Of family councils, risk-takers, riding a bicycle and mentoring
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A range of experts and owners of family businesses shared their experiences, with one experience in particular – that of the founder of the Rainco umbrella group – standing out as an example of how a self-made entrepreneur who could barely speak English and worked as a peon at Ceylon Cold Stores made good in the world of business. Family councils are a mechanism through, which family members of a family-run business which is managed with external expertise, communicate their vision and direction to the board of directors. Opening the workshop, Brian Wittnebel, acting Director of Economic Growth, USAID Mission to Sri Lanka and Maldives, spoke on USAID projects and in doing so referred to some 10,000 households which are run by widows and how their programmes have helped empower these people.
Ismail Azeez , General Manager International Institute of Development Training, said the workshop was to motivate and encourage family businesses and sustainability of these units. In a family business, unlike any others, there is a lot of energy and a lot of love in running the organisation. Citing research, he said globally 2/3rds of businesses are controlled by families. In most countries 75-90 per cent of businesses are family-owned. In a global survey by PWC in 2014, the most challenging issue in family business was cited as conflict. It also revealed the need for more professionalism, need to adapt to digital, need for the right talent and right skills set.
Succession was also cited as a major issue, Mr. Azeez said, noting that research shows that only 12 per cent of family-owned firms go into the third generation and beyond that only 3 per cent of these firms survived. Some of the key findings of this research were the late appointment of successors and (kind of) success after new appointments are made; a successful changeover and an unrelated manager-successor showing good performance. It also revealed that turnover suffers when there is interference from non-qualified family members while salary benefits for well-performing managers should be equal or better that remuneration for family members in the business.
Rainco’s rag-to-riches story
The Rainco example was a rags-to-riches story on the likes of the ‘mudalalis’ in the past who struggled on the pavements of Pettah (the late A.Y.S. Gnanam is one example) selling their products. A diminutive man and speaking in Sinhala (saying ‘my English is weak’), Rainco founder S. L. M. Fausz regaled the audience with a tale of a company that started after his ‘great learnings in a great company’ (Ceylon Cold Stores). “I worked as a peon but I learnt a lot working for other people. My experience at Elephant House was much more than a wage-’padi’, I learnt many things,” he said sharing his success story.
Mr. Fausz said he believes in looking after the workers and as a result, there hasn’t been a single strike or a single worker going to courts on a wage issue over the past 40 years at Rainco. Asked about the transition where his children have successfully taken the company to a different level, he said: ‘Take the bicycle. When my children were young I would hold the bike until they are able to manage on their own. If they fell, it didn’t matter, that’s learning. Similarly if they make a wrong decision (in the company), that doesn’t matter. We must allow them to make decisions. It doesn’t matter if sometimes goes wrong. Learning is also through making mistakes.”
His eldest son, Fazal Fausz, managing director of the company, spoke on how the company was started by his father and mother after his father in 1977 got a permit to open an umbrella factory under the name, Kandurata in partnership with another investor. In 1990 the company split and Rainco was launched as a wholesaler with a shop in Pettah. “We depend on monsoons and monsoons were erratic. There weren’t many in this business because of good and bad weather patterns. My father ‘ran the show’ and decision-making was top-down. When my father was invited to speak at a
Family businesses in Sri Lanka
MBA forum, he was asked what would happen to the business if he died tomorrow. That woke him up and he immediately hired a CEO. I trained under him,” Mr. Fazal said explaining how the company expanded to more products, hiring more staff and growing in the process. Discussing the period of transition, he said his father realised he had to hand over to the sons and that process began, slowly at the beginning as “my father had to believe, and have trust and faith in our being able to manage”.
Permit risk-taking
“He allowed us to take risks. We worked together and that process of mentoring helped me and then I was able to convince my brothers to come into the business. The transition thus was smooth.” He said an important part of the mentorship was that the family met at the dinner table at least once a week and discussed business. “Initially our large customer base was loyal to the person – my father- but then we worked out a strategy of customers being loyal to the brand. It took about 5-8 years for this phase but it worked,” he said adding that there are now 18-19 companies in the group, each with a CEO with full autonomy. What next? “We are working with KPMG to plan a family structure and business with the objective being to building passionate brands that change people’s lives.
A family council is also being set up,” he said, adding that in his view a professionally-managed family business should bring more togetherness in a family than conflict. Chandula Abeywickrama, a former DGM at HNB and a micro-finance specialist, said many of the family businesses in Sri Lanka don’t belong to the family any more citing Browns Group and HNB under the Edmund J. Cooray family and Richard Peiris under the Peiris clan as some examples. He said one of the problems is that conventional leaders keep things in their mind and don’t share with wife or family listing one example where a man who imported a lot of equipment suddenly died and his family didn’t know what to do with it.
Needs of millennials
Stressing that a family business should move from a ‘tunnel’ vision to more ‘expert vision’, he said many such businesses doesn’t exist anymore as their businesses become irrelevant. Today’s businesses need to look at the needs of millennials; open lines of communication and be more proactive than reactive (as the case is today); with competence being the measure of success not sticking to tradition. Change must come with changing trends, he said. Other case studies of family businesses at the workshop came from food companies MA’s Tropical Foods and FAB, and ACL (cables). During a panel discussion with the participation of Shiromal Cooray, Managing Director Jetwing Travels;
Jonathan Alles, MD/CEO, HNB and Thamali Rodrigo, Partner, Head of Family Business in Sri Lanka, KPMG, a range of issues was discussed including the advent of family councils; the right time for transition from first to second generation; the challenge of ownership in which the larger the business, the larger family members want a stake and benefits; succession planning; that children should not be forced into their family business; and separating management and family members. It was revealed that there are few companies that have gone beyond the third generation like Hirdaramanis’ which is now owned by the fifth generation while another good example of family-owned but run professionally is the Hemas group. (Feizal)
| Family Councils | |
| Also called ‘Family Supervisory Board’, ‘Inner Council’ and ‘Family Executive Committee’, the family council is a working governing body that is elected by the Family Assembly among its members to deliberate on family business issues. The council is usually established once the family reaches a critical size, i.e. more than 30 members. In this situation, it becomes very difficult for the family assembly to have meaningful discussions and make prompt and qualified decisions. The family council is established at this point as a representative governance body for the family assembly in coordinating the interests of the family members in their business. Purpose: The composition, structure and functioning of family councils differ from one family business to another. However, the duties of a typical family council would include: - Being the primary link between the family, the board, and senior management. - Suggesting and discussing names of candidates for board membership. - Drafting and revising family position papers on its vision, mission, and values. - Drafting and revising family policies such as family employment, compensation, and family shareholding policies. - Dealing with other important matters to the family. (Courtesy – IFC Corporate Governance) |