“I won’t ever work again in a start-up or a promoter-driven company” said a departing senior colleague in her exit interview. Is it possible to take such hard stances in a country that, since 2019, has already seen 4,300 funded companies, with their numbers only likely to swell, inspired by the 117 unicorns? Let’s for a moment even choose to ignore the Indian start-up world and move to promoter-owned companies.
After the recent CEO change at Starbucks, the issue of working for a company where there is a larger-than-life promoter lurking in the background has cropped up once more. But consider this: Family-owned businesses contribute more than 50 per cent to the world’s GDP and account for over 65 per cent of its employment. In India, their role is even more prominent. Family-owned businesses’ contribution to India’s GDP in 2023 was about 79 per cent. With the growing clout of about 2.8 million billionaires, it’s inevitable that the careers of many leaders will grow with founder-driven or family-owned enterprises.
Beauty and the Beast
Fifteen Indian companies are among EY’s Global Largest 500 family businesses. They include names like Reliance, Aditya Birla, Tatas, JSW, Bharti Airtel, HCL and Wipro. Given a chance, most professionals would like to lead these companies, and why not? But heading a large listed companies is easier said than done!
Picture this: In the first eight months of this year, of the 191 CEOs who left companies in the Russell 3000 Index this year, 74 were considered fired or forced out. This number is the highest since 2017 when they started tracking these departures. In 25 founder-led large market cap companies, the attrition of the top leadership is higher than the average attrition of the organisation, ranging from 11 per cent to 37 per cent. So, what it tells us is that the churn at the top is constant and likely to be higher at highly successful founder-led companies.
Fault in our stars
Every leader has to continuously balance the self, team and organisation. But if one is leading a promoter-driven organisation, then a few more dimensions creep in. For instance, leaders have been judged not only on performance but also on the founders’ views on certain matters. Some founders have frowned at CEO compensation increases, private jet travel and extravagant offsites. Once, my founder boss, who was living in another country, even asked why I flew business, unaware that it was an upgrade by my benevolent airline.
A successful promoter had this imperative that his professional CEO should travel from Delhi to Kolkata every Monday to be at the headquarters. Many CEOs left over this issue, citing that the customers were in bigger cities and visiting HQ to keep the family happy was futile.
A fund manager who manages a prominent family office told me that when they visit before a Series A funding, they even check what cars the founders have by turning up at the parking bay on some pretext.
The Promoter’s Shadow
Professional CEOs will always be under a microscope if you have larger-than-life founders like the ones at Oracle, Salesforce, Infosys or Starbucks. The humble backgrounds or meteoric rise of founders will always cast a shadow on the professional CEO. Most founders or family-driven companies value stretch, sweat and touch. Extended hours, time with customers and continuous accessibility to their colleagues are clear expectations.
“If anyone has to get a minute of mine after 6 PM, then they better be sure that it’s important.” Did someone say that recently? If a professional CEO says that, then he better hit the ball out of the park every quarter!
One promoter who hired a high-profile professional CEO after a successful IPO had a unique problem. The CEO was a pet lover and he used to bring his canine to the office almost daily. The founder, who also worked in the same office, felt this ‘pet routine’ was reducing the work intensity required in a listed company where the bottom line wasn’t improving. The professional CEO lasted about a year and they promoted an internal loyalist to that role.
Family Succession
But, before you decide against family-owned companies, absorb this Harvard Business Review’s observation based on global talent adviser Claudio Fernández-Aráoz and his research team’s study. These researchers analysed all CEO transitions and subsequent organisational results at 58 large US and Canadian publicly owned family firms — those with $1 billion or more in revenue at some point from 2010 to 2018. They also looked at 1,406 S&P 1500 firms in the same industries and region. Their analysis covered more than 3,000 transitions from 1994 to 2020. It showed that in the three years after appointing a new CEO, the family businesses improved their cash-flow performance much more than the non-family firms. The large family firms in the study were also better at bringing in successful outsiders. So, should we say that, in spite of some of the outlier stories we read, family-owned companies absorb external leadership hires better than MNCs?
What it takes to be successful in family-owned companies is highly contextual. One thing is clear: Leaders who aspire to make a sizeable societal impact need to factor in working for promoter-driven companies for a significant part of their careers! Your future careers will be at family-owned companies. Make peace with it!
(Kamal Karanth is co-founder of Xpheno, a specialist staffing firm)