Thank you to the FFI Asian Circle Virtual Study Group and to Navneet Bhatnagar for this week’s FFI Practitioner edition, which explores the importance of taking a deliberate approach to developing next-generation family enterprise leaders. In his article, Navneet shares a case example as well as some practical lessons from a study of 15 Indian family businesses that have effectively developed next-generation family leaders.
Amit, a 27-year-old next-generation member of a business family in the central Indian town of Indore, joined his family’s cotton textile manufacturing and trading business in May 2020. In June 2021, his younger brother Sumit, aged 25, also joined the family business. While Amit helped his father, Hari, who headed the textile production, Sumit assisted his uncle, Ravi, who led cotton procurement and logistics operations. From an early age, both Amit and Sumit were exposed to business operations. They were clear about joining their family business to help their father and uncle and to take the family business legacy forward.
They had been systematically groomed to take up business leadership responsibilities. Amit studied textile engineering, worked for two years in a textile manufacturing company in the western Indian city of Ahmedabad, and then completed his MBA before joining the family firm. Sumit had an undergraduate degree in commerce; he did a six-month internship with a garment export house and then obtained his MBA from a global business school in Singapore. The brothers had gained rich experience outside their family business and had both developed valuable business leadership capabilities. They had brought fresh energy into the family business and had implemented new ideas for improvement and growth. The senior generation had grown confident that their family business would be in Amit’s and Sumit’s capable hands.
This serves as an exemplar case of how business families in India have developed the process of systematically training their next-generation members for leadership roles in the family business.
The Challenge of Next-Gen Leadership Building
The orderly transfer of leadership from one generation to the next is of utmost importance for the enduring prosperity of business organizations. Within the realm of family businesses, many families find it imperative to hand over the reins to capable leaders of the next generation to help ensure the preservation of the family’s heritage. Often, the senior generation expresses a lack of confidence in the abilities of the next generation to take over the leadership mantle. This problem is widespread and significant, because over the next decade family enterprises worth several billions of dollars will go through an intergenerational leadership transition. To achieve a successful transition, it is crucial for family enterprises to systematically cultivate the growth and readiness of their next-generation members, equipping them with the necessary skills and knowledge to confront future challenges. There are several fundamental elements of next-generation leadership development that family enterprise clients can adopt to help facilitate this process effectively.
Leadership Development Mantra Decoded by Indian Business Families
To further understand successful transgenerational leadership transitions, one longitudinal study examined the development process followed by 15 prominent Indian business families that had developed their next-generation members into effective business leaders. This qualitative study identified the leadership-building pathways these families adopted to develop their next-gen leaders. These families took a deliberate and systematic approach to their next-gen members’ capability building. They ensured that the next-gen leader possessed the requisite skills, knowledge, and mindset to take on leadership roles effectively. This involved identifying and implementing key building blocks that served as the foundation for the growth and development of future leaders. These building blocks encompassed a range of strategies and initiatives designed to shape and mold the next generation. Common patterns emerged from the analysis of these cases.
1. Commence at an Early Age
These families initiated the leadership development process at an early age and exposed the next-gen members to the business while they were growing up. Starting early introduces the younger generation to the complexities of the business and allows them to gain a closer understanding of both the business operations and the family’s role and participation in the business. Such an introduction could involve engaging young members in a school project that pertains to the family business or presenting them with more challenging tasks, such as resolving resource allocation issues for the company. These initial experiences stimulate their cognitive development, enabling them to identify specific aspects of the business that may evoke their interests or deter them. Such exposure assists the rising generation members in aligning their aspirations with the family’s future vision, providing clarity, and shaping their career choices. Hence, by offering an early introduction, a process of self-selection among potential future business leaders is set in motion.
