Building a Winning Cross-Generational Culture in Family Businesses

“Ninety-one percent of all listed firms in India are family firms,” as reported in moneycontrol.com in April 2022. The same article also quotes a Thomas Schmidheiny Centre for Family Enterprise study on all listed firms in India over three decades according to which “on an average, family firms underperform non-family firms.”

A McKinsey study published in August 2024 estimated that “family-owned businesses (FOBs) contribute more than 75 percent of national GDP, one of the highest percentages in the world, and this is likely to rise to 80 to 85 percent by 2047.” McKinsey research also revealed that “from 2017 to 2022, FOBs reported around 2.3 percent higher revenue growth than businesses that are not family-owned. Additionally, over the period from 2012 to 2022, FOBs’ returns to shareholders were twice as high as those of non-FOBs.

The two reports may have conflicting findings. Often, there is a difference in definitions from one study to another of what constitutes family-owned. Occasionally, there could be a conflict with another widely used term, which is “family-controlled.”

However, what is not in doubt is the continuing, extraordinary contribution of FOBs, to borrow the McKinsey term, to the Indian economy.

The Secret Sauce of FOB success - A Winning Cross-Generational Culture 

"Happy families are all alike; every unhappy family is unhappy in its own way," writes Leo Tolstoy as the first sentence of his magnum opus Anna Karenina. It is interpreted by experts to mean that for a family to be happy, several key aspects must be given (such as good health of all family members, acceptable financial security, and mutual affection).

Applying this principle, sometimes known as the Anna Karenina principle, to FOBs, several factors must fall in place for them to be successful. Various studies have listed a variety of factors that can contribute positively to the success of an FOB.

As time passes, business complexity and competition only grow. Corporate annals are filled with the ashes of businesses with significant single-generation success that frittered away their gains owing to inadequate thought to generational transition.

A factor that finds a place in many of these studies, and one that we will focus on in this article, is that of building a winning cross-generational culture in the FOB. There are various other ways of referring to this factor, such as “transition from one generation to the next,” “effective succession planning,” etc.

How should a business build a winning cross-generational culture?

Separate ownership from management

This is perhaps the most fundamental principle that applies much beyond generational transition. Management of the business should be based on competence and professionalism. Being a significant owner of a business gives one the right to also manage it, only in the case of very small businesses that cannot attract or afford to hire talent. Successful FOBs should seek to entrust management to professionals. The presence of external management also acts as a guardrail against wildly swinging fortunes and decisions during the time of transition. While one ownership generation passes on the baton to the next, professional management that spans the two periods creates a sense of continuity.

Keeping methods distinct from legacy and values

While important to celebrate successes and past achievements, the narrative should also celebrate change as a necessity and a part of the DNA of the business. ESG may not have been a regulatory requirement in the time of the founder, but if it is now, it has to be respected and managed.

People identify with stories. The FOB should make efforts to build a cache of stories that people can fall back on and draw inspiration from. “Tata Stories – 40 timeless tales to inspire you,” compiled by lifelong Tata Group senior executive Harish Bhat is an example.

Multi-generational structures of leadership

As our article on reverse mentoring articulates, we are no longer in a world where a higher age gives anyone the right to command or lead anyone else of a lower age.

It is about competence. It is about suitability for the role. Younger members should be considered for a seat at the high table, of course, if they are found worthy. This has the added advantage of having a generation steeped in running the show when the older one moves on.

Invest in training

Being born with a silver or golden spoon may not be enough to give you the smarts for running a significant business. Like other professional managers, it is necessary to invest in the development of skills and competencies required to run a business. Younger family members interested in joining the business should be considered for training and skill upgrade programmes.

It may be even better if these opportunities are cross-generational too. There is no reason why older members should not be upgrading their knowledge and skills every once in a while.

Build a larger purpose beyond business success

That the primary purpose of a business is to make money is not a secret. Everyone knows it. While it is clear, specific and measurable, this objective can drive a wedge between people who may be working together for maximization of profit.

Having a goal, or mission, that focuses more on a legacy and contribution, beyond the monetary aspect, can serve to reduce the severity of divisive issues as and when they crop up. This mission also promotes a sense of continuity across generations.

Final words

Of course, conflict is always around the corner, waiting to impose itself. According to a PwC study of December 2023, “More than one in five global and India respondents say family disagreements are the biggest challenge when building trust with all stakeholders.”

A good practice is to institutionalize a conflict-resolution process within the family, such as a council of elders, a mix of external partners, such as lawyers, etc. Or Ushankk. Itself an FOB, Ushankk has learned from a rich history of businesses, successful and not so successful. It guides other FOBs and helps them find solutions to pressing concerns, including that of building a cross-generational winning culture.

Our effort is towards finding solutions, not the suppression of divergent views. It is important to encourage divergent views as that is where future success can originate from.