechanisms to reduce NML,
each of these has been explained separately below, citing suitable
examples.
Governance Structure
As discussed earlier in the report, boards of family managed firms
are constantly being strengthened. Members in the board are
constantly encouraged to ask probing questions. In a company
the OE and NGE stated:
“We consider the views of board members very seriously. We have
persuaded some of the top professionals of the Country to be in our
Board.”
EE in the same company stated:
“OEs and NGEs take active part in board meetings. It helps us to get
assured on our strategic directions through our presentations and
comments in the board. Other members of the board are also very
active. Their views are considered very seriously.”
However, functioning of the board is not strong in all the
companies. In family managed businesses, many a times, the
board acts just like a rubber stamp, which is not in the best
interest of the company. In this study, as many as 58% of the
respondents agreed that the board was more like a rubber stamp.
One EE stated:
“Our board is a rubber stamp. Here, ego overrules and dissent is not
encouraged. Family issues are causing problems”
While lesser number of OEs believed it to be true, as many as
52% NGEs believed it to be true. This shows a positive trend,
because if the NGEs realise that the board is weak, being owners
of the company, they can make efforts to strengthen the board.
One of the NGEs opined:
“Board should be made more active, and only qualified family
members should be there in the board.”
Further, the family managed organisations also confront family
system. To balance the family system issues and business issues,
firms actively constitute a team of people either formally or
informally. In one company, a formally constituted Family
Council exists. The EE who is the member of the council stated:
Page 28
“The Family Council consists of OE, three NGEs and me. We discuss all
the important matters, including family system issues candidly in this
meeting.”
In another organisation an informal sounding board exists. The
OE stated:
“Whenever I confront a challenge, including family system challenges,
I freely discuss these matters with some of the professionals. These
professionals are highly respected in the country. They always give me
sincere advice.”
Aligning Family Plan and Business Plan
OEs and NGEs need to carefully plan out how to align the family
and business plan. They also need to have clarity on how much
they want to invest in other businesses or on business expansion
or whether they want to sell their business. Thus, they must be
clear on their business strategy: invest, hold, harvest or sell. This
in turn will determine their growth path and extent of family
involvement they would want in the business.
When asked about the role, a very popular and well respected
NGE had taken, the EE narrated:
“The OE had divided the responsibility between three sons. There are
no issues with an NGE heading this business. He believes that either
you lead from the front and be a role model or be out of business
after setting the targets. He respects professionals and believes that
professionalism and merit bring respect. Business matters and family
issues are discussed in Apex Body where decisions are made to close
the issue.”
Creating Norms, Rules and Systems
As discussed earlier, most OEs and NGEs agreed that the
founder played the role of the advisor and key decision maker.
However, most also felt that they gave the professionals enough
empowerment to take decisions. Promoters, despite claims of
delegation and empowerment, continue to hold high power
through control over financial and other resources. Under such
environment in family businesses EEs often seek legitimacy for
their actions through internal norms. In younger organisations
such norms could be inadequate. However, in older organisations,
intensity of NML reduces significantly as norms and systems get
developed. In one of the organisations, the promoter stated:
“I have been creating systems and norms in the company. These
systems leave little scope for NML.”
Strategies to Manage No Man’s Land
An OE stated:
“I have defined financial limits for managers to decide on all expenses
that are non-recurrent. For recurrent expenses, my prior approval is
required irrespective of size of expenses.”
Some of the systems that are carefully designed from governance
perspective are Hiring, Staffing and Growth of Key Personnel,
Performance Management System (PMS), Management
Information System (MIS), Purchase Systems and Budgeting and
Accounting System (BAS).
The study done by Amrop International, discussed earlier,
revealed that the challenge for family managed firms lies in OEs’
handling of their working style, putting transparent performance
management systems in place and institutionalising decisionmaking processes, without diminishing the key attractions, such
as speed of decision-making and scope for experimentation.
Careful selection of people in leadership roles
To overcome the risk of shirking and NML, firms need to select
personnel for top managerial positions carefully. As discussed
earlier in the report, firms prefer persons with following
capabilities for top managerial positions:
1.Integrity and ethical business practises
2.Team work and leadership skills
3.Mission and vision congruity
4.Business acumen
5.Passion
6.Communication ability
The thrust on this could be assessed from the following
statement of an EE:
“We wait patiently for the right candidate for top management
position. At times it takes more than a year for identifying and
appointing such a person. However, we never compromise on the
capability and commitment of a person for leadership role.”
It is natural that organisations that want to be professionally
managed will look for right candidates. However, why do
professionals join family run companies? In this study,
perceptions of all the three groups were sought on what they
believed EEs valued most - high compensation, company
brand, professional growth, caring approach or inter collegial
environment. All the measurements are in figure 20 below.
