Winds Of Change

How robust is your succession planning strategy?

- Manoj Joshi And Suhayl Abidi

In ‘family business’, family is all about emotions and business about economics. They cannot be separated, but a slight skew towards one imbalances harmony. Tata, a legendary example of how a family business can grow strategically, recently faced a dispute regarding succession planning that challenged the company’s long-term sustainability as a family business. Finally, they chose someone capable from within.

Long-term gains over short-term profit

It is usually assumed that in a VUCA environment, family businesses would have difficulty in sustaining their growth. However, we believe that wanting the business to succeed in the long run makes it easier for family enterprises to leave aside strategy, which offers only short-term gains. Many professional CEOs of companies such as British Petroleum, Rio Tinto, etc., have delivered long-term blow to their companies by focusing on short-term objectives, which is generally linked to their bonus. Tony Hayward, in his enthusiasm to take BP to the number two position in the oil industry, from the then number seven, took decisions which have so far led to an estimated $50 billion in fines and costs and over 50% erosion in market value. Today, BP is at number 17. Much has been written about how keeping his focus solely on the bottom line (and his linked bonus), Richard Fuld took Lehman Brothers down the road to bankruptcy. Family businesses are not overly concerned with quarterly results and hence, can forgo short term gains for longevity. This makes them more resilient to the ups and downs of the marketplace. In fact, research has shown that family firms do better than companies with dispersed ownership during recession.