In the past few years, Indian family businesses have demonstrated remarkable interest in transforming themselves as professionally-run, growth-oriented, entrepreneurial ventures. This is the beginning of a long journey. There is a lot of self-discovery happening in many business families; from the 'awareness' stage, they have started moving to 'action'. But this journey will not be very easy for at least two reasons. One, implementing something that is acceptable logically, but not emotionally, will require substantial clarity on the road ahead and some hand-holding. Two, there are not many multi-generational businesses in India that families can refer to as models of separation of ownership and management. The rapid growth of the economy and the pressures of learning on the run on both the business and family front, add to the challenge. We are in the process of evolving our own model of family businesses.
Fundamentally, business is a different system driven by competitiveness, whereas family is largely driven by emotion and compassion. We need to educate business families across the country about these divergent systems. This is critical in India, given our short history of rapid industrialisation. Consequently, most families are on a 'discovery-driven journey' into the unknown that can be turbulent. We need to use examples of families such as the Murugappas, Godrejs and Burmans of Dabur to demonstrate the benefits of a disciplined approach to governance on both the business and family fronts.
In some sense, India is experimenting with multiple models, most of them different from the well-known western model of separating family and business management. Our cultural background of the owner demonstrating commitment through direct involvement, and the predilection for indigenously developed management (as against systems and processes) have led to the emergence of several shades of an Indian model of family business. At its core sits the family CEO or chairman. This is based on the assumption that a family member is more passionate about the business than a nonfamily executive. While most families are keen on keeping the business together with family units often living separately, there are others who take the path of entrepreneurial rebirths in every generation. In the latter, a style-driven entrepreneur of a family business who is constantly exploiting attractive emerging opportunities attempts to retain ownership as well as management control. The Jindals of the O.P. Jindal Group seem to follow this model, which is more volatile than the conventional holding company pattern. Our inherent tendency to mix up family, personal and business matters has the danger of triggering misunderstandings and a final break-up. It will be a while before we see more stable and unified multi-generational businesses here.
The Indian model is growing stronger with the presence of an independent board of directors. The evolution is slow but there are clear signs of several family businesses recognising the need to have a strong board that often doubles as a mentor. Our brief history of professionalisation and the limited insight family executives have into processes leave the situation amorphous. Many family feuds such as that of the Ambanis reflect of the struggle to manage the transformation we are witnessing.
The author is Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at the Indian School of Business, Hyderabad
Published on: Aug 04, 2011, 12:00 AM IST
Posted by: Navneeta N, Aug 04, 2011, 12:00 AM IST