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The rise of purpose-driven leadership in family businesses

“The purpose of leadership is not to make the present bearable. The purpose of leadership is to make the future possible.” - By Joan D. Chittister

October 06, 2021 / 04:16 PM IST

While the coronavirus pandemic unleashed a crippling effect on economies, it also taught us a few things: lessons for business continuity, lessons on resilience, and of course, invaluable life lessons.

Companies have learnt that they need to step up more than ever, to recover and thrive. They need to be more accessible, approachable, and show empathy. Leadership needs to be repurposed; accordingly, innovation is key. Employee engagement can no longer be superficial; it must be deeper and more real. Technology is no longer an option; it has emerged as a way of life.

Interestingly, all these lessons are out there for us to witness first-hand if we deep dive into the operations of family-owned businesses. It seems that what the world has discovered now is what they already knew. Often brushed off with characteristic nonchalance as “mom-and-pop” stores, these businesses have forced the world to sit up and take notice.

Family businesses across the world generate annual revenues of more than US$9 trillion and employ nearly 30 million people. This list is primarily dominated by Chinese and Indian companies’ success stories in Asia. China leads the pack with 159 companies followed by India with 111 companies1. The best-performing family-owned companies in Asia indicates that more than 50 percent of the top 30 companies are from India. What is the secret sauce that makes them better cushioned to face challenges and disruptions, than non-family-run enterprises? What are the reasons for their success?

Family owned businesses lead with trust and purpose – trust with employees, stakeholders, suppliers, customers and across the value chain. Multiple dimensions of trust are embedded into all aspects and layers of their offline and online activities. They are committed to a purpose that extends beyond profit. These business leaders have been reshaping their business operations through purpose-driven leadership for years. The purpose generally includes the welfare and growth of its stakeholders, including both customers and employees.

They lead with trust and they want to guard the family name with tenacity. They are invested not just financially, but emotionally as well. Commitment is also much deeper; it is not just about chasing profits. They are committed to a cause beyond the business. What stands out is their respect for all the people who enable them to fulfil their business objectives and larger purpose. Family businesses also take active steps to perpetuate the family business for the next generation and that gives them a competitive advantage. That also makes the stakes higher – family business owners don’t want to merely preserve the business for future generations, but also add value to it. Family businesses are focused on inclusive, multi-generational leadership. They also have a heightened sense of awareness with respect to business succession versus ownership succession and about preparing the next generation to run the business.

However, even with all these advantages of a family business, only a few make it to the third or fourth generation. What are they not doing right? What lessons do they need to re-learn to stay agile?

Per the Deloitte Global family business survey 20192, there are four key areas of concern or pain points that need to be addressed: ownership, governance, succession, and strategy.

  • Many family businesses lack clarity in at least one of these four areas.

  • Just over one-half believes that their organisations are fit for the future.

  • An orderly succession plan is crucial to keeping the business on track for both the short term as well and in the years to come.

  • Family run businesses must have the right discipline, strategy, governance structure, and communication practices in place to be successful in fast-changing markets.


Per the Deloitte global survey, only 35 percent thought that the company’s business strategy was aligned to the values of the shareholders and less than 26 percent had a formal succession plan. These are important aspects to be considered whilst initiating robust strategy and governance planning. A long-term strategic vision which encompasses family goals, career development, communication, representation, and ownership is necessary. Family-governance structure provides the critical framework and guidelines to manage complexities, create value and reduce conflict.

While strategy and governance can help overcome the complex challenges of managing the family and the business, multi-generational leadership, talent retention and acquisition are equally crucial. First and second-generation leaders are characteristically entrenched in the business; the third and fourth-generation family members may have different interests. A leadership pipeline can safeguard the legacy of a family business and enable a smooth changeover amongst generations. A multi-generational leadership committed to the long-term goals of the organisation is necessary for businesses to survive and thrive amidst disruption.

Clearly, for family businesses to evolve with the dynamic environment, they need to make investments in digitisation. Additionally, family businesses should also fortify their role towards ESG (environment, social, and governance). Family-run enterprises need to understand that to succeed in these VUCA times, they need more than just ability, intuition, and experience. They need to transform their businesses to align with stakeholder goals, reverse traditional business models to reimagine the future and make their success sustainable. Family-run businesses can remain strong if they can formulate a holistic strategy that combines business excellence with ethics and profit with a purpose. The vision and long-term strategy must be guided by purpose-driven leadership focused on making the world a better place.

Authors:

K.R. Sekar, Partner, Deloitte India

Porus Doctor, Partner, Deloitte India

Sources

1https://economictimes.indiatimes.com/news/company/corporate-trends/india-ranks-3rd-globally-in-terms-of-number-of-family-owned-businesses/articleshow/65807479.cms?from=mdr

2https://www2.deloitte.com/us/en/insights/topics/strategy/next-generation-family-owned-businesses-emea.html
Tags: #Features
first published: Oct 6, 2021 04:10 pm
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