2. Provide Access to Top-Notch Education
The business families sampled in the study had sent their next-gen members to world-renowned institutions for higher qualifications. These families felt it was crucial to equip the next generation with top-tier education to excel in their chosen paths, whether it be within the family business or any other career they may pursue. This education can encompass business, technical fields, vocational training, or a combination of these. By obtaining a high-quality education, they enhance their knowledge and skills, thereby strengthening their capabilities. This preparation can help them effectively navigate forthcoming challenges in the family business or in their chosen professional endeavors. When the next generation leader possesses the necessary knowledge and skills to run the business, the likelihood of its long-term survival increases. Attending esteemed educational institutions not only broadens their exposure but can also grant them access to a global network of accomplished peers. A robust educational foundation assists them in earning respect and acceptance from individuals both within the family and business and outside of them. It establishes a solid groundwork for embracing leadership responsibilities in the future.
3. Offer External Work Exposure
Another significant measure found in common across the sampled business families was to provide opportunities for next-gen family members to work outside the comfort of their family businesses. Providing young individuals with opportunities to gain work experience in reputable organizations outside the family business enabled them to acquire knowledge of best practices in business management. It also expanded their exposure to different work environments. However, it is essential to carefully select these external companies. The learning experience of the next generation is greatly enhanced when these firms exhibit progressive organizational cultures and uphold professional practices. By gaining work experience outside of the family business, they can cultivate their abilities to collaborate within teams and develop expertise in analytical problem-solving. Equipping the next generation with these capabilities enables them to confidently assume leadership roles and tackle the intricate challenges inherent in running a family business.
4. Admission on Merit
Another important measure these families adopted was to induct next-gen members into business leadership positions only after assessing their merit and preparedness. If found wanting, they were asked to learn and improve further. It is crucial that entry into a family enterprise leadership position is not simply handed to individuals but rather earned by demonstrating exceptional performance based on predetermined, objective criteria. These entry requirements should be clearly communicated to all next-gen members and other family members, perhaps through a family employment policy. This transparency provides clarity and establishes realistic expectations regarding the level of involvement the next generation will have in the business. Implementing a merit-based system ensures that the family business benefits from the inclusion of top-quality individuals. This approach helps mitigate family conflicts and instills a sense of responsibility and commitment to the business among the next generation. An objective entry process also enables next-generation members to earn respect and acceptance from others within and outside the family, further solidifying their standing in the business.
5. Allow for Vertical Advancement
The families included in the study inducted their next-gen members into middle-level managerial positions in the business. From those positions, they gained experience and expertise and were gradually moved up to leadership positions. It is important to ensure that next-generation members are not immediately assigned top-level leadership positions solely based on family ties but are instead encouraged to join the organization at a level that is commensurate to their qualifications and experience. Subsequently, they could have the opportunity to demonstrate their capabilities and progress up the corporate hierarchy based on merit. This approach enables them to gain a comprehensive understanding of organizational challenges and obstacles, exposes them to different functions and their interconnections, and allows them to foster strong relationships with multiple stakeholders. Consequently, this cultivates the development of next-generation members into adept team players and effective leaders.
A capable and efficient next-generation leadership not only has the potential to enhance business revenues and profits but can also elevate market valuations and strengthen the family and the business’s reputation. These 15 families illustrate that a crucial advantage of nurturing a well-prepared next-generation leadership is providing for the longevity and preservation of the family business legacy. As a result, it becomes imperative for senior generation leaders to dedicate substantial and targeted efforts towards the development of their successors in the next generation.
Note: The identities used in the exemplar case are disguised to maintain confidentiality.
About the Contributor
Navneet Bhatnagar, PhD, ACFBA is Assistant Professor (Strategic Management) at the Indian Institute of Management Raipur, India, and the Executive Committee Vice Chair, FFI Asian Study Circle. Navneet is the recipient of the Fitzpatrick & Francis Family Business Continuity Foundation-FFI-GEN Scholarship 2020. Formerly, he was the Associate Director at the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, Hyderabad, India. He can be reached at [email protected].