BusinessToday 3123/22, 538 PM ‘Sibling rivalry is the biggest challenge for Indian family businesses G Signintobusinesstodsyinwith Google X ion “clinical He not only teaches and researches family businesses but also advises them in depth — hence the designa professor”. He Is arguably the mi expert on family business and scores of families across the world consult him. Professor John L. Ward is no stranger to India and is often called upon by family firms in the country for advice. In o freewheeling chat with N. Madhavan, he tolks about why fomily businesses often don't lost beyond the third generation, challenges Indian family businesses face, their opproach to succession planning/continuity planning need to not just create wealth but to build great institutions. Excerpts st sought afte and about Who handles downturns, like the one we are experiencing now, better—family businesses or nonfamily companies? hitps lawn businesstoday inmagazine/60-minutes/storyisbling rivalry s-he-biggest-challenge-for-indiar-famiWy-businesses-17528-2010-02-14 216.23122, 5:36 PM ‘Sibling rivalry i the biggest challenge for Indian family businesses" -BusinessToday In general, family businesses handle down cycles differently from non-family companies, Family businesses stay more consistent in their investment spending, R&D, product and marl G signintobusinesstodeyinwith Google X to people and usually have lesser debt on their balance sheet. Infact, an opportunity to acquire distressed or undervalued assets. Howeve @ Pervinde Arora stock exchanges face the same challenges as non-family concerns. Th subjects itself to stock market expectations, In India, Ifind that these: @ Pender or in some parts of the world WARD'S UNIVERSE + Prof. Ward has researched family businesses across the US, Canada, Latin America, Europe and Asia + His clients include: Italy's Beretta Family, USA's Johnson Family Enterprises, Canada’s Bata Shoe Organisation, UK’s Clinton Davis Estates and Australia’s Richard Owens family. + More than 20 Indian business families, including the TVS Group, Murugappa Group and SRF Ltd, have consulted him, What are the major challenges family businesses face today? Is it true that most family concerns do not last beyond the third generation? My own research, mostly in the Western countries, shows only 15 to 20 per cent of all family businesses endure through the third generation, Classic challenges are the emotions around leadership succession, the lack of interest of family shareholders in the third or fourth generation, and in some parts of the world, the death or inheritance taxes. | find, in general, that the transfer of leadership from the senior generation to the next generation works a lot better in India. But the number one challenge in India is rivalry and conflict between siblings. What are the other challenges? Successfully professionalising the management team so as to become globally competitive Is a big challenge. Also, ke in other parts of the world, in India, too, family dynamics and business dynamics are connected and family dynamics shape the business. Then, there is the problem of defining authority— who has what authority and how various family members can work together under joint authority. There is a very strong culture in India where all male members of the next generation are expected to work in the family business, For some that is not their passion or talent. Yet culturally, they feel they must be involved in the business for which they may not have the passion or capability. Mixing up personal standing and business ding is another common challenge among family businesses in India, It goes back to high taxes of earlier decades when Income taxes were so high that people had to take family expenses through business, Now its time to change. hitps:lwwu-businesstoday inmagazine/60-minutes/storyisbling ralry-s-he-biggest-challenge-for-indiar-family-businesses-17528-2010-02-14 316.3123/22, 538 PM ‘Sibing rivalry is the biggest challenge for Indian family businesses" - BusinessToday What about the conflict of interest between family members who run the business and those who do not? G Signintobusinesstodsyinwith Google X Itis a classic problem in a third and fourth generation business family- those running the business would prefer growth and would want to contain cash outfiow while others who are just shareholders may not want to see their dividend income go down. Its possible to reconcile this conflict by having a fair but explicit dividend policy and a clear commitment to growth and sustainability of the business. Both are possible. An independent board can help in assessing the growth strategy and dividend policy. But this is not a common challenge in India compared to other parts of the world. As | said earlier, in India most family members work in the business. THE DOs AND DONT: + Have a strong and independent board of directors with an excellent governance system. + Start succession planning early and see it as a process, not as an event. + Focus on proper professional and personal development of family members. + Focus on not only wealth creation but on building great institutions. + Adopt a fair dividend policy to avoid conflict of interest between family members who participate in the management and those who do not. Is it true that in India succession planning is the biggest challenge family businesses face? | think because Indian families are small the transition from senior generation to the next generation is somewhat smoother than in other parts of the world, Succession planning is important but less problematic in India, The greater question is continuity planning, which is investing in the culture and governance of the business for the long-term future. This is a larger challenge for Indian family businesses. Indian family concerns should concentrate more on the quality of governance, particularly through their boards. They should also pay ‘more attention to developing a longterm culture and a strong management development programme. Your advice to Indian family business on succession planning? Start early, think of itas a process and not an event, include independent directors to aversee the process, focus on personal development and professional feedback to new generation family members, set target dates for the transition and celebrate the process. Some family members in India have been distancing themselves from day-to-day management of the company leaving the job to professionals... ‘The biggest question about prafessionalising the management for Indian family business is for the family owners to believe that they can attract the very best talent, delegate great responsibility and challenges to nonfamily hitps:ilwwn-businesstoday inmagarine/60-minutes/storyisbling rivalry s-he-biggest-challenge-for-indiar-family-businesses-17528-2010-02-14 4/6.