Sri Lanka family firms told not to fear private equity, separate management

COLOMBO (EconomyNext) – Sri Lankan family businesses should not fear private equity partners and letting professional managers run their companies if the next generation is not ready to take over, according to senior officials of a global strategy consultancy.

Most Asian firms are family-owned and reluctant to have non-family equity partners even though the latter can infuse professional management and improve profitability, they said.

"Succession planning is one of the key aspects for family businesses – to see if the second generation is ready to take over," declared Kumudu Gunasekera, Director of Stax, a global strategy consulting firm headquartered in Boston, USA.

"Sometimes families force it upon the second generation when they are not ready," he told a news conference held to mark the firm’s 10th year of operations in Sri Lanka.

"They need to understand that they can always own the firm but not manage it. Some companies like Hemas have understood that and ownership and management have been separated. Then maybe the third or fourth generation can come back into management when that generation is ready to take over."

Rafi Musher, founder and chief executive of Stax, which has worked with several Sri Lankan firms, said family-owned businesses can have a longer-term focus as opposed to listed ones whose managements must worry about quarterly results and their impact on share prices.

"Family businesses can think of multi-generation wealth creation whereas public firms have to think about the next quarter," he said. "We help family relationships to be more successful."

Ruwindhu Peiris, Managing Director of Stax, said the majority of Asian family businesses are family owned.

"They have a fear of letting go and are reluctant to have outsiders as equity partners. Our advice to them is to look at best practices."

He noted how apparel firms like MAS and Brandix have shown how family businesses with the right outlook and professional management can create wealth and be successful.

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"Our advice is to think big and believe in the next generation. For Sri Lankan companies the opportunity is to think beyond the shores, to start thinking of India, China, opportunities in Bangladesh."

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