With over 90% of the businesses run in India promoted, owned or managed by families, is it possible for an ‘outside professional’ to play the role of CFO?
Do such businesses require a ‘professional CFO’ in the first place? Is it possible for a CFO to operate independently and yet win the trust of family promoters? How can a CFO from a structured corporate environment make a tangible difference to family managed companies?
My career as a CFO has now completed a full circle, working initially with MNCs for 28 years, transitioning through Indian family run businesses and ultimately joining a family run MNC. The move from a proven process driven global business to a local organization having ad-hoc policies which gets twisted or reversed at the drop of a hat can be sometimes frustrating but highly interesting journey.
The attraction of a CFO to work in a family run business is the opportunity to engage in a wide variety of business & finance projects that are not available in a typical MNC operating company. Family owned businesses offer an environment of less hierarchy, access to the real decision makers and hence lower bureaucracy. While this is well recognized, the organization culture is very different from an MNC – the culture here is the family – you either love it or hate it. Treading the middle path may give some reprieve but does not provide any long lasting comfort. I once asked a senior candidate in an interview – how do you manage conflict with the owners? His response was to go back and believe that the owner must be right and build his own rationalization around it. This left me speechless! The reason I am hired in a family owned business is the professionalism I bring in and not the other way round! Pleasing and appeasing will not give one any respect and the key to win in family run businesses is to win that in the early days. To gain this recognition, there may not be a set process to follow. Such trust building will not happen overnight – however, once done, it gives a solid foundation of a long lasting relationship. It is critical for the CFO to become part of the family, earning trust and building relationships that go beyond the business.
The other important consideration is the value system that we inculcate over our career – compromising this makes you vulnerable. To me, this is the biggest hurdle of working in a family owned business – if you are able to relate to the family values or drive your values and be accepted, you survive, you are true to your conscience. If there is a conflict here, the results can be devastating – you will find yourself in an unwanted place of work or you will compromise, which is even worse. Unlike an MNC, where there is generally a higher “court of appeal” for conflict resolution, such options are usually limited in a family business.
The above general principles apply not only to the organization internally but with external stakeholders as well. The suppliers, customers, bankers, consultants and sometimes the private equity shareholders look at you and deal with you, the CFO in a family owned business, differently from a CFO of a MNC. In a typical family owned business where the owners make all the decisions, being seen as only a so-called “munimji” can be really frustrating. Our job is to bring our professionalism in the decision making process – to become business partners and a conduit between these external stakeholders and the family, not a passive listener! I recollect a statement made by one of our selling agents (who had also inherited a family run business) in our first meeting – “we do not want to bring the multinational culture here” – I was irritated and had to remind him that’s my raisin d’etre in the organization. Over the subsequent months, when I was able to demonstrate that MNC culture is not only the so-called slow decision making process, but an attention to detail, developing sustainable policies and procedures and balancing the company objectives with their individual goals, I believe I could change his perception. Here again, respecting the past while bringing in organizational changes is a pre-requisite.
So what are the key transformational processes the CFO needs to follow in a family run business? I would like to summarize this to the following six:
1. Build your own team
The first job is to get a finance team which moves from “ do what you are told” culture to a team which is empowered and self-motivated. For this purpose, identify the low performers and offer them opportunities to develop. If that does not succeed, counsel them out and replace them with high potential people. The challenge however will remain to attract and retain such resources.
2. Instinctive to informed choices
In most family run businesses the gut feel works quite well with the family members leading the businesses. This has come from experience, having being involved with the business from an early age. As a result, very little effort is put in developing MIS Reports on various facets of the business operation. The CFO’s job is to build a comprehensive MIS reporting system to assist the professional team (and also the owners) to make more informed choices and build strategies.
3. Control the cash
As in any other business, the key is to ensure that cash flow is controlled in a manner whereby leakages if any, are plugged and financial decisions are taken objectively rather than on impulse. For this purpose, setting up a rigorous system of cash flow forecast is essential which needs to be closely monitored on a regular basis.
4. Use IT as enabler
As the business gets modernized, IT can play a crucial role in enabling business processes and decision making. Very often this requires a significant initial and on-going investment without an apparent quick payback and hence not appealing to family owned businesses. The CFO, who most often doubles up as the CIO in such businesses, should clearly set up the IT roadmap along with his colleagues to ensure that the business uses technology for delivering the long term goals of the business.
5. Get the specialists
Usually smaller family run businesses are unable to attract the ‘A+ specialists’, as career progression here may not follow the desired pace for them. The key here is to recruit them as consultants in their specialized fields who will not only bridge this gap but also help to bring in the best practices in business to the organization.
6. Respect confidentiality
Most family run business owners are paranoid about confidentiality of information – be it margin or profitability, product or process formulation or any other business IP. The CFO should respect this requirement and ensure information security across the business.
The CFO in a family owned business needs to get his hands dirty and actually do things himself in contrast to his counterparts in MNCs who spend 99% of their time in decision making only. However, the outcome can be immensely satisfying – the CFO here can be justifiably proud of the business transformation he has enabled to bring in – strategy, structure, professionalism, accountability and discipline. He is the key change maker.