Keeping family business intact to boost jobs

Tony Hotland, Jakarta

Have you ever thought that running a family business would be less brain-busting than a nonfamily business because family members cause fewer conflicts and are easier to manage? Think again.

Research by The Jakarta Consulting Group, which claims to have assisted some 300 family companies, shows that such companies indeed face hurdles in establishing good management, business continuity and professionalism.

A family business can be defined as either a family-owned business, in which the founders are also the shareholders, or a family-run business, in which the founders also run the entire business or at least occupy key posts.

According to AB Susanto, a managing partner at the consulting group, family businesses contribute annually up to 82.44 percent of total gross domestic product from the private sector.

"Therefore, keeping such businesses running is a priority as it can help address the problem of massive unemployment in the country," Susanto said last week.

He underlined that up to 80 percent of family businesses were in labor-intensive sectors such as trade, manufacturing and agriculture.

For instance, the Djarum Group, established in the 1950s, is concerned with trading, transportation and property, and employs at least 75,000 people in its 70 or so companies.

However, poor business continuity, professionalism and management have led a number of family businesses to the verge of breakdown.

"Nine out of 10 family companies experience those problems. Half seek help (from consultants), while the other half sweep it under the carpet until the problems get out of control," Susanto said.

Continuity measures should be announced at least five years beforehand to make sure that the offspring meet the standards required for particular positions, he said.

"During that time, the bosses can assess objectively who is best and the possible candidates can strive to lift their level of expertise. Selection should not be based on blood relationships alone," he explained.

Susanto argued that the worst aspect of family businesses was that it involved many who were related by kin, a situation that would require compromise and tolerance at a higher level.

"Family issues should not be allowed to outweigh business decisions because that undermines professionalism. Besides, the second or third generation is more vulnerable than the founders. They start to lose solidarity as they begin to envy their relatives, who may have greater authority or higher salaries," he said.

Susanto also stated that problems could occur if a company started employing professionals from outside the family, as they might have a different remuneration structure to that of the family members. Such matters should be defined clearly and fairly, he said.

Of paramount importance, Susanto said, was the development of trust between family members because it would initiate better communication and help to prevent conflict.

In the end, he said, a long-lasting family business could be relied on as an effective tool to create jobs and boost the taxation revenue.