DYNASTY ought to become a four-letter word for politicians, as most family-run businesses have realised to their peril. There’s further evidence of that now from far away lands. In a recent survey of over 700 mid-size manufacturers spread across France, Germany, the UK and US — conducted jointly by McKinsey and London School of Economics — it was found that, on average, family-owned companies with outsiders as the chief executive seemed to be better run than those managed by family members. But, even if the number of successful family-run businesses constitutes a small percentage of the total sample, they seem to hold a message for the political families — for lasting success, they should imbibe some of the best practices that business families have implemented to survive and grow.
A large number of successful businesses worldwide — such as, Wal-Mart, Ford, Motorola, Cargill, and Hewlett-Packard — are family-owned and many of them are managed by hired professionals. In these cases, the family prefers to oversee and safeguard their investments from the vantage point of a board position. They even lay down a set of values — unique for that family or bequeathed by the founder and followed by subsequent generations — for executives to follow. Even where a family member is part of the management team, he needs to have a separate set of guidelines to steer him through the minefield of familial squabbles and differing expectations. A large number of Indian family-run groups have managed to defuse the in-built, shirtsleeves-time-bomb in their businesses by following a set of structured processes. As a result, they have also reaped the benefits — higher m-cap rewarded by the market, zero day appearance on B-school campuses, easier and cheaper financing options, ability to hire top-of-the-line professionals and respect from JV partners.
So, what kind of lessons do these companies hold for politicians whose kids are also keen on joining politics and nurturing their dad’s constituencies? The first trick is to separate issues of ownership and business control, roles that are essentially conflicting in nature but often end up overlapping with each other. In the politician’s case, ownership is the dedicated vote bank and party workers that dad hands over to the son. But business control is what junior chooses to do with the constituency — by improving governance, infrastructure and the general well-being of the voters. This provides a lasting business model for the son and has beneficial impact on ownership issues as well by earning him higher recognition in the party. According to a 2003 article in the McKinsey Quarterly (Keeping The Family In Business: Heinz-Peter Elstrodt), “at the core of a durable family enterprise is the philosophy that ownership implies, not necessarily the right to sell, but rather the responsibility of handing a stronger company over to the next generation.” TV show host Jay Leno is believed to have remarked: “If God wanted us to vote, he would have given us candidates!” Politics 101: over time, the son should aim to become a candidate, and not something foisted on an unsuspecting public.
Published as an Op-Ed in The Economic Times (October 12, 2006)