Why are family businesses in Bangladesh cracking?

Like many other countries, family businesses are a common and influential form of entrepreneurship in Bangladesh, contributing to the economic and social development of the country on a very large scale. 

Many of these businesses have been established by humble but out-of-the-box thinking and entrepreneurial founders, who have built successful empires in various sectors such as textiles, FMCG, garments, pharmaceuticals, banking, telecom, and media.

However, these businesses also face the challenge of ensuring their continuity and sustainability after the death or retirement of the original founder, who often acted as the sole driver and decision-maker of the business. 

Corridor rumours say that many of our family businesses are cracking now, while some others are at risk of heading in the direction.

One of the main reasons why family businesses in Bangladesh are facing challenges in recent times is the lack of succession planning and governance mechanisms. 

Many founders, especially before their deaths, do not prepare a clear and transparent succession plan that defines the roles and responsibilities of the next generation, usually their children, who inherit the business. 

This leads to rivalries and disagreements among the heirs, who may have different visions, interests, and capabilities for the business. 

Moreover, some heirs may lack the skills, experience, or commitment to run the business effectively, while others may seek to exploit the business for their personal gains. 

In this game, some of the old and legacy employees also try to play their part.

Another reason why family businesses in Bangladesh are not working is the lack of experienced independent directors and a strong board of directors. 

These business enterprises do not have enough or even any independent director who can provide objective and professional advice and oversight to the business, going beyond the narrow family interests. 

Instead, they rely on their family members or loyal associates, who may not have the necessary expertise, diversity, or independence to challenge the chairman, CEO, or heirs. 

Furthermore, the independent or unrelated board of directors may not have the authority or accountability to monitor and evaluate the performance and strategy of the business, as friends, family members, and heirs may dominate the board and disregard objective or professional recommendations.

These factors can undermine the competitiveness, innovation, and reputation of family businesses in Bangladesh and expose them to external threats such as market changes, regulatory pressures, and social expectations. 

Moreover, these factors can erode the trust and loyalty of the employees, customers, suppliers, and stakeholders of the business, who may perceive the business as unstable, unprofessional, or unethical.

It is imperative for family businesses in Bangladesh to adopt some measures to prevent their failure after the death or retirement of the original founder(s). 

Such businesses must have a solid succession plan that clearly defines who will take over the business, what their duties and skills are, and how they will be assessed and supported. 

There should also be a governance structure that involves independent and competent directors and a board that can steer the business and hold it accountable to its vision, mission, and values, mostly after the demise of the founder. 

A culture of trust, communication, and collaboration among the family and non-family members of the business has to exist so that any conflicts or disputes are dealt with in a positive and respectful way. 

Innovation, diversification, and adaptation of the business to the changing environment should be embraced so that the business can adapt quickly and capitalise on its strengths and opportunities. 

Many case studies by leading business schools in Europe, North America, and even India highlight the importance of the timely valuation of family assets and a possible distribution matrix. 

They also focus a lot on the family constitution, family council, cousin council, and family offices for better usage as well as return on family assets. In collaboration with world-class business schools, a few leading professional firms also arrange 'next-gen' or next-generation training for their business successors. 

As the businesses in Bangladesh are predominantly promoters or family-driven, and most of those are becoming large and complex, it is about time that the founders are more focused on the future sustainability of their business than micro-management.

Mamun Rashid is an economic analyst.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.