Aysha Anas Iftikhar

Family business owners envision the next gen joining the family business and taking it to the next level, yet transforming this vision into reality presents significant challenges. Evolving sociocultural landscape necessitates adjustments to traditional family induction methods, particularly as entrepreneurship gains prominence and accessibility due to factors like venture capital and digital innovation. Additionally, returning foreign-qualified children face hurdles in adapting to both educational gaps and differences in business practices between home and host countries. Acknowledging these changing dynamics, founders must prioritize early engagement of next gen with family business and work on creating quality relationships. Close relationships and communication help parents appreciate their child’s natural inclination, personality traits and strengths. Parents can work on using these insights to shape children for future roles. Introducing children to business at a young age stimulates observational learning, which is an excellent method for transferring the intricacies of business without the need for verbalization. Children grow up idealizing their father: however, they also aspire to prove themselves independent of their father. While the next generation craves freedom to grow and carve their own path they also want to be nurtured. This duality is challenging for both the father and next gen. Often the combined role of the father and founder adds complexity to this dynamic. Next generation should realize their role is not that of consultants or advisors. During the initial days, they must resist the urge to advise their fathers on areas of improvement and instead, focus on developing a holistic understanding of the business. They may share their input as they gradually gain influence within the business. The first step to induction requires the next gen to join the business with an open mind. Humility, curiosity and a willingness to learn are essential qualities seniors expect and value from the next generation. Seniors bear the responsibility of sharing the business’s evolution, encompassing its challenges, sacrifices, and struggles, with the next generation. Next gen watching from the sidelines, often assume they understand how the business works. However, the uniqueness of the business model can only be appreciated once one is actively involved in the business. Next gen often expects seniors to share the ‘secret sauce”, which refers to the competitive advantage or tacit knowledge known only to the business owners. The next gen can learn best by keenly observing and asking the right questions.  Here, they should not expect immediate answers but rather reframe questions if not answered on the first go. Next gen is advised to join the business with the mindset to unlearn and relearn. While academic knowledge is valuable, it may not always be applied directly to the family business situation. One must be willing to adapt classroom concepts to real life situations. However, this unlearning process can be unsettling for the next gen. In such situations, a trusted non-family employee can mentor the inductee by helping them learn the ropes without fear of judgment or failure. In a family business one must be prepared to learn from all stakeholders and not just the owners. Employees, suppliers and buyers, all are avenues for getting an insight into the business. Family businesses face challenges inducting and developing the next gen. If the induction process is smooth it leads to harmony whereas if it is rough it may lead to conflicts. For the growth of the family business, it is imperative that all generations of the family share common values, culture and vision.

Technological changes, shifting consumer tastes and changing social trends have all contributed to the pace of disruption. According to estimates the average life span of a business has shortened from 61 years in 1958 to just 18 years today. More conservative estimates reveal the life span to be only 10 years. Disruptive innovation has wiped out entire industries and poses serious challenges for business.  Dynamics of the family business make them even more susceptible to the challenge of disruptive innovation. Shortened industry life cycles and changing business models mean family businesses need to act with increased agility. Most family businesses are minutely involved in the day-to-day operations of the business and tend to lose sight of the big picture.  Although family businesses realize that the business environment is changing. Most choose to do nothing. Often with the notion that change will not affect their business.  Disruption, however, does not discriminate between corporations or family businesses.   Family businesses can through governance mechanisms ensure continuity. As stewards of the business, it is upon the family to create wealth and protect the legacy of the business. Stewardship of the business means providing direction to the firm. This is different from managing day to day operations. Stewardship is defined by Tomorrow’s company (a think tank) as ‘the active and responsible management of entrusted resources now and in the longer term’. Guiding principles of stewardship are: Setting the course Driving performance Sensing and shaping the landscape Planning for the future With disruptive innovation family businesses need to think beyond current products and markets. Disruptive innovation is not a new phenomenon. However, the rate of change from the first to the fourth industrial revolution has decreased significantly from 160 years to 20 years. Family businesses need to view disruptive innovation not as a threat but rather as a stimulus for continuity and to capitalize on opportunities. In the hypercompetitive market only, those firms will survive that can differentiate themselves. Family firms also need to set their eyes on the horizon to ensure continuity. As the next generation enters the business their dissatisfaction with the existing business model is expected. Years of listening to complaints take their toll in the form of a negative perception of the business. Family business owners have an opportunity here to provide a platform for the next generation to carve a space for themselves within the larger context of the business yet separate from the family business. It is an opportunity for expansion and mentorship.  In addition, disruptive innovation can be a means to diversify the family business and avoid conflict. Family businesses evolve over time from a single entrepreneur to the sibling stage and cousin consortium. Decision making becomes more complex at each stage of the family business evolution, moving from a single decision maker to multiple decision makers.  One strategy to avoid conflict is to create separate businesses with the family business, acting as a holding company. Forward thinking family businesses decide to allocate a certain percentage of profit to explore new ventures. This ensures that the entrepreneurial spirit of the family is nurtured.  Family members are encouraged to explore opportunities. For family business to thrive both the business and the family must succeed. The key to continuity is not just accepting that today’s business may not exist tomorrow but having the intent of working today to secure tomorrow. This is only possible if family businesses create governance structures and act as stewards of the business.

