Vous êtes sur la page 1sur 31

http://articles.economictimes.indiatimes.

com/2012-1028/news/34780503_1_businesses-pwc-cent
Family businesses have a very bright future in India: Farhad Forbes

Who has been the biggest influence on your life? There was no one single influence; many things influence you along the way. The first is what you learn at home the basic work ethic and not giving up when you fail or don't do as well as you expect to. That was an important thing we learnt while young. My father is a great role model for me, and has influenced me professionally as well. I also learnt a lot during my time in the US, first as a student and then working at HP. That influenced my thinking and helped me develop a sense of perspective. What is your management philosophy? Early on in life, one tends to be driven by 'B-school thinking'. But over time, you learn that your intuition matters. If it doesn't feel right, don't do it, no matter how good the numbers. Similarly, if you are convinced about something and the numbers don't necessarily back that up, I'd say go ahead and still do it. What do you do in times of trouble? In times of trouble, it is important to rely on your conviction and values, both personal and corporate. We spent a lot of time developing our corporate values. No matter how difficult the problem, if you are not sure how you should do things, go back to your values and you'll see the right path. I believe that no matter how tough the situation, if you persevere and continue to do the right thing both by your customer and your values things tend to work out. What according to you is strategy? For me, strategy is the approach you take to meet a particular business objective. It is the means in getting to the objective in an efficient manner, consistent with your corporate values, which brings you a source of competitive advantage. And the way you achieve your objective is what makes you who you are and how you differentiate yourself from competition. Do you believe in following management gurus? I read a lot of management books when I was in B-school and also subsequent to that. I respect them tremendously and like to hear what they say. However, my values and inner conviction are more important to me. I believe in taking their inputs and then doing what I think is right. Are values still as relevant in business today?

I'd say they are more relevant than ever before. When you see things going wrong, it's often because companies have compromised on their values. A professor I know used to say that your values are the one thing that shouldn't change over the years it is how you interpret and apply them that will evolve with time. And this is very true today. I wish the importance of values would be emphasised far more in our present education system. How do you make joint ventures last? All our joint-ventures are 50-50 ventures, something every lawyer will tell you is the wrong thing to do. They'd insist you get a majority stake even if its 50.1%. When you enter the venture as equal partners, then no one has the upper hand. Of course there are problems and differences of opinion, but you work through them to evolve a consensus and do what is right for both of you. A lot depends on what you want out of the venture whether it's to satisfy a shortterm need or a long-term sustainable partnership. When we form the joint venture, we take a long time to take the final decision only when we are sure that we'd like to work with someone indefinitely, do we move ahead with the JV. After that, we live by the conviction that we have to keep it going. It is difficult, but finding a way around the difficulties has been our philosophy. How do you see the future of family businesses in India?
I'd say family businesses have a very bright future in India. The biggest reason for the failure of family businesses was that they weren't able to manage the transition between generations smoothly. Over time, one learns how companies have managed transitions and can work through these. There are forums and experts available to see companies through this. Consequently, there is a lot more knowledge available and a much greater opportunity for success if transitions go through smoothly. Luckily in India, there is a belief in preserving family businesses within the family, similar to Europe and Britain. Consequently, given the strong family values and exposure to best practices and good governance I don't see why they won't do well in the future.

Mentoring is a big part of what you do... In any organisation, what comes in the way of success is that people can't work together or some obstacles that get in the way. As senior management, it is our job to ensure that these obstacles get removed and that differences of opinion get resolved and to drive people towards the company goals and visions. I work with my managers towards building the future of the organisation and it's probably the most effective use of our time. How do you de-stress? My hobbies are Western classical music, reading and travelling. In fact, travel is one big binding factor in our small but close-knit family. I try to take a vacation at least once a year with my wife Rati, our children and my parents and brother. Sometimes it's a threeday getaway, like the last one at Udaipur over Christmas last year.

'Indian family business going through transition'


New Delhi: Going through a transition mode, Indian family businesses are learning to "let go" their control, and family hierarchy is not the only criteria anymore in assigning responsibilities, reveals a study. Premier business school ISB in its report 'Challenges Faced by Family Businesses in India', released on Wednesday said these entities were going through a transition mode. "Family business leadership is also gradually learning to 'let go' their control and are effectively delegating operational decision-making to focus more on strategy," the study said. The conclusions are based on a survey of about 300 family-run businesses, whose annual revenues varied from Rs 50 crore to Rs 300 crore. Out of Indian family businesses that were surveyed, over 70 per cent were less than 40 years old. "Unlike in the past, family hierarchy is not the only criterion for assigning business responsibilities; personal capabilities and skills are playing an increasingly important role in determining assignments," it pointed out. According to the report, the role of family business leadership appears to be progressively evolving from authoritarian control to an inclusive leadership. "The younger generation is joining the family businesses and increasingly taking up leadership roles," it added. However, the study found that still processes are more flexible for family members than non-family members. "Some family firms have begun to establish entry requirements and performance appraisal mechanism for family members as they are applicable to non-family members," it added. Among others, about 60 per cent of respondents said that irritants in business operations do affect personal relations of family members. Around 60 per cent of participants said they were open to external funding to grow their businesses and were open to increased scrutiny that would come with such a move. K Ramachandran, who has authored the study, said that Indian family businesses need to adopt professionalisation. "It (adopting professionalisation) is more a matter of attitude than (just) having systems and procedures in place," Ramachandran told reporters in New Delhi. He is the Thomas Schmidheiny Chair Professor of Family Business & Wealth Management at ISB. As per the study, the key challenges faced by family businesses are leadership, succession planning, wealth management, managing family relationships and professionalisation. Family involvement in operations and ownership structure are among the many factors that could affect the process of professionalisation in family-run businesses, he noted.

