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Executive Interviews: Interview with Kelin E Gersick on Family Business
May 2007
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By Dr. Nagendra V Chowdary
Prof. Kelin E Gersick Co-founder and a Senior Partner of Lansberg Gersick & Associates (LGA), a research and consulting firm. He is a Management Fellow at the Yale School of Organization and Management. 
Is it correct to assume that, in a
family-run business, the growth is
curtailed by the fear of dilution
(rather, obsession) of control?
Not always. Maintaining control is
often a high priority for family
business owners, but if they are
successful they all must face the need
for additional capital. Many of them
entertain very creative mechanisms
for attracting investors and partners.
Sometimes they have to share control
and sometimes not. I have certainly
seen families which choose to remain
within their own capitalization limits
just to keep their enterprise private,
but many others move to minority
positions or joint ventures and still
feel adequately in control of their own
destinies.
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For a listed company (and therefore
diversified shareholdings companies)
the yardsticks for performance
measurement might be EPS, P/E
multiples, profit margins, market
shares, etc. However, in a family run
business, what would be the
equivalents of these?
Exactly the same, with some
additions. I do not think that family
ownership should weaken or derail
the commitment to hard nosed
performance measurement. The
company has to be run like a business
and the executives held to industry
standards of performance and growth.
Owning families often look to other
measures long term growth,
particular values and ethical behavior,
active roles in their communities or
investments in the development of
family executives and governors; but
these criteria should be in addition to,
not instead of, the standard financial
performance measures. 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?
Conflict can arise from many sources in
a family company, from the most deep
and psychological causes to the most
temporary and rational. To understand
the sources of conflict in a particular
family it is necessary to fully
understand the history, dynamics,
personalities and the current
situation there is no shortcut. I have
found a rule that guides my
interventions in response to conflicts: if
the tension is a result of real content,
disagreements about actions, goals,
strategies or choices, then conflict
management has to focus on rules of
engagement (procedures for decisionmaking);
if the conflict is rooted in
dynamics of power, inclusion, respect
and status, then the intervention needs
to be focused on rules of governance
(structures of control, procedures for
representation, leadership legitimacy
and selection). Most family business
conflicts have aspects of both, but the
dominant theme should guide the
strategy. And of course, as you point out,
some family conflicts are irresolvable. How difficult is it to differentiate
between fairness and equality in
family business systems?
It is difficult, but necessary. Parental
generations often have more trouble
separating those concepts than their
children do. The most successful
family businesses develop a concept
of justice that is individualized and
collaboratively derived. Lets 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)
I have observed the very strong and
positive impact of a well constructed
board in so many situations that I am a
strong believer in their value. Many of
the families worry about setting up a
board Will they lose control? Where
will they find good directors? Will it
undermine their control or privacy?
And then a year or two after beginning
to work with a board, they dont know
how they ever managed without it.
However, to create a board and then
not use it is a waste and many controlling owners, particularly
founders, are not ready to work with a
board. In my experience, a board
becomes essential in the second
generation and even more essential at
the transition from the second to third
generation. A great deal of thought
should be given to the makeup of a
board. I am far to the professional
side of thinking about the ideal nature
of a board: small enough to be
effective; strong outsiders who are
knowledgeable and willing to tell the
truth to family owners; family
members who are there because they
add value to the deliberations not as
just representatives of shareholder
percentages; and no inside advisors or
professionals. But some families have
to work gradually from more family
representation boards or advisory
boards toward a true professional
board of directors. 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 are
the family members nurtured for
taking on the higher order needs of the
family run business? Who should
anchor such handholding exercises?
Earlier in my career, I talked a lot about
succession planning. Over the years
my thinking has evolved (guided by
the work in this area by my partner at
LGA, Ivan Lansberg) to a concept of
continuity planning and transition
management. Preparing a next
generation to rise to leadership and
control in all three circles of the
enterprise ownership, business, and
the family is a continuous process,
with a concentrated effort in the
decade before an anticipated
generational change. I advocate each
family member in the company being
guided by a 10 year development plan,
including the necessary experiences,
education and mentors/supervisors. In
complex families I have had good
success creating a career development
committee from the independent
directors, human resource
professionals and outside advisors, to
help deal with the family politics of
continuity planning.
1.
Sweden's Leading Family Owned Business Case Study
2. ICMR
Case Collection
3.
Case Study Volumes
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