FAMILY BUSINESSES

World over family businesses play an important role’ from mom-and-pop shop to large listed entities that are controlled by families. At times, the business is managed by the family itself while in some cases the family only controls the policy while the actual day-to-day running is through professional managers.

A family business has certain distinct advantages. A family can take a long-term view while deciding the policy and taking business decisions. If properly managed and controlled, it has a great potential to grow and prosper. Yet few family businesses survive more than two generations. This is due to the fact that family businesses face some unique challenges and problems. Inability to raise sufficient capital without diluting the shareholding (that being sacrosanct to many families), unwillingness to professionalise even the operating management, egos of the family members, complacency in the subsequent generations, unwillingness of the older generation to pass on the baton at the right time and other succession issues cause demise of many successful family businesses. It is also a fact that due to lack of corporate governance, family businesses often lack credibility.

Traditionally, businesses in India have been managed by families. Hindu Undivided Family was for many generations an accepted entity for carrying on business. There was a well-established (though not the best) system to decide the succession issue – who would be the Karta. Even today, a very large portion of the Indian business is controlled by business families. This includes large listed companies such as Reliance, Tata Group, Godrej, Mahindra and Mahindra to name a few. It also includes a very large number of small and medium-sized companies. Products of even some of the small and medium-sized companies have been household names e.g. Bedekar pickles, Tortoise Brand Mosquito oils, Nirlep Non-Stick Cookware, Sumeet Kitchen Appliances, Vicco Turmeric Cream and Toothpowder.

The Indian economy has opened up substantially and businesses are facing global competition, reservations and protection for small-scale industries are fast disappearing. Even larger businesses which indirectly got protection due to licence and permit regime are facing the heat of the competition. With nuclear families, there are lesser family members to manage the business. At the same time, due to shift in culture, more family members want to be in the forefront irrespective of their capacity to run the business. In the male dominated society of India, daughters are increasingly demanding their fair share in the ownership and management of the family businesses. This also leads to dissatisfaction and disputes within the family causing destruction of flourishing business.

It is necessary to take a hard look at family businesses and understand their problems. Enlightened business families should be encouraged to ask themselves some relevant questions. This will only help the family businesses to formulate their mission and values, develop a business strategy, define their ownership structure, business structure and governance structure. These issues are common to all family businesses, whether large or small.

Most practising chartered accountants as well as those in industry render service to family businesses. Considering the importance of Family Businesses, we bring this Special Issue with four articles on family businesses – `In Defence of Family Companies’ by Mr. Balan Wasudeo, the founder of NeoCFO, `Family Managed Companies in a Globalising Economy’ by Dr. V. L. Mote, a distinguished retired professor from IIM Ahmedabad, `Succession Issues in Family-Run Companies’ by our own Dr. P. P. Shah, Chartered Accountant and `A Journey from a Family-owned to a Professionally Managed Listed Company’ by Mr. Arjun S. Handa, an entrepreneur. We hope you find these articles interesting.