Industrial strength

Shamil Magomedov is editor-in-chief of the Russian version of Families in Business.

Arkadiy Ivanovich Volskiy heads an organisation that aims to protect and champion the needs and goals of business in Russia. He tells Shamil Magomedov that the issues that family firms face in this new economy are similar to elsewhere in the world

Arkadiy Ivanovich Volskiy is keen to see family businesses flourish in a juvenile market economy. He outlines the challenges and issues affecting these companies.
 
FIB The Russian Union of Industrialists and Entrepreneurs represents a serious force in the Russian business community. What are the main goals of the union?

AV Our main goal is to champion the interests of Russian business and to conduct a constructive dialogue with official authorities. The purpose of this dialogue is to improve the business climate in the country and to consolidate the private property institution. Our mission is also to instill and apply the standards of the corporate governance and ethical norms in the sphere of entrepreneurship. That's why the Union adopted The Corporate Ethics Charter.

Besides, our organisation as a key structure of Russian business, is a great contributor to and participant in the biggest national projects on a world scale, in particular, in the framework of the Russo-American Trade Dialog in the field of energy and the project aimed at the creation of common economic space with the EU.

FIB A large number of businesses in the West and worldwide are represented by family companies or companies that were family-controlled at the initial stage. What's the situation with family business in Russia?

AV I think that despite the famous Russian family brands, the phenomenon  is new. Not much time has passed since Russia's transition to a market economy. Nevertheless, some estimates reckon they constitute up to 70% of all small and medium-size companies. A good number of large Russian companies are family-controlled as well.

FIB What is the future for Russian family companies? Which option will prevail, say, withdrawal of the family business owner from his business with a subsequent sell-off (in this case the family nature of the business will be lost) or  the creation of the management structure that will allow the family nature of the company to be preserved with further transfer of the authority to heirs?

AV It depends on a number of factors. There's no doubt that soon, Russian businessmen who started their companies in the 1980s during the transition to the market economy, will be prompted to decide what to do with their business. This, as everywhere in the world, on the one hand, is caused by the natural desire to reduce the running costs of the business, and on the other hand by the necessity to find a heir to whom the owner could pass on the reigns of power.
 
I think the most important point here is the right evaluation of what had been created and built as a result of hard work for many years. Family companies should decide themselves what the best way is. If we talk about sell-off, in my opinion, short-term profit is not the best criteria. On the other hand, world statistics show that the success of family companies is not long lasting as well.

In short, the future is difficult to predict, as everything is determined by specific factors, and finally, the way Russian family companies will go, depends on the professional competence of the potential heirs, the solidity of the financial base, readiness to diversify the business and so on. The psychological prerogatives of the business founder may play an important role as well.

FIB As a rule, a founder of a family business is a bright personality, a charismatic leader who is used to achieving and has achieved everything himself. However, we cannot always say the same about his potential heirs. In your opinion, what are the factors that would ensure the continuity of the family business in Russia?

AV Undoubtedly, the main challenge for family business lies in the second generation, and Russian family business is close to this stage now. Indeed, potential heirs are often much weaker in their ­business abilities compared to the founder. Of course, the charisma or the so-called aura of the successful businessman cannot be inherited, this is from God. It is at least important that the founder transfers the knowledge and experience in sufficient volume.

The continuity can be well ensured by the proper professional training. Certainly, the heirs should be educated properly and to have experience of working outside before they join a family business and manage it, although the latter is not a common case in Russia now.

FIB What if there are several heirs?

AV If there are several heirs and there's a choice, it is important to be free from emotional biasand to take into account their professional abilities.

Sometimes it happens, and I know for certain that the least beloved heir is often much more prepared and fit to succeed. It means that a factor of fairness should work there.

In Russia it is common when all potential heirs are involved in the family business. However, it does not mean that such it should become a tendency.

FIB Family companies have specific and complex tasks and face a lot of challenges. Among them is ownership transfer, succession planning, corporate governance, competing with non-family businesses and so on. What is typical to Russian family companies compared, say, with Western ones?

AV In my opinion, Russian family companies are more committed to preserving the family nature of the business. Of course, they have top managers from outside, however, as a rule, they play symbolical roles. I suppose that the strategy of long-term success for Russian family business should be based on the creation of efficient corporate governance system with a broader participation of top managers-outsiders. This is what will make family businesses flourish from generation to generation.