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Governance System of Family Business: A Case study of Godrej Group

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‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018
Governance System of Family Business: A Case study of Godrej Group

Mr. Sanket V. Ravan

Assistant Professor,
Chhatrapati Shahu Institute of Business Education and Research
(CSIBER), Kolhapur.

Abstract :
This paper studies about family business i.e. a corporation that is entirely owned and
managed by members of a single family. Also studies how family business is managed by using
good family business governance system for effective control. Good governance in terms of
separate family governance structure and business governance structure. This paper studies
about family business governance system of Godrej Group a very popular family business in
India.
Key Words - Family Governance structure, family council.

I. Introduction
A family business means the business actively owned and or managed by more than one member
of the same family. A family business is characterized by commitment of family members,
reliability, pride, utilization of family human capital etc. To manage family business effectively
is called as family business management. To manage family business we require proper
governance system for family as well as business since both are separate entities and their
management and control required is separate. In India family business is facing various
challenges like succession planning, compensation problem, nepotism, lack of talent in family
etc. to solve some of these issues good governance system is required.
II. Review Of Literature
K. Ramachandran (2005) in their paper entitled ―Indian Family Businesses: Their survival
beyond three generations‖ studied how families grow their business beyond three generations, in
highly competitive environments a six Indian case studies were analyzed have all fourth
generation family businesses with diversified portfolios, managed by family members and
outside professionals. He conclude that the quality of family leadership reflected in the level of
Compassion Orientation nurtured in the families is found to be critical for building Competitive
Orientation in the group‘s business.
R.Vani and etal. (2014) in their paper entitled ―Family Business Management in Small and
Medium Enterprises at Nellore District‖ conclude that Many family businesses have non-family
members as employees, but, particularly in smaller companies, the top positions may be
allocated to family members‖ Family Business contributes 60-70 percent of GDP of most
developed & developing countries. Number of challenges face by Indian family business like
Finance and Marketing were major challenges.
This study covers family business governance system used by Godrej group.
III. Objectives of the Study
1) To study business governance system used by Godrej family business.
2) To study family governance system used by Godrej family business.

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‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018

IV. Research Methodology

For the completion of research paper researcher has used Descriptive research method.It
is based on secondary data available in various journal articles, websites, books and magazines.
This study is based on earlier research done in this particular aspect.
Data collection:
In this study the data has been collected from secondary sources.
Secondary Data:
Secondary data collected from the Books, Internet, magazines, Journals and different
types of research papers etc.

V. LIMITATIONS OF THE STUDY

The study was conducted through secondary data sources.

VI. DISCUSSION

Theoretical background-
Definition- Family business has been defined as a business that is owned and managed (i.e,
controlled) by one or more family members (handlers ,1989.,Hollander & Elman ,1988).

Family business examples:

Aditya Birla Group , Godrej group, Dabur Group, Wipro, Hero MotoCorp, Ford,
Raymond Group, Samsung, Tata Group , Toyota, Wal-Mart, WWE.

Governance in a family business can be thought of in terms of:

a) Structures, such as creating a family learning and development committee;
b) Processes, for example, creating and running ongoing ownership education programs and the
annual preparation of a personal development plan; and
c) Policies, for example, an aspect of the family employment policy could be that family member
employees are expected to participate in the family learning and development programs.
A well functioning family governance structure will mainly aim at:
 Communicating the family values, mission, and long term vision to all family members.
 Keeping family members (especially those who are not involved in the business)
informed about major business accomplishments, challenges, and strategic directions.
 Communicating the rules and decisions that might affect family members‘ employment,
dividends, and other benefits they usually get from the business.
 Establishing formal communication channels that allow family members to share their
ideas, aspirations and issues.
 Allowing the family to come together and make any necessary decisions.
The major constituents of a family governance structure are:
• Family institutions which can have different forms and purposes, e.g. Family assembly, family
council, and other family committees.

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‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018
• A family constitution that clearly states the family vision, mission, values, and policies
regulating family members‘ relationship with the business.

