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Mr Subbiah, the presiding head of a Murugappa Group, a family business that had been operating for the last 150 years, once gave a fascinating interview. As it turned out, he had worked out a transition for all the companies in the group from “family managed” to “professionally managed” companies by creating two separate boards: the governing board and the operating board. The governing board was made up of family members, and oversaw policy and performance in addition to ensuring that the business was aligned to the vision, mission and goals of the family. On the other hand, operating boards were composed of professionals, and were in charge of managing the day-to-day, year-to-year operations of the Group. Mr Subbiah revealed that this structure played to the strengths of family businesses in that family companies create and nurture a unique work culture across many decades, because they can provide an environment of continuity in their values. This is in stark contrast to purely professionally-managed companies, where the culture could change with every new CEO.
The founders and successors of the Murugappa Group have always been known for their simple way of living. Simplicity, lack of ostentation, eye for detail, yearning for perfection, were all hallmarks of the family, and these values permeated the companies and its employees. This was made possible thanks to Mr Subbiah’s sound leadership that played to the strengths of both family and professional executives in the company, creating a synergy of a well run, professionally-managed company rooted in strong family values.
The effects of a family value driven family can be seen with Jamshedji Tata, founder of the Tata Group. Jamshedji wanted his home country of India to be self sufficient, and Tata therefore became a pioneer in textiles, power, steel, automobiles, and in software. He embarked on these giant projects at a time when few had the courage or the vision to make such long-term investments in India. In addition to these business driven investments, he helped to set up the Indian Institute of Science for basic research called the Tata Institute of Social Sciences to improve the intellectual capital of the country. These pioneering forays have now grown into world-renowned institutions over the last 100 years.
Today, the culture of Tata Group continues to bear the Jashedji’s stamp. Most of the profits of the Group go to the holding company Tata Sons, which in turn funds charities through various Tata trusts. Shockingly, the Tata Group prioritizes this culture of charitable giving over the compensations to the Tata family members, so much so that they are not counted among the top 100 wealthiest people in India!
By contrast, there are sad examples of family-run businesses that lose their culture and values as the family relinquishes control of the business.
Famed U.K. chocolatier Cadbury was founded in an area that was in great need for employment. Over four generations, the Cadbury Company grew to become an international brand. This growth provided many of the jobs needed in the region and Cadbury became the focal point of community life in the district so much so that Sir Adrian Cadbury of the Cadbury family became the authority of corporate governance in the U.K. However, after American food conglomerate Kraft Foods made a successful bid to buy out the company, the value driven culture of the family evaporated overnight in favour of cost cutting and shareholder interests, Their factory was relocated, and the district became desolate and rife with unemployment.
Perhaps no one is better suited to explain the consequence that stems from a loss of values as famed chairman and CEO Howard Schultz. In his book Onward, he describes the process in which he grew Starbucks from a humble startup to become a $10 billion company. Schultz explained that somewhere along the way, Starbucks lost its soul and began to forsake the needs of the customers for its Wall Street investors. After taking a break from heading the company for 7 years (2000 to 2007), Shultz reassumed the mantle of CEO/entrepreneur owner and reignited its soul, leading Starbucks to even greater heights.
All family businesses have a soul, comprised of its unique culture and values. The more the family safeguards its culture and takes pride in it, the more the world stands to benefit from the positive impact that family businesses have to offer.