Friday, April 4, 2008

Taking a leap of faith and a leaf out of corporates

When a family company gets to a certain size, and family members alone cannot effectively run the business, professional managers are hired to take care of day today business, with the owners, acting more in a directorial sense guiding the strategy and steadying the ship if something goes wrong. At a later stage when these companies go public, and owners gradually dilute their interest and diversify their personal portfolios, then effective ownership and control separates, and the next generation of the family merely act as passive shareholders, not involved anymore, just getting a return in the form of dividends with or without trust funds.

The above is the traditional example of growth. In Sri Lanka, the leap of faith to go from family to hands off management is a very difficult one, which very few if any companies have been able to do so far. I attribute this to the founders lack of trust of employees, taking with them vital information to start up their own companies in competition.

A truly dynamic company should not worry about this as the start up costs far outweigh the advantages already with the existing company, and if the progression to grow in a company is clear for able people, the company should not fear this outcome. It will then ease the pressure on the owner, family or the next generation to remain hands on and instead make time to concentrate on the strategic direction, only possible if one is removed from daily operational duties.

The multinational in Sri Lanka therefore operate under conditions where they do not fear any home-grown competition, as they feel those businesses have a short shelf life due to their lack of vision. This leads to the Nestles and Unilevers of this world to make super-profits out of the lack of competition and only the local entrepreneurs are to blame for the former’s success.

I would like to see some of our very successful businessmen, relax their management grip a little to concentrate on strategy, thereby encouraging our local talent to show results as managers, with appropriate incentives, rather than see them leave these shores to greener pastures, where opportunities abound. This inevitably results in a loss of hard to replace talent. It becomes a self-fulfilling prophecy when business leaders bemoan the lack of talent, which they helped to create by not wanting to let go.

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