The changing dynamics of family run businesses in India | SupportBiz

Managing Growth

The changing dynamics of family run businesses in India

 
Transition

India has several family-run businesses, from the neighbourhood kirana stores to the Tatas. In fact, a recent Credit Suisse study indicates two of every three listed Indian companies being family-run. This makes India the country with the highest number of family businesses in Asia.

That said, a number of family-run businesses have seen internal feuds recently, hurting business interests as well as the economy. A PTI article, published in the Business Standard takes a look at the changing dynamics in family-run enterprises in India.

A Barclays Wealth study indicates that 40% of the world’s ‘wealthy’ have directly experienced family feuds due to their fortunes, a whopping 61% in India. Vishesh Chandiok, National Managing Partner, Grant Thornton India, states, ‘Successful family-managed businesses carry out ponderous wealth creation over years. However, feuding may cause destruction of the created wealth.’ Loss of business is not the only downside, though. Chandiok adds, ‘A threat to personal relations is a bigger loss.’

‘Family businesses are faced with unique threats that must be identified and addressed as they arise,’ Chandiok quips. There are stringent rules in place in the West to deal with such issues, he states, adding that these rules are slowly catching up in India.

One solution to such feuds could be the hiring of non-kin to direct the growth of the enterprise, leading to a greater level of transperancy and corporatization.

Joseph Fan, Co-director, Institute of Economics and Finance, Chinese University of Hong Kong, is researching the state of family-centred Asian enterprises after the business passes on to the second generation. The issue of family succession in Asia is ‘extremely challenging’, Fan says. Family disputes could damage the business, which could cause ‘broader damage to these economies,’ he added. Fan believes that firms recruiting non-kin to the Board of Directors after the founder’s term have commonly fared better compared to firms that do not.

India lacks in ‘succession planning’, a popular concept in the West. This situation, however, is gradually changing. Experts believe that Indian family-run businesses are gradually improving in corporatization, opening up to hiring qualified non-kin at key organizational positions.

‘As a business grows, a family clearly can't physically occupy all roles,’ Chandiok states. ‘When too many family members are engaged in business, they may be treading over each other. In such cases, hiring non-kin may help mitigate possible conflicts,’ he adds.

One of India’s major family-run enterprises, Tata Sons, has named Cyrus Mistry as successor to current Chairman Ratan Tata. Mr. Tata is expected to step down from his office this December.

However, some other high net-worth family-run businesses are still committed to passing on the baton only to the next of kin. For instance, hospitality major Oberoi Group. Vikramjit Singh Oberoi, son of current Chairman PRS Oberoi, is reportedly being trained to take over from the senior Oberoi, once the octogenarian steps down from his duties. Another example is Aditya Mittal, son of billionaire Lakshmi Mittal, who has been serving as Chief Finance Officer at the family-run steel corporation ArcelorMittal for some time now.