Interestingly, while most EEs believed that, they were not
swayed by high compensation, most NGEs and OEs felt that this
mattered to EEs. In the opinion of EEs, even company brand did
not hold much relevance. This may be true to quite some extent
because if the brand did matter, they would have sought jobs in
bigger multinationals. The OEs and EEs opinion was congruent on
this, though NGEs believed that brand does matter.
Figure 20: Why do professionals join family family run
companies? (on a scale of 5)
High
Compensation
2.5
1.7
2.6
Company
Brand
2.9
3
3.3
Professional
Growth
2.9
3.3
3.5
Caring
Approach
2.9
3.3
3.5
Inter Collegial
Environment
2.9
3
2.9
Owner
Executive
External
Executive
Next Generation
Executive
Professional growth, caring approach and collegial environment
were important for EEs and the NGEs shared this view. One EE
stated:
“Families run at individual level, MNCs at Institutional level. In the
former, people are recognised well and cared for.”
Page 29
Strategies to Manage No Man’s Land
Another EE stated:
“Family businesses provide a growth oriented environment, higher
tolerance and have an organic character.”
Creating unifying culture
Organisational Culture, which is the intrinsic mechanism of an
organisation, governs the behaviour of all its members. A strong
and appropriate culture creates an invisible control over the
people, which is beneficial to the company.
The perceptions, that the owners as well as employees carry
about the business, and the manner in which it is being run, is
another area that creates NML. This is because the perception
that one holds towards the other and towards work will in turn
determine the attitude and behaviour towards the same. If the
views of both, the owners and executives, are well aligned on
the positive and negative aspects of the family business, it is
conducive. The value congruence of EEs with organisations is
critical for managing NML. Values create invisible control over
the thinking of people. People are guided by the philosophy and
values of the organisations. This is a challenging area. As many
OEs stated:
“EEs (especially those who are not in one of the senior positions) are
likely to adopt a more short-term outlook in dealing with their work as
they rarely plan to stay long in an organisation. They do not value jobs.
They change jobs fast.”
To achieve value congruence, organisations create many rituals,
metaphors and practises. EEs in a company mentioned that the
family members believed in rituals and in celebrating important
festivals together to enhance relationships with the EEs. For
instance, one OE stated:
“We follow the Laxmi Saraswati Durga Model as part of our
organisational culture due to which employees prefer our company.
This implies sharing wealth, providing scope for intellectual growth
and recognition and empowerment. Key cultural aspects in my
business are that I am never the Chairman of the Board. People do not
want to dissent with the OE and we believe that dialogue is important
for churning out something new. Hence, I do not assume the role of
Chairman in the boards of my group companies.”
In another company, an EE opined,
“CEOs are given freedom to act. They are driven by values, vision, and
strategy and core competence. OE and EEs work closely in execution.
Page 30
Moreover, an environment is created that enables people to achieve
results. Leadership also plays a role.”
For a company to prosper the core ideology, especially values
and purpose of the OE, NGE and EE should be congruent. The
ideologies of the EEs must be understood by OEs right at the
time of hiring to ensure congruence. However, the inverse should
also hold true. It is only then that the company will boast of a
culture that is healthy for all. A successful OE will be one; who
understands what is important to his people and develop a
culture that is conducive to attaining those values. One such OE
shared his secret of success. Signifying such importance of values,
the OE in that company stated:
“Subjects of Humanities need to be valued. They contribute to the
strengthening of the right brain. Both sides of the brain are important
for effective management. Management schools currently emphasise
primarily on the left brain based analytical abilities.”
Open communication between Owner, External and Next
Generation Executives
Communication helps in bringing in greater transparency by
clearing misunderstandings and conveying one’s point of view
to the other. Such open communication, also helps in creating
unifying culture. Thus, regular meetings and discussions between
all sides are extremely important to manage NML.
In this study, all the OEs, NGEs and EEs believed communication
to be an important skill for EEs to possess. Organisationally,
multiple mechanisms for communication are important. For
instance, an NGE of one company said:
“Actions to increase communication with EEs include Chairperson’s
lunch once every month. All the top managers come and meet, and all
the issues are discussed in such informal setting.”
When discussing about NML, one of the EEs mentioned that NML
was low because the NGE who was running the business had
earned high respect from the employees, and was a good leader,
especially because of his open communication. He further stated:
“He is transparent with bankers and financial institutions too. He has
high credibility.”