Fig- Governance structure for complex family business enterprise

Source-International Institute for family enterprises http://slideplayer.com/slide/9100923/

Family Governance Institutions-

Family Assembly-
The family assembly is a formal forum for discussion for all family members about issues
of business and family. During the founder(s) stage of the business, the family assembly is
replaced by a more frequent and informal ―Family Meeting‖. Meeting 1-2 times a year.
Issues handled during family assemblies include:
 Approval of any change in the family values and vision.
 Education of family members about their rights and responsibilities.
 Approval of family employment and compensation policies.
 Election of family council members (if the council exists).
 Election of other family committees‘ members.
 Other important family matters.
Family Council- ―Family Supervisory Board‖, ―Inner Council‖
The family council is a governance body that focuses on family matters. It is to the
family what the board of directors is to the enterprise. The council is usually established once the
family reaches a critical size, i.e. more than 30 members. Manageable size, i.e. from 5 to 9
members. These members are usually elected by the family assembly by taking into
consideration their qualifications and availability to perform the council‘s duties, meet from 2 to
6 times per year.
Family council tasks:
 Serve as a vehicle for transparency and for good, timely communication
 Educate family members about the difference between ownership, management, and
family membership
 Allow for policy making, e.g., family employment policy, ownership transfers, and other
similar Matters
 Problem-solving and conflict resolution

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‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018
 Providing forum for celebration.
Family Office-
The family office is an investment and administrative centre that is organized and
overseen by the family council. Family offices are usually very common within large and
wealthy families in business, whose members express a need for getting personal financial,
banking, accounting, and other advice, usually populated by professional managers who monitor
the investments, tax compliance, insurance, financial planning, and intra-family transactions such
as gifts of stocks and estate plans.
Advisory boards-
The advisory board is a group of experienced and respected individuals that many family
businesses form when their own boards of directors remain only composed of family members
and company senior managers. Practical size for an advisory board is from 3 to 7 members
Board of Directors-
Board size, i.e. 5 to 9 members.
Main tasks assigned to the board of directors include:
 Securing senior management succession.
 Ensuring the availability of financial resources.
 Ensuring the adequacy of the company‘s internal controls and risk management systems.
 Reporting to the owners and other interested parties.
Make up of Board of director
 Small group—five to nine members
 Majority should be independent
 Outsiders should not be friends of family
 Should not be business‘s service providers
 No managers other than CEO
 Successors only when succession imminent
 At-large family representation
Family constitution- Family policies a n d g u i d i n g vision and values that regulate members
relationship in business.
The family constitution is also referred to as ―Family Creed‖, ―Family Protocol‖,
―Statement of Family Principles‖, ―Family Rules and Values‖, ―Family Rules and Regulations‖,
and ―Family Strategic Plan‖. The family constitution is a statement of the principles that outline
the family commitment to core values, vision, and mission of the business.
Family values, mission statement, and vision.
Authority, responsibility, and relationship among the family, the board, and the senior
management.
Policies regarding important family issues such as family members‘ employment, transfer of
shares, CEO succession, etc
Family values: the key principles underlying culture :
Family values are the underlying values, beliefs and ambitions of the (individual
members of the) family who are involved with the business. They determine how things are done
within the family values like respect, honesty, trust, loyalty, good governance etc.

63 Website – www.researchjourney.net Email - researchjourney2014gmail.com

‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018
Discussion-
A Case of Godrej Group-
The 120 years old Godrej Group is very popular and successful family businesses in India,
not only for its economic achievements but also for its continuous focus on achieving
excellence in corporate governance. The group was established by lawyer Ardeshir Godrej,
who gave up his profession to make locks in 1897. Key group companies include Godrej
Consumer Products, chaired by Adi Godrej's daughter Nisaba and Godrej Properties, run by
his son Pirojsha.*(v)
Business Governance structure-
Godrej group appointed 6 independent directors (non family members) on their board. They
have involved professional from various areas legal , accounting etc. for effective
governance.
Chairman is Adi Godrej but Vivek Gambhir is MD&CEO of Godrej Consumer Products Ltd.
who is non family member.
In management also they have appointed external professionals for better governance and
success.
Composition of Board of Godrej Consumer Products Limited-

