Succession in Family-Led Businesses
Ram Charan is an expert on business strategy, high-performance organizations and 21st century leadership. People + Strategy spoke with Charan about what makes family successions unique and what tactics he’s deployed to work through generational transitions. In his words, “There are three pieces here. First is the family, second is the business. And third is the intersection between the two. Those three things are involved in dissecting what makes succession different in family businesses.”
People + Strategy: What are the patterns you’ve observed as you’ve helped families work through succession issues?
Ram Charan: My work with families in India, China, Japan, Brazil, Thailand, America and Australia has taught me that no two families are the same. You must learn about each family, and understand the stage of their company and the detailed and hidden complexities of the family dynamic.
One of the common patterns is that, almost universally, communication among family members is clogged, distorted and only partially understood. There are powerful emotions and behaviors going back to early childhood. Bad experiences come to play in conversations again and again, and often unconsciously.
P+S: What other patterns have you seen working with family businesses?
Charan: The most common is that the parent—often the father, who is the founder—doesn’t come to terms with the question of whether he wants the company to stay in the family or to be sold. And in Indian families, the probability is high that the father has other siblings in the business, which complicates matters.
In Indian culture, until about 20 years ago, there was a highly rigid expectation that the eldest son should succeed the father, even though he is not the right person to take over. As everybody knows there’s no genetic transfer from the person who built a business to the person who inherits it.
Now, many sons and daughters don’t want to be the CEO of the family business. They’re thinking more about their personal calling and they don’t want to work as hard as their father did. In one case, the only son was Harvard educated and worked at Goldman and McKinsey, but he didn’t want to be CEO. He abhorred the long hours and anxiety of his father’s work.
The solution was to train the son to be executive chairman of the board, where he is creating more value than he would have by being the CEO. He has more time to search the world for new technologies, hunt for new talent and get the best board and advisors. He is focused on always having the right CEO and management team.
If a family is working through a succession, a third party can be necessary to evaluate what their children consider their real calling and whether they are suitable for the role. If it is not the eldest son, should the second or third child take over? Or maybe the family needs to hire someone who is not a relative—a professional from inside or outside the firm. The decision is a fateful one because nothing overcomes a wrong CEO.
P+S: How do you work through the internal power structure of the family to get the right person to head the enterprise?
Charan: What I often tell the families is that they need to have a charter that includes principles for navigating the challenges of succession. And they also have to gauge the calling of each child, as well as their suitability to the role, and start training them early. The key point is that succeeding as a CEO, regardless of whether you are working in a family business, is still based on judgment and not a science.
P+S: You must have to deal with a lot of challenging conversations.
Charan: Those who want to have their firms to go on forever, whether they are run or owned even partially by a family descendant or a professional, need to build and shape a trusted and competent board. This board will actively participate in building culture and succession planning, including its own. The most successful example on the planet today is Johnson & Johnson.