The number one desire for most family business owners is to see their business last for many generations. Unfortunately, statistics do not support desires. Although family businesses are the predominant business structure worldwide, the majority of them face continuity challenges and often do not extend beyond the third generation.”  An entrepreneur with an idea starts the business. As the business grows it makes room for the second generation. As the founder is at the helm of affairs, conflict doesn’t surface openly as the owner is the final decision-making authority. Depending on the leadership style of the owner, conflict can either be brushed under the carpet or a forced consensus emerges. The business vision is synonymous with the founder’s vision. The business grows to the point of what can be termed as “Entrepreneurial exhaustion”. Most Founders delay succession and think that no one, not even their own progeny understand the business as they do. Although there is truth to this, delaying succession planning does more damage to the business than good. As time progresses it becomes even more difficult to let go of the business.  Most SME Family Managed businesses feel that owing to their scale they can do without Governance. On the other hand, good governance structures can really help avoid the problems inherent with the family business DNA. One tool of Governance in the family business context is the creation of the Board of Directors.  Most often shareholder and director are used interchangeably at the detriment of the business. Having too many Directors with symbolic functions and no real contribution to the business can provide a false sense of comfort that the business is best advised to do without.  It is imperative for a family business with multiple generations to constitute a Board of Directors, as mapped out in the code of corporate governance.  The Board of Directors functions as the steward of the business, providing stewardship and oversight. It is the right forum where the direction of the business and not just operations are reviewed.  Good governance can only be a reality if Board effectiveness is ensured. There is a plethora of research on board effectiveness. The most important being a board should not function as a rubber stamp. The role of the independent director gains even more weightage in family business governance. The Independent Director is expected to bring forth diversity of perspective and best practices from industries they have worked for. Family business is reluctant to bring in outsiders to the board however trusted. And have their fair share of horror stories of outsider intervention. While it is true that no one can understand the business model as well as the owner. Another reality is the rate of disruption within the business environment. Only those survive who are aware of the environment outside the core business. Setting up a board inclusive of Independent Directors is a tall order. Issues of transparency or business secrets are commonly cited reasons for not engaging outsiders. Family business must realize that without outsider perspective they will grow and scale only to the point of their own vision for the business.  The process of inducting independent directors may begin with creating a board of advisors. Most family businesses operate in inertia and any change is met with stiff resistance. At times the old guard, afraid of displacement, contributes to the resistance. Any intervention that is not implemented without complete support can backfire or present less than desired results. Performance may sky dive and the notion that we know our business better than outsiders is reinforced. Creating a board of advisors can be the first step to improved Governance. These may be subject experts from academia or respected practitioners from industry, willing and able to invest time and effort into the business. The mandate of the board can be jointly decided by the family business with a trajectory that moves from operations to strategy. Too often management is unable to resolve recurring systemic failures. These “operational irritants” may be referred to the board as a starting point. With the evolution of the business model the transformation of the board of advisors to independent directors on the family board becomes easier. “The best time to plant a tree was 20 years ago. The second-best time is now.” Chinese Proverb It is never too late to think of and implement governance mechanisms. 

