The evolution in the management of family-run businesses in India can be fraught with challenges. For this
reason, Spencer Stuart sought to provide more clarity on how families can integrate external senior leaders
into their organizations, and examine the issues and challenges this situation presents for the business’s
family — as well as the professional taking the executive role.
As we explored this issue, we confirmed that several practices — following predetermined processes, keeping
an open mind, and ensuring management alignment between both family and external executive — are
the best ways to ensure a smooth transition.
In the course of writing this article, Spencer Stuart interviewed four respected leaders of Indian businesses who
have experience in these transitions:
Neeraj Garg, CEO of Apollo Health and Lifestyle, a large provider of Indian retail health care services.
Sanjay Jorapur, CHRO of Hero Motocorp, India’s largest manufacturer of two wheelers.
Varun Khanna, managing director of Becton, Dickinson and Co’s (BD) who previously worked at
Bharti Airtel and Reliance.
Adi Godrej, chairman of Godrej Group, an Indian manufacturing company that has expanded into
Africa and South America.
For the purposes of this article, the definition of a family-owned but professionally run business is a
company that has either a CEO, a managing director or an executive chairman who is not a member of the
family. We chose not to consider firms that are technically managed by an external professional but the
person is a close associate of the family.
We are focusing on mid-sized companies for three reasons:
- Medium-scale companies grow rapidly, which provides a strong incentive for bringing an external
- These companies are more likely to bring an outsider because they are younger and their culture is
more open to attracting diverse leadership and inspiring change.
- Professional leaders, who would not be hesitant to pursue a CEO position with a traditional company
that has an established market and a history of successfully onboarding external leaders, may be more
hesitant to join a less-proven young and medium-sized company.
The article will also explore why family-owned businesses choose to make the transition to professionally
run, and how having appropriate motives impacts the success of the transition. We will also examine what
makes for successful and unsuccessful practices, analyze the inherent challenges and make suggestions for
For years, companies in India have been transitioning from family ownership
to more professionally run operations. There are three primary
reasons for this phenomenon:
The increased complexity of operations in today’s frenetic business
environment. Whether companies are expanding internationally or
simply increasing the scale of their operations, there is a growing need
for external professionals (i.e., someone from outside the family).
As promoters step down, the firms demand appropriate leadership
as well as talent to help them succeed in the long term. While family
members can help in this transition, history has shown that firms
considering external executives are more likely to thrive.
Regardless of the industry, fields are becoming increasingly
competitive. To stay viable, it’s crucial that companies have diverse
perspectives within management to objectively assess the
organization’s strengths, weaknesses and risks and help them
plot a positive course of action.
For myriad reasons, some companies have been unsuccessful in
completing this transition from being solely family run to hiring external
professionals for leadership roles. Challenges vex the entire process,
and there’s not one successful model for making the transition to professional
leadership, so each case will be unique.
In the initial part of the transition (preselection), the primary challenges
are getting the family to agree to hire an outsider, setting criteria for the
ideal candidate, and defining achievable goals and what success looks like.
During the second part of the transition (selection), the families must
consider how much independence they want to maintain. The new hire
will likely want to keep at least some of the company’s traditions and
culture, but the executive will also need the autonomy to institute policies.
And after the enterprise selects a candidate, it’s crucial that the
business follow its previously established resolutions.
To become externally managed, companies need to plan for the impending
challenges years in advance, then carry out their plan systematically. To be
specific, the board must identify the expertise the company will need, given
its strategy and circumstances. The board should develop a detailed plan
that spells out the qualities and experiences required of the CEO.
The pre-selection process is about separating ownership from management,
and the goal is to objectively select the candidate without letting
emotions get in the way. Finally, once the family chooses a candidate, it
must give the new executive the autonomy to create a new strategy. The
family can guide the new manager, but independence is essential.
The candidate also has work to do, however: the new leader must
assertively implement authority and strategy. That involves working
with the family, who will likely be wary of an external professional,
and with the employees, who can give insight into the culture and
values of the company.
Company’s point of view
WHY MAKE THE TRANSITION?
The importance of having an authentic motive
If a company wants to go professional simply because “everyone else is
doing it,” the transition will likely fail since it lacks a real motivation. That
will result in less effort from the family to accept and empower the executive,
creating a great deal of tension.
The company should have clear motives for bringing in external executives.
Neeraj Garg, CEO of Apollo
Health and Lifestyle
But if the reasons for the transformation are valid, the family will likely
achieve a consensus or, better yet, come to a unanimous decision. That
will directly influence whether the professional is accepted and how
much authority the new leader will have.