The manner in which the OE or NGE communicates also has a
bearing on the relationship between the EE and OE/NGE and
hence on NML. For instance, in one company, an EE mentioned
Strategies to Manage No Man’s Land
that the NGE was really appreciated for his open communication
and leadership skills. The NGE was heading the technology
Department. He said,
“Technology failed. Some executives took the responsibility and
offered to resign. The NGE said, ‘ You all have the option to go.
However, where will I go? Please stay back. Let us build it together
again.’ ”
Such open communication and creation of a secure environment
can work well to diminish NML.
Constant communication, whether through phone calls, web
conferences, or evening meetings should take place between
OEs, NGEs and EEs. Monthly / Bimonthly meetings between OEs
and senior EEs, wherein business plans, strategy and progress
are discussed, is crucial. Moreover, communication should not
be extremely formal or one sided. Both sides should be equal
participants in speaking as well as listening.
Handling Succession Concerns
Often family managed firms give precedence to socioemotional
wealth over economic wealth considerations. For instance, during
discussions, one of the NGEs stated:
“I was destined to join the business. I was never briefed about it but I
knew about it since childhood. I did not even remotely consider any
other professional career for myself.”
Similarly, another NGE also shared:
“I never thought of any other career. I knew that I would be in
business.”
of the company they work for, as in the case described above,
will find themselves in a comfort zone, in which the area under
NML will be minimised. Simultaneously, it remains a challenge
for NGEs to get acceptance among the professionals. One of the
NGEs stated that some EEs were comfortable with him, while
others were not.
Hence, the manner in which the NGE is groomed, has a bearing
on the NML in the company. If the NGE enters the business after
obtaining the relevant qualifications and climbs the corporate
ladder as a regular employee would, it is more likely that he will
be professionally well equipped to take on the role of the OE and
will be better accepted and respected by EEs. Such an NGE will
also run the company more professionally and be conscious of
areas where NML can exist.
In conclusion, Amrop International conducted an earlier study
into No Man’s Land (NML) and found significant presence
of NML in the relationship dynamic between two groups of
stakeholders, OEs and EEs. Now Amrop India has conducted a
follow up study of NML in the tripartite relationship dynamic
between three groups of stakeholders, first generation owner
executives (OE), next generation executives (NGE) and external
executives (EE). The results of this study suggest that NML
prevalence has diminished and is less significant in the context
of relationship dynamic between NGE and EE versus the original
dynamic relationship between OE and EE. The study indicates that
NGEs are more sensitive to the existence of NML and are more
responsive to needs of EEs.
If such events are recognised and accepted right from the
beginning, problems leading to NML will be minimised. For
instance, in one business group, a CEO (EE):
“Recently, chairman called me to inform that he wanted his son to be
the successor. I shared this news to the professional who was seen as
my successor till then. He accepted it as fait accompli. He was of the
view that one had to report to a family person at some stage of the
career in family managed firms.”
Inability of EEs to appreciate such concerns in decision-making at
the time of succession planning often adds to NML. On the other
hand, EEs who are able to accept that they may never be CEO
Page 31
About Amrop
About Amrop
Amrop is a leading global firm focused on helping its clients build their businesses by finding leaders adept at working across
borders, in markets around the world. A team of over 300 senior partners in 84 offices across 56 countries, serve clients
directly. Amrop has an entrepreneurial structure and follows the Context Driven Approach, which inherently focuses on clients
and their special requirements. It is the largest model of its kind. This model along with our global network allows us to place
our clients’ interests first.
About Amrop India
Amrop India, established in 1995, pioneered the professional and systematic approach to Executive Search in India. Today
Amrop is a leading brand in India known for its Leadership Consulting model built on our services in Executive Search, Board
Consulting, External Succession and Management Assessment. The Amrop brand spells trust in the ‘world of leaders’. Be it
board rooms, owners, chairmen as well as CEOs and senior leaders.
Amrop India’s work in leadership consulting mirrors the journey of the private enterprise in India. Apart from partnering with
clients in their India growth, our practice took on worldwide scope with the onset of globalisation of Indian corporations. India
practice leads with, a team of 25 partners, consultants and research associates through its offices in New Delhi (Gurgaon)
and Mumbai. Known for its Delivery DNA, Amrop’ s success platform is through expertise, a high quality team and an
entrepreneurial approach to partnering with clients.
About Amrop Insights
Amrop’s extensive work in Leadership consulting across sectors and functions offers an unmatched opportunity for learning.
In line with our vision to be a knowledge based Leadership consulting firm, we strive to build knowledge and perspective with
intent to
1.Provide sharp insights in our work
2.Share with clients our publications.
Our repertoire of publications, touch on a number of relevant leadership topics in general context of management practises as
well as in the context of Indian milieu.
Page 32
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