Family businesses contribute over 70% to India's GDP, says Farhad Forbes of Family Business Network
Joe C Mathew September 9, 2019
Headquartered in Lausanne, Switzerland, Family Business Network (FBN) is the world's leading organisation of business families. Founded in 1989, it has a membership of 16,000 individuals from 4,000 business families across 65 countries. FBN's India chapter - a collaborative venture with Confederation of Indian Industry (CII) - has 300 members from 133 business families, including groups like TVS, GMR, Murugappa and DCM Shriram. Farhad Forbes, co-chairman of Pune-based Forbes Marshall, also current chairman of FBN International, talks to Business Today about the network, its activities, its forthcoming global meet in India and issues that matter the most to business families world over, and in India. Edited excerpts:
Business Today: What is the significance of a network of family businesses?
Farhad Forbes: Family businesses constitute a significant number in terms of numbers and in terms contribution to economy. Globally, as well as in India, family businesses contribute to over 70 per cent of the GDP (size of economy) of most developing and developed countries. In the case of India, this could be even more because if you go deeper into the economy almost every small enterprise is family run. The issues faced by family businesses are not entirely the same as any business entity. Generally family business have a long-term vision, and are not motivated by so much of quarterly result pressures, especially if you are not a listed firm. Most family businesses in India and abroad are unlisted.
BT: How do you define a family business firm?
You define a family business firm when you have generally not only just a founder who is in THE business, but you have multiple generations working in the family business. In some cases, you have significant ownership by the family, while in others, you will have ownership as well as management control. Both cases are equally valid. In the Indian case, there are higher number of owners active in management of the company. Overseas you may have more family-owned companies with separation of ownership and management. So, the owners are shareholders.
BT: Will TATA group qualify as a family business?
It is not who qualifies, it is how they see the business. It is more about how deeply involved the family is in the governance of business, or in the management of business. TATAs do not see themselves as a family business. That's where the paradox comes in. Tata Group is certainly a family promoted company. The family is involved in the governance of the company and Tata Sons is controlled by Tata Trust. But they don't consider themselves as a family-owned business, even though the Tata family is still influential in the governance of the company. On the other hand, Reliance would be a family business.
BT: We see lot of litigations and frictions among India's business family members. Is FBN as a platform meant to play a role of mediator?
We do not get into specific issues to resolve conflicts, or any kind of arbitration. What we try and do in the network is to try and prevent conflicts from taking place. The way we do that is essentially through exposure and education. So, we have various events and workshops, and we do that very much in CII FBN India chapter as well. We talk about family governance, which means dealing issues within the family, succession planning, dealing with share ownership transmission, etc. There is no one answer or one model that works. You have to find the right model for your own family business. We provide that opportunity for people and families to learn, and they learn from not only the faculty and academicians, but also from each other.
BT: Indian family businesses are known to be reluctant to hand over management role completely to professionals. Is it the right approach?
There is no one answer. If you have a qualified family member, with the right education or background, or adequate knowledge of the business, then the family member can be as professional as a non-family professional.
BT: Family offices are also becoming common these days. Do you talk about investments also?
Yes we do. This is typically for families who have sold their businesses. If they distribute the wealth, it dissipates, so in many cases, the family wealth is held in a family office, which invests this fund.
BT: Family offices can be different from venture capital...
Yes, very different. Here is where the long-term view comes in. Venture capitalists are perhaps just looking for returns. Here there could be philosophy that we will not invest in these areas, or these values we would like to follow. And the family is very involved in the governance of the family office. So, they may not be involved in running any business, but in managing the wealth -How it is invested, where it is invested and what are the governing principles...
BT: The next FBN global summit is in India. What is the theme?
We had the first Global Summit in 2008 in India, in Delhi, when for the first time the Summit was held outside Europe. This time, it is happening in October 16-18, 2019 in Udaipur. The theme is "navigating paradoxes". In family businesses we deal with lot of paradoxes. We have to deal with normal business issues, like any other business has to deal with, whether it is related to branding, strategy, global presence outside India etc. In family businesses, you have to deal with not only such business issues, but also management of the family and the relationship of the family with the business. Those are additional complexities, which come in. The discussions will be on paradoxes.