Let’s examine the eight primary reasons families seek to bring in external
1. Industry promotes innovation
If an industry is innovating at a rapid pace, it’s crucial that a company be
able to stay with the latest trends. Family-run businesses can become
insular and entrenched in their ways, so an external executive can help
ensure that a company stays current.
2. Industry is rapidly changing
Often, family-run businesses lack a willingness to cultivate management
innovation. But if the industry is changing, the company likely sees the
need for the change that external management brings to the
3. Competitor is gaining traction
This is a particularly important factor for newer industries or industries
that have changed drastically due to technological transformation, such
as: banking, consulting, software, food, mobile and retail.
Families often seek external guidance when they set out to globalize
operations, as the international mindset requires the ability to think
across boundaries, disciplines and cultures. Companies must invest in
education, experience and evolved HR models, as well as hire people
who can help the company create networks and become more flexible
5. Increased complexity of operations
Family businesses are often compared to startups, since they typically
are founded by close friends and have loose hierarchies and decision-making
practices. Both value loyalty and the ability to take on
multiple/diverse responsibilities, and one of the biggest problems is
scaling up too quickly. “Every time a company triples in size, everything
breaks,” as Rakuten founder Hiroshi Mikitani put it.
6. Attracting talent
Retaining talent can be a serious challenge, because family-run businesses
tend to be fairly insular, which can limit opportunities for external
hires. Capable leaders often move on if they don’t feel there are enough
opportunities, and this migration can hurt a company’s ability to keep
the most promising leaders for the future.
7. Succession issues
Succession within a family-run business can be a nettlesome issue.
Bringing in an external professional ensures there are options for succession
down the road.
8. Lack of adequate leaders
If a family doesn’t have the appropriate talent to manage the company
(perhaps for lack of global experience), seeking external leadership can
be a smart move.
Furthermore, a company needs to decentralize activities after it grows.
Most family-run businesses have a flexible hierarchy and the manager
makes most of the decisions based on the family’s beliefs, whereas external
managers are strong enough to manage with authority.
The pre-selection process
During this phase, the family will have to decide how much power to
relinquish and how involved family members should be in the organization.
Hiring the right executive is another challenge, which can resemble
obstacles faced by non-family businesses.
Coming to an agreement can lead to tension among family members, so
it’s best to achieve consensus in these matters. For example, since most
conflicts between family and executive stem from incompatibility, it’s
essential to perform a cultural evaluation of the firm. One step in that
process will be defining the criteria and skills required by the new executive.
In addition, the board and the promoter should express their
expectations and goals for long-term success and draft a formal timetable,
as opposed to simply hiring the professional immediately.
The selection process
In this phase, some aspects of the company’s culture will be questioned.
While candidates are interviewed, the family must reassess the firm’s
basic philosophy, values and goals to ensure the new environment is
prepared to accept external management.
During the process of choosing the executive, the family must guarantee
transparency. This will not only benefit employees, who will be highly
affected by this transition, but also the incoming professional by ensuring
Finally, some members of the family are likely be apprehensive about
losing power. This is why it’s crucial to delineate the boundary between
family and business/management and ownership.
During the transition, the family must work with the executive to explain
new basic work expectations to customers, vendors and other business
connections. This rite of passage will set a tangible reminder of the executive’s
After this handover is concluded, it’s crucial that the company set
reasonable expectations for company performance and the pace of
change. The family of a troubled company might expect overly positive
results and even let the executive go if they’re not met, only to start the
In the future, the family may want to consider the board composition to
add needed market and business expertise.
Steps to success
The first step in this process should not be introducing an executive as a
direct report to the promoter. The new executive should start two or
more levels down, since conflicts are more likely when the interaction
between executive and family is high. The promoter’s direct reports have
a lot of interaction with the family and promoter, so the best move for
the organization is to get familiar with external executives at the manager
level. This placement softens the initial shock and creates the right
context to bringing in an external leader.
One of the primary goals of bringing external management is to align the
organization, so the promoter needs to be open to relinquishing control
and letting the external professionals make the decisions. The family
agreed to let managers to take control, so they should ensure they are
living up to this agreement. They can help by empowering managers to
select the course of their business, and helping guide the business into
becoming an independent company.
In Mahindra & Mahindra, for instance, the family is the owner but not
the manager. Board members can make independent decisions, as
opposed to being only a “paper” position. Both the company and the
family value this separation.
