B-School students Nupur Bansal and VS Vaidyanathan debate whether or not inheritors make better CEOs than professional executives.
Nupur Bansal PGDM (2013-15), SPJIMR, Mumbai
"Inheritor CEOs have greater sense of ownership and accountability"
The most coveted job is also the least understood. As management guru Peter Drucker said: "A CEO is the link between the Inside, that is 'the organisation', and the Outside - society, the economy, technology, markets, and customers." Hence, CEOs should not be sales champions or operations officers or finance wizards, and cannot be confined to the "executive" role. They have to be all, and more. Their overarching role condemns focus on any one function and any selfish desires of 'personal growth'. A professional tends to wear several hats to further his or her career, but maintains a soft corner for the one job he/she enjoys the most and is the best at.
Inheritors are not recruited. They are born members. This isn't a question of entitlement. Inheritor CEOs' sense of ownership and accountability goes beyond any job description. Business, to them, is tribal knowledge passed on from fathers and forefathers. International expansion plans is a debate akin to overseas education for kids, while a union strike upsets all members like a family feud.
Anand Mahindra, Adi Godrej, Rahul Bajaj, among others, defy conventional wisdom that bode them to be wasteful. They enjoy greater stakeholder trust and higher non-monetary rewards. Their name on the wall is not just an identity for the company. It's their legacy. Even the most tenured professionals, who climb up through the ranks, would find it difficult to compete with this.
VS Vaidyanathan PGP (2013-2015), IIM Ahmedabad
"Inheritor's desire to prove himself can be at the expense of business"
While it could be argued that all else being equal, inheritors are better CEOs than professionals, the fact is that all else is simply not equal. Inheritors of family businesses face unique challenges, making it tougher for them to succeed as CEOs. A competent CEO needs to identify the changing landscape of the industry, the competitive dynamics within the changing industry and the internal values and processes to succeed in this external environment. When these values drift farther away from the family's values, an inheritor CEO will find the going tough.
According to a 2012 HBR article, the biggest trap that family businesses fall into is assuring its members they have a place in the business irrespective of competence. This has three negative impacts. First, it allows incompetent family members to be a part of the business. Second, it creates an implicit pressure on the next generation to join the business and assume leadership irrespective of interest. Third, it degrades employee morale.
Even competent inheritor CEOs have to battle against comparisons with the last generation, the inability to severe business-impeding relationships and principal-agent problems. Management hubris, reckless business expansion and denial of risk - three reasons why Jim Collins says businesses fail - can each be driven by the inheritor's desire to prove himself, often at his business's expense. Take Kingfisher's Vijay Mallya, for instance.