Only 7.9 percent of family businesses in China have hired professionals in key positions like president or general manager, says the first Chinese Family Business Development Report in 2011, published in “People’s Daily Online.”
Most family businesses unify ownership and control, with owners and founders in top ranks.
Some companies say they intend to hire professional managers: 65 percent need professionals to grow the business; 27 percent cannot find the right talent within the family; while 23 percent want to “get rid of family management.”
Some family businesses are even willing to give professional managers a percentage of company shares.
But more than double the above say they do not want to hire professionals: 55 percent believe they cannot find suitable ones; 34 percent deem the cost too high; while 21 percent find it difficult to trust non-family managers.
However, China has only relatively recently turned capitalist. It is becoming a global superpower, but many family businesses are likely in the startup stage (first generation), where many US firms were a century ago, and several Filipino firms were years ago.
India
The opposite seems to hold for family businesses in India, another emerging world superpower, and the only country in Asia that can match China in terms of population and land mass. Almost 70 percent of family businesses prefer to hire professional managers for top jobs, rather than family members, according to a 2012 Dun & Bradstreet study.
Only 15 percent choose family members for leadership roles (presumably the other respondents can choose either way). Interestingly, almost 50 percent say that leadership qualities are inborn and cannot be taught, while 40 percent believe in training, mentoring and experience.
Results show that Indian family businesses are “differentiating between business and family succession,” Barclays Wealth India CEO Satya Bansal tells finance magazine Campden WealthFB (Family Business). “This provides them with the dual benefit of professionalizing their business for long-term growth and also creating strategic diversification opportunities within their group. This new thinking also throws light on how family businesses may be looking at succession in a more open and conscious manner.”
Hiring professionals take different forms. Family businesses in Delhi, Chennai and Kolkata tend to choose from leaders already in the company, while those in Mumbai and Bengaluru choose equally from professionals in the company and elsewhere.
“As an organization grows, there is more complexity,” Kavil Ramachandran, professor of Family Business and Wealth Management at the Indian School of Business in Hyderabad, tells India Times. “It’s an evolutionary process. The way you do business or the systems and processes you follow for the business would be different, as the business expands and changes. Understanding those requirements and providing the necessary inputs according to that is the key to the success of the business and that is the essence to professionalization too. Running a business professionally means understanding the critical requirements and ensuring that those requirements are there… Professionalization is like allowing the baby to grow on its own and letting him/her go for his/her passion rather than the parent making every decision.”
Benefits
When family businesses in China grow and diversify, they may have no choice but to professionalize.
With professionalization comes decentralization of control and clear-cut processes and decision-making, giving employees (particularly those outside the family) a sense of ownership. With empowerment comes smoother interaction among departments and branches.
Professionalizing a business may lead to better governance, reduce family conflicts and give a way out for family members to cede day-to-day control of the company and pursue their own interests. Professionalization may also add to prestige and brand equity.
Also, owner-founders must utilize the skills of professionals wisely. Most founders focus on innovation (think Bill Gates and Steve Jobs), and as the family business expands, it will become more difficult to ensure smooth functioning of day-to-day tasks, such as marketing and accounting.
Wise founders delegate these tasks to professionals. Their time and efforts are limited; these need to be allocated wisely. When the right professionals join the company, it becomes a win-win situation for everyone.
(Queena N. Lee-Chua is on the board of directors of Ateneo de Manila University’s Family Business Development Center. Get her book “Successful Family Businesses” at the University Press [telephone number 4266001, local 4613; e-mail msanagustin@ateneo.edu.] E-mail the author at blessbook.chua@gmail.com.)