Business Case Studies, Executive Interviews, John A Davis on Family Businesses

Tell A Friend

Executive Interviews: Interview with John A Davis on Family Businesses
May 2007 - By Dr. Nagendra V Chowdary

John A Davis
Senior Lecturer of Business Administration at Harvard Business School,
the Faculty chair for Harvard Business School`s Executive Education Program

Download this interview
  • You notice that conflicts are signature statements in all the family-run businesses. It happened recently in India; between Ambani brothers; between Bajaj brothers; and many more in India and across the world. What, according to you, are the prime reasons for such conflicts? How to manage family conflicts in the family business system?
    Conflicts among family members occur for a variety of reasons like in any kind of relationship. A conflict can start as a simple disagreement over goals or policies. Or it can arise from different personalities or management styles that one or more family members find irritating.

    Family members usually endure these kinds of differences and there are ways to help defuse many kinds of family conflict, such as having a board of directors, certain family policies or an external advisor to keep communication flowing among family members. The real goal in managing family conflict is to maintain respect and trust between family members. When these are lost, it is very difficult to regain them.

  • How difficult it is to differentiate between fairness and equality in family business systems?
    Extremely. Families in every culture falsely believe that by distributing rewards equally among close relatives, the distribution will be perceived as fair by the family members and it will eliminate conflict among them. Sometimes an equal distribution is fair; sometimes it leads to conflict or reduces the productivity of the business. But families in business need to see some inequality as fair.

  • Let's now look at the governance and leadership of the family business system. Do you think a board would better serve a family run business's interests? Drawing from your extensive research, do you think all the family-run businesses have boards? After all, many opine, in a family run business, it is that "one" person who calls the shots. He discharges his responsibilities perfunctorily and therefore why have a non-performing board? (Of course, this is never to undermine the importance of a board)
    In prescribing tools for family business governance, such as a board of directors, always keep in mind the goals we generally want to achieve through governance: to provide a sensible direction for the business, to allow for decisiveness, to maintain the trust and commitment of the owners, and to offer effective oversight of management. If you can achieve these goals with no board of directors, then don't use one. But usually a board of directors (or a less formal board of advisors) helps a lot to achieve the goals of governance.

  • What are the precautions that need to be taken while designing an effective (and efficient) family business board and family governance structure?
    Make sure stakeholders see a seat on the board as a job and not as a birthright. Select board members based on their qualifications, train them and compensate them for this work. Keep your board focused largely on the big, long term issues facing the company and providing feedback to management. Your managers should handle the operating issues of the firm.
    Family governance deserves equal attention as business governance. A little formalization of family meetings, with agendas and perhaps facilitators usually helps a family stay focused on its big issues and goals. Developing family policies concerning family employment and ownership, and for other sensitive issues, helps enormously. Family governance structures (the family council and family assembly), are also generally useful.

  • In the traditional shareholder-run companies (at least in most of the Fortune 500 companies), the top management grooms their successors. Does this happen in family-run businesses too? If it happens, how the family members are nurtured for taking on the higher order needs of the family-run business? Who should anchor such handholding exercises?
    It is unfair to characterize management development as a handholding exercise. In fact, it is a vital function in the management of any enterprise and is ignored at the peril of a company. Especially if you want your business to last into the next generation it is necessary to invest in the next generation. Family companies vary widely in how well they do this, as do the Fortune 500. We often point to the Fortune 500 as paragons of good management. They can be but they often aren't.

1. Family Owned Business Case Study
2. ICMR Case Collection
3. Case Study Volumes

Contact us: IBS Case Development Centre (IBSCDC), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad-501203, Telangana, INDIA.
Mob: +91- 9640901313,

©2020-2025 IBS Case Development Centre. All rights reserved. | Careers | Privacy Policy | Terms of Use | Disclosure | Site Map xml sitemap