This example shows that having a distinctive boundary between ownership
and management, as well as rigorously following processes, are
complementary qualities. These practices are crucial, as they illustrate a
commitment to helping the company evolve and grow. They also demonstrate
the family has a professional mindset and understands that being
externally driven will deliver better results.
“There are formal structures available, and it is important that they be
applied,” Godrej said. “There are good parts of family businesses
processes and non-family models. The ideal is to mix the best parts and
The firm’s level of commitment to this separation is essential when
considering external talent, since having independent leadership is one
of the primary features sought by individuals considering working in a
These issues reinforce the importance of strictly following processes
when choosing a successor. The company must know exactly where in
the organization they need the executive, and the family needs to make it
clear what they need the new professional to do so the executive can feel
free to make decisions. The best approach is to create this environment,
identify the needs, delineate them clearly — and only then begin the
process of hiring an outsider.
The company also needs to clearly communicate its vision. Earlier, we
established that the family must have a strong reason to bringing in an
external executive, which is why having rigorous procedures for such
transition is crucial: after communication has been established, the
promoter should allow the new leader to take the vision forward.
Likewise, another way of making sure the executive is independent is to
encourage the leadership to challenge the promoter’s opinion. The
professional has higher degree of experience and can likely interpret the
events with more clarity than the family.
However, this works only if the executive was properly taught the culture
of the firm and the promoter believes in the professional’s judgment.
Otherwise, negative tension will emerge and hamper progress. This is
why it’s important to ensure the board and the family are aligned on the
hiring decision, and that process should be completely transparent.
An increasingly popular way to separate ownership and management is
to draft a family constitution. The idea is to ensure that the business
remains viable, even in case of a familial dispute. Family constitutions
are often implemented mostly by second- or third-generation family
members, but even members from the first generation are using this
idea. The goal is to resemble larger conglomerates since they typically
represent a model of efficiency, steady growth and long-term endurance.
A family constitution includes, but is not limited to, ways of allowing
family members to start their own businesses while maintaining the
ownership and procedures that prevent the group from further splits
during future successions. A constitution aims to control three circles:
family, management and ownership.
The family must also address the issue of talent retention to ensure
accomplished executives feel optimistic about their futures with the
company. “About 40 years ago, our organization observed that many
capable leaders were leaving the company,” Godrej said. “They just
weren’t reaching top positions, which meant that, in the middle of their
careers, very good performers would look for outside options. We have
now clarified that is not the case, so we have seen top-level leaders reach
executive positions. However, we have publicly stated that the chairman
position would be reserved for family professionals.”
Finally, the company needs to be aware that attracting top talent can be
expensive. There’s a saying, “You get what you pay for.” Given that,
companies should make an effort to understand the talent market and
prevailing compensation expectations so that they are prepared when the
time comes to make decisions about the appropriate investment.
The decision to bring aboard an external professional is not easy for
family-run businesses. There can be a high degree of distrust, as some
members of the family worry about losing control of something that has
been internally controlled for years. The culture fit can be hard to mesh,
at least initially. And there can be unreasonable expectations heaped
upon the new executive.
But these obstacles, while arduous, are not insurmountable. And the
results can be quite positive for the business, resulting in an external
executive who brings a smart perspective on operations, wide-reaching
personal connections and valuable global experience.
Executive's point of view
Why join a family business
The pre-selection process
After the offer
WHY JOIN A FAMILY BUSINESS
External executives are often attracted to family businesses because of
their informality. For example, changes in culture or processes are easier
to make in an environment where information can be easily passed to
everyone in the company.
Also, the executive’s influence extends further than in the traditional
non-family firm, and closer connections with employees ensure a stronger
impact. This means external executives can see the workers’
capabilities, and therefore devise a firm-specific strategy. Conventional
wisdom holds that progress is faster in this environment, due to less
bureaucracy — not unlike a startup.
Though there is a strong feeling that the culture and the promoter are
interdependent, executives often find that this characteristic doesn’t
affect a company’s ability to innovate. Just as in non-family businesses,
whether the company accepts change or not is part of the culture.
THE PRE-SELECTION PROCESS
Before even getting the offer, it is imperative that executives confirm they
are being hired to promote change or lead the company in a new direction,
as opposed to being hired solely to be compliant. That means
confirming the role will have actual decision-making power and the independence
to develop a strategy.
The second step should be assessing the cultural fit and ensuring alignment
with the promoter’s idea of the business model. To evaluate the
chemistry fit, the executive should spend time with the promoter or
family to understand their point of view, making sure everyone is on the
It’s also important to ensure there is a good level of communication, the
decision-making process is well articulated and the family understands
its influence over the business, since all will directly affect management.
