Razak Dawood, chairman of Descon, a multinational, family-owned corporation based in Pakistan, offers his best advice for those entering or running their family businesses.
If anyone knows about running a large family business, it’s Razak Dawood ’68.
The chairman of Descon, a family-run power, engineering, and chemical conglomerate based in Pakistan, manages more than 14,000 multinational employees across seven countries. As Pakistan’s former minister of commerce, industries, and production and as former director of the State Bank of Pakistan, he is also well versed in the political and economic challenges of running a global corporation. Further, the business, in one form or another, has been in the family since early in the last century.
It’s not surprising, then, that Dawood was selected to kick off Columbia Business School’s new Brown Brothers Harriman Family Business Leadership Speaker Series last month. In a conversation moderated by Professor Patricia Angus, co-director of the School’s Family Business Program, he spoke about his own experiences and offered five crucial tips for running a successful family enterprise.
Tip 1: Start in the right position.
When Dawood joined his family firm at the age of 25 in November 1968, he hit the ground running — or, put more accurately, sprinting at breakneck speed, as he took over as managing director on day one in the midst of significant regional upheaval. But that was a mistake, he cautions.
“If you are a family member, it’s you who has to go that extra mile — it’s you who has to support the executives,” he says. If you come in as a manager yourself, you will burn the candle at both ends, expending hordes of additional energy on just proving yourself, he explains.
“When my sons came [to the business] in 2001 and 2005, I said, ‘No way. You must work at least 10 to 15 years before you can enter a senior position.”
Dawood’s two sons, Taimur Dawood ’99 and Faisal Dawood ’05, both joined the company immediately upon graduating from Columbia Business School. Taimur and Faisal have since worked their ways up to becoming, respectively, CEO of Descon Chemical Ltd., a Descon subsidiary, and CFO of Descon Engineering Limited.
Tip 2: You need transparent leadership.
Dawood’s uncle, Ahmed Dawood, founded the original holding company, Dawood Group, in 1947. By the late 1960s, Ahmed and his three brothers (including Razak’s father) had expanded the company to include myriad businesses across industries, including in insurance, textiles, fertilizer, petroleum, and paper. Over the ensuing years, however, political and economic turmoil — including the creation of Bangladesh — caused the company to shrink and condense, ultimately putting strain on the relationship among the four brothers. By the late 1970s and early 80s, although the corporation was doing well financially, the siblings decided to part ways.
“What broke [them] up? The problem wasn’t in the business, the problem was in the family,” Dawood explains. “We had a Family Council, [but] it was never transparent. Minutes were never shown to anybody. There was never any equal representation on the Family Council. You have to have a system of justice, fairness, and transparency and be able to protect the weakest member of the family. And did we, as a larger family, protect the weakest member? The answer was no. Once things start to weaken, they never stop.”
The key to making sure the business runs smoothly, especially through succession, is having transparent leadership and an egalitarian governance system. And that brings us to Dawood’s third tip.
Tip 3: Develop a family “constitution.”
It’s critical to implement a code of ethics and behavior that everyone is held accountable to, says Dawood, who notes that he developed his family’s constitution by looking not at other corporations, but at governmental bodies.
“The thing that brought me the most [inspiration] was … the American Constitution,” he says. “The American Constitution’s preamble says, ‘We want to make a more perfect union.’ It hit me. That’s exactly what I wanted. We had a union that broke. I was now trying to create a more perfect union.”
Dawood identified two parts for a useful constitution: family values and processes of family governance. To create the former point, Dawood says he wrote down a list of 10 values that he thought his family should have and shared the list with his family members. He asked each individual to rank the values in order of importance, then zeroed in on the group’s collective top five, which were:
- To seek elegance rather than luxury.
- To seek refinement rather than fashion.
- To be wealthy rather than rich.
- To seek humility rather than glamour.
- To seek substance rather than show.
“The thing we said to ourselves is, ‘What kind of family do we want to be?’” Dawood says. “[For example], if you say you want to be rich, then you’re only worried about your financial competitiveness. If you say ‘wealthy,’ you’re talking about human capital, intellectual capital, and at the back is financial capital. If you have financial capital alone and you don’t have the others, you lost — you lost for [the next] generation.”
The constitution also outlines processes by which to evaluate staff and onboard new employees, as well as other important systems of governance, Dawood says.
“I don’t think I am capable of evaluating my sons. They go through exactly the same process as all our senior executives,” he explains, noting that Descon hired an external firm to handle these evaluations.
Tip 4: Transition plans must be put in place.
“Our chairman, my uncle, he was a dynamic person,” Dawood explains. “He had a personality. He was a robber baron in the classic sense. He could smell an opportunity a mile away, and he was absolutely ruthless in pursuit of that objective. But when those types of dynamic, charismatic personalities become older, they don’t know when to let go. They want to hold on and hold on. And that’s what happened [to us].”
It’s critical for the family business to discuss succession planning and implement transition plans in advance so that when the time comes, everything has already been mapped out. It removes some of the emotion and personal issues from the situation and makes the transition easier and more orderly for everyone.
Tip 5: Even in times of hardship, always be ready for the next growth spurt.
The Descon group of companies went through several periods of boom and bust as the political and economic landscape in the Middle East and South Asia shifted. Any business that hopes to last more than a generation can expect similar cycles of change. One thing it taught Dawood is that it’s important to see the opportunities in a downturn — and to be prepared for the next upswing.
“The downturns have a very positive aspect to them. That’s when you start sharpening your pencils. [It] is when you start trimming your fat. [It] is when you start thinking again about your strategy,” Dawood says. “Just make sure you’re ready for the next upturn.”
That means always keeping a long-term view in mind and keeping your organization staffed with the best and brightest, knowing that business will rebound and being prepared to meet the demand when it does.
Ivy Exec is proud to announce its partnership with Columbia Business School, to bring an insightful collection of thought leadership pieces for the modern-thinking strategist in finance, leadership and more to its platform.