The Business Of Politics

For lasting success, political families should imbibe some of the best practices that business families have implemented to survive and grow

DYNASTY ought to become a four-letter word for politicians, as most family-run businesses have realised to their peril. There’s further evidence of that now from far away lands. In a recent survey of over 700 mid-size manufacturers spread across France, Germany, the UK and US — conducted jointly by McKinsey and London School of Economics — it was found that, on average, family-owned companies with outsiders as the chief executive seemed to be better run than those managed by family members. But, even if the number of successful family-run businesses constitutes a small percentage of the total sample, they seem to hold a message for the political families — for lasting success, they should imbibe some of the best practices that business families have implemented to survive and grow. 

Pioneering US businessman Andrew Carnegie had conveniently provided today’s business families and politicians with a peg to hang their learnings: “From shirtsleeves to shirtsleeves in three generations”. Translated, that means the first generation works hard to accumulate wealth (and so is dressed in shirtsleeves), the second generation consolidates the wealth and the third generation blows it all up, ending up in shirtsleeves as well. Plus, there is the inherent conflict — family, as the only natural and oldest sociological grouping, is intrinsically socialist in nature while managing a business is essentially capitalist. As evidence, the courtyard of post-Independence, postindustrial India is littered with the ruins of many family-run businesses, which have perished in the dynastic death-trap.

At the same time, there are numerous other family-run businesses that have managed to sidestep the grim reaper of bankruptcy. They have managed to do so after a lot of hard work, outside consultation, internal discussions and a clear vision. Businesses run by families have long been the subject of intense study by management experts. B-schools hold special courses for scions of business families, which teach them the nuances of managing and growing their businesses. Many families have even engaged external consultants from famous B-schools to tutor them in the art of resolving family-based conflicts to grow their businesses.

A large number of successful businesses worldwide — such as, Wal-Mart, Ford, Motorola, Cargill, and Hewlett-Packard — are family-owned and many of them are managed by hired professionals. In these cases, the family prefers to oversee and safeguard their investments from the vantage point of a board position. They even lay down a set of values — unique for that family or bequeathed by the founder and followed by subsequent generations — for executives to follow. Even where a family member is part of the management team, he needs to have a separate set of guidelines to steer him through the minefield of familial squabbles and differing expectations. A large number of Indian family-run groups have managed to defuse the in-built, shirtsleeves-time-bomb in their businesses by following a set of structured processes. As a result, they have also reaped the benefits — higher m-cap rewarded by the market, zero day appearance on B-school campuses, easier and cheaper financing options, ability to hire top-of-the-line professionals and respect from JV partners.

So, what kind of lessons do these companies hold for politicians whose kids are also keen on joining politics and nurturing their dad’s constituencies? The first trick is to separate issues of ownership and business control, roles that are essentially conflicting in nature but often end up overlapping with each other. In the politician’s case, ownership is the dedicated vote bank and party workers that dad hands over to the son. But business control is what junior chooses to do with the constituency — by improving governance, infrastructure and the general well-being of the voters. This provides a lasting business model for the son and has beneficial impact on ownership issues as well by earning him higher recognition in the party. According to a 2003 article in the McKinsey Quarterly (Keeping The Family In Business: Heinz-Peter Elstrodt), “at the core of a durable family enterprise is the philosophy that ownership implies, not necessarily the right to sell, but rather the responsibility of handing a stronger company over to the next generation.” TV show host Jay Leno is believed to have remarked: “If God wanted us to vote, he would have given us candidates!” Politics 101: over time, the son should aim to become a candidate, and not something foisted on an unsuspecting public.

There’s another important learning: how to resolve conflicts. Indian politics has seen many sons estranged from their mothers, sons from their fathers, sons-in-law from their fathers-in law, and so on. This brings about a break in succession planning and often ruins the politico-business model. Business families with many members typically spend a lot of time in conflict resolution, before arriving at a consensus. Once that’s done, everybody falls in line. Splits in family-owned groups often happen because of conflicting ambitions among family members and the desire by multiple members to have a say in the working of the business. It is often argued that the rate of survival for a consolidated business is much higher than allowing the business to split into numerous parts with separate investments.

The final bit of knowledge lies in the history of the Rothschild family. In the mid-18th century, Mayer Amschel Rothschild entrusted his five sons with expanding the family’s banking business in the five major European financial capitals of that time — Frankfurt, Vienna, Paris, London and Naples. Each of them was lent money under the stipulation that once the original loan was repaid, they could retain the profits in the individual centres. Over time, only the London and Paris branches survived the ravages of time and modern history. But, the story has a moral: Rothschild Sr could insulate the original business from the shirtsleeves syndrome by diversifying through his sons. Political families with more than one heir should use the Rothschild example to resolve the aspiration issue — one son gets into politics while the others join a completely different profession.

Published as an Op-Ed in The Economic Times (October 12, 2006)