Aysha Anas Iftikhar Founder &Principal Advisor  Family Biz Solutions  A thriving family business is the result of the blood and sweat of an entrepreneur, through countless hours and innumerable weekends of focused work creating and perfecting the business model. Often, the owner immersed in the business inadvertently spends less time with the family and observes his children growing horizontally rather than vertically. His dedication establishes the business empire which sustains the family’s lifestyle. In the entrepreneur’s mind, it is proof of the love he has for the family. After all, the business empire he has created sustains the current lifestyle but also secures it for the future. However, children accustomed to luxury often perceive it as an entitlement. Growing up in a bubble, they remain oblivious of their father’s hard work and tend to take their lifestyle for granted. As the children grow older, the father expects them to join his business. Unbeknownst to him, the family business is perceived as an obstacle to a relationship by his children. For years, he has either complained about problems or remained absent from their lives. The family business is always the excuse for his ambivalence. His children do not want to spend their life the way he has although they would like to continue to enjoy the lifestyle the family business offers. A paradox of sorts it is! It is unfortunate that for most fathers, the realization comes too late. If fathers want their children to succeed in business, they must prioritize investing in their relationship. It is an investment of emotions, time and effort well worth the returns. Starting with spending time and progressing to communication, the father must be available for deeper, meaningful conversations centered around purpose and plans. Children have a subconscious need to meet expectations. If fathers and children can together create a roadmap for the future, it saves them many a heartache. Through this bonding, both parties realize shortcomings or areas of weakness that can be worked on. For instance, a child may be mentored through immersion in activities requiring the skills they lack.  A good practice to achieve this is to take the children to work after school or at weekends. Involving children in business at an early age helps them develop a sense of business acumen, enabling them to appreciate the wealth generation process. Sharing stories of successes and failures teaches them humility and imparts invaluable lessons.  Children must perceive their father as approachable. In many family businesses, children often feel alienated and disconnected, resulting in reluctance to work in the family business or to work on the sidelines. Both situations pose challenges for the continuity of the family business. The latter situation strains the relations of both parties and jeopardizes the business’s long-term success.  They become bitter with each other. Residing in their own bubble, each unwilling to try to understand the other. The father resents the child for not appreciating the business empire, while the son resents the father for being too controlling. If only they would communicate with honesty. However, achieving this is easier said than done! Fathers of young children should invest in relationships and make time to watch their children grow. For fathers of older children, it is still not too late, to connect. Your children belong to another time. They may not articulate their fears, but they are afraid of failing in front of their hero. Be their mentor and guide, celebrate their successes and help them recover from setbacks. After all, you have been there and done that.

Families without formal governance lack structured decision making. The founder operates the business based on experience. Such a system is often an impediment to growth. If the business is to scale, the dependence on one founder must change and decision- making process must adopt a systems-based approach. For growth and perpetuity, the family business must create decision making systems on how they plan to work now and in the future. One governance tool that has proven to help family businesses grow and perpetuate, is the family business constitution.  The family business constitution (FBC) is a tool for alignment. It is important that conversations on the constitution are initiated in a high trust environment. It does not work when the family is already facing a feud or in a low trust environment. Also, a FBC is only successful when there is a strong value system in place. Although it is not legally binding, creating it helps to avoid misunderstandings, mistaken assumptions, and unrealistic expectations. It is a living document that can be amended with the consensus of stakeholders. While family businesses agree to the need for creating the constitution, very few take practical steps to drafting one. Quoting from experience in family business advisory, it is generally one or two members of the family who are sensitized to the necessity of a constitution. These members typically rally around the family but are mostly successful in generating only a little interest in the constitution. Irrespective of age, the person who leads the process (constitution lead) may face opposition for their initiative. The constitution lead must be patient and willing to steer the process over an extended period. Conversations on the constitution are challenging, as they involve scenario building and families are comfortable living in status quo. Onboarding family members takes time and is a painstaking process well worth the effort. The journey to governance structures including constitution are seldom arrived at without the assistance of an outside advisor. In practice it is the advisor that allays the fears of reluctant members by allowing for their concerns and questions to be voiced and answered. Often this is in the form of a workshop primer on family business governance. The advisor introduces distinguishing features of the family business such as the three-circle model, family business lifecycle etc., to help members appreciate complexity and dimensions of the task at hand. Depending on the skill of the advisor most families emerge with the resolve to create the FBC. By consensus, one lead from the family is selected to help with the logistics of the process. The starting point of FC is a shared purpose or why does the family want to do business together? Family cohesion does not automatically mean clarity. Many families are cohesive but confused on how they want to work together in the future. The constitution helps build clarity on individual understanding as well as an aggregate understanding. Initiating the FC from family history and values helps build rapport amongst members. It is not uncommon for the next generation to not know of the journey of the founder. The iteration of values helps develop engagement and ultimately cohesion. From experience, a team building exercise prior to conversations on policies helps stimulate lateral thinking It is important to begin drafting the constitution by choosing a decision-making rule. Achieving agreement on the decision-making rule helps ease out the process. Drafting an FBC is a slow process which requires patience and magnanimity. For a family to enter a FBC conversation, the starting point is clarity on individual desires. All content put forward is open for scrutiny from members. Content is vet with scenario building and thoroughly assessed for benefit to the family and to the business. A skilled advisor helps create rapport among members by building on the group’s camaraderie. Family is encouraged to keep an open mind with an emphasis that no one family member is wrong in their approach. Also, different personalities have differing approaches to policies, based on their intrinsic motivation. For example, one member may create a policy to mitigate conflict of interest which may be perceived as a barrier to freedoms by another. Many families are tempted to use the FBCs drafted by others. Although it is not a bad idea to look at the policies of other families, a copy paste approach does not work. Primarily because the process of drafting the constitution is as important as the content. For many families the process is the first time that multiple generations have deliberated on the future of the business as it relates to the family. While they may have had countless board meetings on the future strategy of the business. It is the first time they have looked at doing business as a family in the future.