Speaker: Dr. Josh Baron,
Moderators: Mr. Peter Leach & Mr. TatwamasiDixit
12th December, 2020
• Parampara Family Business Institute (PFBI), a non-profit research and educational institute under the charitable arm of GMR, GMR Varalakshmi Foundation (GMRVF), organised sixth session titled ‘Harnessing the Power of Family Business Ownership’ in the online symposium series – ‘Essential Mantras for Family Business’.
• The session featured Dr. Josh Baron (Partner and Co-Founder of Banyan Global, a Family Business Advisory) as the expert speaker.
• Mr. Peter Leach (Founder, Peter Leach Associates) and Mr. Tatwamasi Dixit (Founder, FABRIC) expertly moderated the session.
Context of the discussion:
• Family businesses are famous for power plays, backstabbing, and dramatic implosions. Yet they are also among the most enduring companies in existence, central to economies and communities around the world.
• In this session, the discussion was about how harnessing the power of ownership effectively, can make the difference between long-term success and failure.
• The owners of a family business have five core rights that allow them to shape both the business and the family.
• The session attracted Approx. 2600 registrations.
• Dr. Josh Baron pointed out that ownership aspect of businesses, particularly family businesses is often ignored.
• Given the power of owners to make important decisions, they can make choices that can destroy the business in one generation or help in perpetuating a sustainable and healthy business for generations.
• The choices that each family must make would be different as every business and family are different. But what is important is that they must work together to align themselves.
• Dr. Baron discussed the 5 rights framework – Design, Decide, Value, Inform and Transfer
• According to him, there are three important questions –
o What do we want to own together? The family need not own all businesses together or in the same measure. For example: some split across the businesses but keep family office and philanthropy together.
o Who are all the Owners? Should all of them share everything at the same level and what should be their scope?
o How do they share control?
• The panelists discussed the popular notion of separation of ownership and management:
o Most management consultants and experts seem to suggest a separation of ownership and management. However, in family business, the role of family members as owners becomes important.
o In the Indian context, the custodian mindset is prevalent. Ownership and Management is inter-twined.
o The senior generations are often pre-occupied with how to distribute their wealth and assets among the next generation members – across male and female progenies or working and non-working members etc.,
o Often, the power of ownership hardly goes to the entire family owners group and decisions are made among the working members of the family on behalf of all the owners.
o A 4 room model for governance was described such that members take on different roles in each of the rooms – manager, board member, family member or owner. This may help them in making decisions as it would help to sort out their roles in various capacities.
o Although one may believe that a written constitution can help with managing all governance issues, even the best written constitution may be ignored. These is just an agreement document made by the family for themselves and they may change the rules any time they wish.
o Having a written constitution document helps families to come together once in a while are revisit their thinking on various issues and hence a very useful document for a business family to invest in
o Dr. Baron pointed out that there is a difference between relationship among family members based on the legal structure of shareholding versus the cultural model of ownership. Ultimately what keep a family working together successfully depends on the cultural model.
o Purpose of the business can change over time – because things change all the time and businesses have to keep innovating and changing what they do.
o An important question in all family businesses related to ownership is the transfer of ownership – they have a powerful right of ownership transfer
▪ Usually businesses focus on the “one” – the best fit successor to take the business forward. The focus is on how to pass on the assets to the next generation.
▪ However very little attention is paid to the exiting generation. For transitions to be successful, one must think about the senior generation as well. “The word retirement itself can be a problem”. The exiting members’ role, contribution and future must be managed well
The panelists highlighted that several of the issues faced with regard to ownership rights in family businesses are cultural in nature. This must be managed well in building relationships and good communication practices.
This webinar series is curated by Parampara Family Business Institute (PFBI), a GMR Varalakshmi Foundation non-profit research and educational organisation that aims to support family businesses in enhancing their sustainability through education on topics related to family business, research and content dissemination.
For more details about the series of online symposiums and to register, visit: https://pfbi.institute/