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FAMILY OWNED BUSINESS HOUSES (DISUCSSION PAPER) ITALY has its Agnellis (Fiat), Sweden its Wallenburgs (ABB

Power Generation), Portugal its Expirito Sanlos (Financial Consultants) and India its Tatas, Birlas and Ambanis. Family owned business may be on their way out in America and Europe but in India they constitute the bulk of the domestic industry. Faced with global competition in their own backyards and fear of takeovers by MNCs, family owned companies in India today find themselves at the crossroads, where survival depends squarely on their abilities to adjust to the new economic realities. Hence, restructuring is on in full swing in Indian companies. Mergers and sell offs are now becoming the norm, professional managers are being recruited and empowered, technology is being upgraded and quality movements are being initiated. Restructuring & Dynastic Succession Many family owned business houses are restructuring and reorganizing their businesses. Change is the buzz word now for, at its best, family ownership can guarantee stability and help long term planning. But behind all these hectic activities some fundamental weakness es characteristic of family enterprises still remains. The main problem is lack of professional management at the helm, capable of responding to new technology and increased competition. Traditionally Indian companies functioned along feudal patterns of management where delegation of responsibility was unheard of. The proprietor shied away from taking risks and employees won the trust of their maliks only after years of service. Such practices are now becoming obsolete and family owned companies are falling over each other to recruit professional managers. Industrialists like Mukesh and Anil Ambani, Rahul Bajaj have included many professional managers at the top. In India higher level responsibilities are given to professional managers. But unfortunately, experience shows that when it comes to the position of a CEO, most business families still look at their sons, daughters and other relatives as natural successors. Dynastic succession makes it imperative for family scions to assume control of the companies when the current generation of entrepreneurs nears retirement. This often leads to family feuds as witnessed among the Modis, Ambanis and Apollo Tyres. Though eventually the family may agree to appoint their most talented member as the boss, many top jobs must still be given out to family relations. Others may be too small or simply short of talent. Wary of such dangers, some business families are now opting for amicable splits such as the Bajaj family, Piramal family, Munjal family of Hero. Moreover, before handing over the business the families are trying to ensure that the scions have a structured entry and well chalked out career path. For instance, the Burmans of Dabur hired management guru Mrityunjay Athreya to formulate a plan for inducting and grooming four members of the fifth generation into the business. But such instances are still very rare. Besides, most family run organisations still lack proper system for appraisal of executive performance forcing many executives to get restless and move to greener pastures. Rewards are also given on an adhoc basis. Few top managers get the cream, while others settle for peanuts (Preference as a criteria for promotion rather than performance). When siblings or cousins start working together or when the next generation enters the business, managing egos and the differing ambitions of the younger generation and alig ning them with the vision of the previous generation, as well as that of a business is usually another sizeable challenge.

Further, for a parent, being fair is usually about being equal in dealings, which is a principle that often also gets carried into the business. Siblings who work together in business are usually provided equal shares, equal pay, equal say, equal perks even equal sized offices only there is no one to assess whether an individual sitting in one office is putting in more effort than that in the other.

Indian Brand R & D is another major casualty in Indian family owned firms. Despite the urgent necessity to achieve technological self - reliance after the intellectual property rights regime the domestic companies have chosen the softer option to borrow technology from ab road either by paying royalty or through technological tie ups: On an average, Indian companies spend a pathetic 1% of turnover on R & D. Therefore, they cannot boast of a single Indian brand , but Mahindras, Tatas, Godrej and Reliance are taking concrete efforts to take brand globally.

Road Ahead

Global research into family businesses has found that less than one in three family businesses continue into the third generation and less than one in ten continue beyond the third generation. Therefore, statistics are clearly stacked against family busin esses being able to stick together. There are several reasons for this, none more obvious than the inherent conflict between the family value system and the business value system, both of which are diametrically opposed to each other. The family value system is based on emotions whereas the business value system is task based; there is unconditional acceptance into a family since being part of a family is akin to a lifetime membership whereas in a business, one either performs or is asked to leave; and finally, families are usually averse to change whereas businesses need to embrace change or they would not survive. In the Indian context, the problem is compounded because business families that work together often also live together. Bedroom and board room politics cross boundaries affecting relations both at home and at the workplace. Just like businesses have standard operating procedures, it is equally important for families to have a rule book or a family creed. This family creed should define t he family value system, the history of the family and the business, including the hardships ensured by the family to build the business. The rights and obligations of family members for them to be a part of the family, of the management, of the business and of the ownership of the business need to be clearly spelt out in this family creed. All current and future generations of the family should be made to read and sign this document once they reach an appropriate age. The family creed itself cannot stay static; it needs to evolve with changing family and social circumstances for it to remain relevant. Discussion Points : 1. Since, families multiply much faster than the number of businesses, after a point, there just arent enough independent firms for each member to run offer your opinion. 2. Are splits in family businesses inevitable? 3. Role of Professional Managers?