Source- Report on corporate governance 201617

(http://www.godrejcp.com/Resources/uploads/reports/201617/10.ReportonCorporateGovernance
201617.pdf)*(ii)

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‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018

Committees of the Board- The Company has constituted Audit Committee, Stakeholders‘
Relationship Committee formed in accordance with Regulation which looks into the investor
grievances. The Company has also formed a Nomination & Remuneration Committee in
accordance with Section 178 of the Companies Act, 2013, which looks after the appointment,
remuneration, and performance evaluation of the Directors. The Company also has a Risk
Management Committee in accordance with Regulation 21 of the Listing Regulations.*(ii)
Family Governance structure-
Family Council- Godrej created a family council. All family shareholders above 18 are
members. Of the 16 such members, eight have executive roles in the group. The council meets
four to six times a year.*(iv)
Family Constitution-
The Godrej family set up its Family Business Board in 2010 and though it has no detailed
constitution, it has laid down guiding principles outlining the roles and expectations of family
members as well as a governance process.
Godrej has clear set of guiding principles that lays down the norms of stewardship for the family.
Mission and Values of Godrej Group *(i)
Vision
Godrej in Every Home and Work Place
Mission
Enriching Quality of Life Everyday Everywhere
Values
Integrity | Commitment | Team work | Continuous Learning | Environmental Sustainability
Godrej has also set Code of Conduct for the Board of Directors and Senior Management.

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 ‘RESEARCH JOURNEY’ International Multidisciplinary E- Research Journal ISSN :
Impact Factor - (CIF ) - 3.452, (SJIF) – 3.009, (GIF) –0.676 (2013) 2348-7143
Special Issue 58 : Multidisciplinary Research April
UGC Approved No. 40705 & 44117 2018
VII. Conclusion :
This study concludes that now a day‘s managing family business is difficult task. It
requires proper governance system to manage business effectively as well as maintain harmony
and relationship between family members. So, it is essential that separate family governance
system and business governance system a family business must adopt. As in case of Godrej
group they got success because of proper governance system for business and family also they
have set example for other business by involving more independent outside directors on board
for better governance. Also they have good family constitution in terms of vision, mission and
values. Indian family businesses are facing certain challenges like succession planning,
nepotism, poor governance structure, lack of professional management etc. To overcome these
issues if family businesses use proper governance system then family business becomes
successful.

References :
Books & Journals:
Carlock, R.S. and Ward, J.L. (2001). Strategic Planning for the Family Business: parallel
planning to unify the family and business, New York. Palgrave.
Ernesto J. Poza -Family Business, Third Edition.
Family Business Management (generation to generation) from family business to business
family-Prof.(Dr.) Mukesh Bhatia
IFC Family Business Governance Handbook
Ramachandran, K., Indian Family Businesses: their survival beyond three generations, 35th
EISB Conference, Barcelona, 12-14 September 2005.
R. Vani, M. Chandraiah, C. Prakash ―Family Business Management in Small and Medium
Enterprises at Nellore District‖ International Journal of scientific research and management
(IJSRM),Volume 2,Issue8,Page 1249-1266 (2014)
Mohd abass bhat, Javeed Ahmad Shah, Aijaz Ahmad Baba ―A Literature Study on Family
Business Management from 1990 To 2012‖ IOSR Journal of Business and Management
(IOSR-JBM)e-ISSN: 2278-487X. Volume 7, Issue 6 (Jan. - Feb. 2013), PP 60-77
Dibyendu Ganguly , Shailesh Menon Priyanka Sangani, ―How Indian business families are
adapting ideas from Hindu united family structure‖ ET Bureau|
Updated: Oct 16, 2015, 05.26 AM IST

Website-
i. http://www.godrejgreenbuilding.com/abt_mission.aspx
ii. http://www.godrejcp.com/Resources/uploads/reports/2016-
17/10.ReportonCorporateGovernance201617.pdf
iii. http://isbinsight.isb.edu/corporate-governance-in-the-context-of-family-controlled-
businesses/
iv. https://www.businesstoday.in/magazine/features/family-business-godrej-
group/story/17235.html
v. https://www.forbes.com/profile/godrej/

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