AFTER THE OFFER
After the executive accepts the hiring offer, it’s crucial to establish credibility
with the promoter. The primary reason is because executives won’t
be able to make progress without successfully convincing the promoter
to trust their judgment. That creates a level of personal trust and proves
loyalty —in the end, it’s as much professional dependence
as it is personal.
Obviously, the professional should present data and financial metrics to
make the case for important strategic and operational decisions, as one
would with other companies. But initially, executives should be mindful
that the family wants to feel confident that decisions about the business
will be good for the promoter, the family and the company.
Similarly, executives should understand this dynamic and the possibility
that there may be times when the interests of the company diverge from
the interests of the family. Executives must put the company’s interests
first, and must be willing to step up and make a case for their decision,
even when the family may disagree. In these cases, the executive should
discuss the different views with the chairman in private. Ultimately, the
decision will come from the family; however, the family should respect
the executive’s initiative.
Leadership in a family business also tends to come off-the-clock requirements.
Usually — and especially with older promoters — executives will
be expected to attend some family functions. So the professional will
likely have to be integrated into the family’s personal life. Executives
should view their participation — and often their spouses’ — in these
activities as part of the job.
Finally, being open-minded is particularly important when joining a
family business, where the culture often descends from the founder’s
vision for the company. Observing the accepted behaviors will go great
lengths, since being familiar with the culture will help create a no-gaffe
start and give a glimpse into how the family thinks and operates. It will
also gain the trust of the employees, who may be wary of new leadership.
You are actually allowing a professional to come to your kitchen and cook. And you’re not looking over their shoulder to see what they are doing.
The main challenges facing new executives are fighting micromanagement
from the promoter, the lack of hierarchy and difficulty learning
the company’s informal network.
The relationship between promoter and executive can only be positive if
both are open to each other’s advice. Executives can only lead if the
family lets them be independent.
Once again, these issues illustrate the importance of a strong chemistry
with the promoter. The most important work the executive must do
before accepting the offer is having clear and candid conversations
with the promoter.
Steps to Success
Professionals are brought to companies because the family believes they
are best suited to guide the business in a new journey. Therefore, newly
hired executives should quickly offer their strategy for future growth.
However, contrary to popular belief, tension between the promoter and
the executive rarely is the result of disagreements about strategic or
operational decisions. Rather, conflict occurs when there is little
personal alignment between promoter and executive — i.e., when the
styles are different.
Often, the family hires an external professional because it is seeking
different opinions, or the business needs a new strategy. Therefore,
family members expect a certain amount of tension, at least initially.
To overcome this tension, we advise the executive to provide feedback
upfront, rather than silently disagreeing. Outbursts, which are bound to
happen, will only be tolerated after credibility and trust have been built.
However, if the family feels the executive does not have the best interest
of the company at heart or they are not aligned with the firm’s
culture, then the family and the board will not accept the executive’s
Another key point to remember is that inspiring change is a slow
process. First of all, the executive should listen to the family and employees
— they’re likely not averse to change. But the promoter can be
inexplicably connected with the company, and pushing for change can
transform the environment into a highly emotional setting. So it is
crucial that the executive finds a way to allow all parties to let the
emotions out, instead of repressing them.
Moreover, challenging status quo is more than merely inspiring
change. Family businesses are focused on the long term
and creation of value, not simply revenue and bonuses. This
mindset tends to work in parallel with making sure the
company is up to date, technologically. Change in any industry
nowadays happens fast. To keep up, the leader must ensure
that processes can be quickly adapted and integrate within
themselves the space for change and innovation. Keys include
effective communication, believing in the greater good of the
company, holding functional meetings and using relevant
metrics to assess performance.
The competence you have as a professional is about bringing people together, creating alignment and ensuring you enable their performance. It is really about bringing alignment, creating professional competence, building robust processes, ensuring very clear goals and measure of performance, and finally, achieving flawless execution. This is a journey for the company, the family and the professional.
Taking a position with a family-run business can be a daunting
challenge for an external professional. The culture can be
hard to grasp, and there can be a high degree of distrust
when the new executive first starts. The new hire should
remain resolute and be patient, though — success won’t
happen overnight. By trying to adjust to the accepted culture
and bringing experience and connections to the family
setting, a new professional can thrive within even the most
entrenched family-run business.
Jaideep Bajaj is a member of the Life Science, Biopharma,
Healthcare Services and Medical Technology practices.
Rohit Kale is a member of the Consumer, Energy and
Business & Professional Services practices, and also leads
Spencer Stuart’s business in India.