More on Indian CEO’s of Family Firms

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This past week, a piece I had published in the Trinidad Guardian revisited an article I had written about before, focusing on the reasons why outside CEO’s are better than those from within the families of small firms.

2015-02-14 12.07.46Unfortunately, the article wasn’t published online, but here it is in its entirety:

Surprising Research from India: Non-Family CEO’s Are More Productive

It comes as a surprise to family-owned companies: external, non-Family CEO’s are more productive than their related counterparts, according to recent research.

A CEO’s time is precious, as shown by Oriana Bandiera, and her colleagues at the London School of Economics’ Executive Time Use Project. They recently concluded research of more than 350 Indian CEO’s and one of their important findings is that when an Indian CEO increases his/her time on the job by 1% percent, there is an increase in sales of 1.08%. Furthermore, there is a strong correlation between CEO’s schedule and sales revenue: the more time spent in executing explicitly planned activities, the better the financial results. The early indication is that unplanned hours at the top lose money for companies.

A CEO’s time management skills, therefore, have an outsized effect on their company’s fortunes. Unfortunately, as important as this skill may be, most top executives are left to their own devices. According to James Haskett of Harvard Business School, the same is true for their students. “…the philosophy has long been to eschew formal training in time management, instead overloading students purposely to force them to learn for themselves how to prioritize and become better time managers.”

Unfortunately, there’s growing evidence that in our age of tech-driven information overload, this approach isn’t working in either Cambridge, New Delhi or Port of Spain. In particular, it may be causing a problem for family CEO’s who don’t understand the impact their time management has on company results.

Family vs. Professional CEO Productivity
Bandiera’s research team also discovered that Family CEOs work fewer hours, make fewer plans, conduct fewer meetings, spend more time with outsiders, and engage in more one-on-one meetings. These activities are important because they are empirical predictors of success.

At first glance, there could be a good reason: some Family CEO’s argue that their job requires more than just generating profit. They have familial goals, the argument goes, and every conversation with a family member, at any hour of the day, doubles as a business meeting regardless of the topic.

During the course of writing my new book, the researchers assured me that they are looking at these causal factors in depth. For example, they have found that there’s less of a performance gap in industries that face high international competition, perhaps due to the pressure of higher standards.

To continue the comparison, they checked their data: Do these two types of CEO’s respond to the same surprise events in the same way? To test their hypotheses, they looked at two “exogenous shocks” as a means of comparing the reaction by each group. One was sudden downpours of rain and the other was big cricket matches; potentially time-wasting interruptions that we relate to here in Trinidad.

Rain and Cricket
The contrasts were stark: Family CEO’s responded to sudden rainfall by reducing the number of hours worked by 5%, while their counterparts showed a positive and significant increase: a 10% difference overall. (Once again, Family CEOs who face more foreign competitive pressure, were less disrupted.)

The finals of the IPL Cricket League, whose matches are broadcast at 3PM in the cities where the research was performed, generally attract a great deal of attention in India. On days with important finals, the data shows that Family CEOs reduced their hours worked by 10%, while their counterparts were unaffected. Also, Family CEOs didn’t make up the time lost, even though they argued that they do.

Given these findings, the authors rejected the notion that Family CEO’s are simply responding to unique demands. Their reaction to rainy days and cricket match finals was unproductive in comparison to their outside counterparts.

Actions to Take
Does this mean that your family-owned company should immediately replace the brother, daughter or cousin at the top with an outsider? No, but you should look for ways to give leaders the productivity skills that were never passed on by the founders. For example, given the correlation between planned hours and sales, it’s startling to learn that approximately 13 hours per week of an Indian CEO hours are completely unplanned. I doubt that local CEOs are much better. Many would protest: “If other CEO’s are liming, why can’t I?”

In one way, they aren’t much different from the average professional from any corner of the world: they rely on self-made productivity techniques that aren’t informed by global standards. Instead, they relax in the belief that being more effective than others immediately around them is enough.

In other words, Family CEO’s give themselves a “bligh” that needs to be taken away. From the research, it’s clear; it’s possible for them to do much, much better.