http://ibnlive.in.com/news/indian-family-business-going-throughtransition/268210-7.html

http://www.indianexpress.com/news/family-businesses-thriving-inindia-pwc/1023095/2
Read more: http://forbesindia.com/article/india-rich-list-10/family-businesses-and-splittingheirs/18242/1?id=18242&pg=1#ixzz2Ax8ojCBU

Read more: http://forbesindia.com/article/india-rich-list-10/family-businesses-andsplitting-heirs/18242/2#ixzz2Ax8vEZY7

Read more: http://forbesindia.com/article/india-rich-list-10/family-businesses-and-splittingheirs/18242/1?id=18242&pg=1#ixzz2Ax8lS94L

Read more: http://forbesindia.com/article/india-rich-list-10/family-businesses-and-splittingheirs/18242/3#ixzz2Ax922lvA

The Author Dr. Mita Dixit is Chief Consultant and Family Business Advisor at Equations Management Consulting, Mumbai. She is also a visiting faculty at We Schools FMB program.
THE CONCEPT OF FAMILY owned and family-managed business is as old as commercial enterprise itself. Yet, the popular myth which surrounds the opinion of some people deems these enterprises as capricious, short-lived and small. None of this is by and large true. Worldwide as in India family-owned businesses have survived multiple generations, have grown to become multi-billion dollar corporations, and have continued to make strong contributions to the economy. Today, family-managed businesses make up more than two-thirds of the worlds companies, employing half the worlds work-force and contribute to well over half the worlds GDP. Over one third of the companies in the list of Fortune 500 companies are family-managed. Globally, some of the most influential and wellknown businesses such as Ford, Carrefour, Samsung, Virgin and Wal-Mart are family businesses. Family managed businesses around the world have some inherent advantages, which provide them with unique strengths: TRUST LOWERS TRANSACTION COSTS: It is a well-documented fact that trust lowers transaction costs, corruption and bureaucracy. Trust can be a source of significant competitive advantage to a family business. In India, family businesses have often revolved around large joint families. SMALL, NIMBLE AND QUICK TO REACT: Family businesses, both small and large tend to be quick to react to threats as well as opportunities. There are fewer decision-making gates and constituencies to deal with. Very often, the survival of the family depends on the survival of the business. This results in sharp and decisive action in the face of threats that could be potentially fatal for the business. Information as a source of advantage: Many family businesses are private enterprises. This is an inherent source of advantage since the private company can see the strengths and weaknesses of its public competitor and act accordingly while the converse is not true. Further, the private company can have private strategies to which analysts and the competition are not privy. And, private family businesses have the freedom to pursue truly long-term strategies which are not constrained by quarterly reporting. Corporate Governance: Why It Is Needed

However, the continued success of family-managed businesses is not guaranteed. I believe that an essential element for the long term success of family managed businesses as with other forms of business, will be a strong system of corporate governance. There are some unique characteristics In family-managed businesses that expose them to risk and necessitate good corporate governance principles as an essential element to ensure their successful survival. Succession Plan: Family firms have to endure all the complexities of family interaction in addition to the features of business. This additional level of complexity exerts itself most significantly at the time of a generational change. A 2008 survey conducted by PricewaterhouseCoopers of 1454 mid and small-sized family businesses from 28 countries revealed that 49 per cent of these businesses do not have a formal succession plan in place and over 66 per cent do not have any procedure for resolving disputes between family members. Family Unity: The second risk associated with family managed businesses flows from the previous point. A number of studies indicate that only 5 per cent of all family managed businesses continue to create shareholder value beyond the third generation. The generations following the founder may not be as united or as driven as the founder himself. They may lack interest or simply lack the skills necessary to run the business and take it to the next level of growth. The question that, therefore, presents itself is: What differentiates this 5 per cent from the rest of the pack? The answer, in my opinion, is simply a good corporate governance system which identifies business participants, develops management talent and demarcates roles and responsibilities of these participants linked to their talents and capabilities. Perception: The third risk associated with family managed businesses is one of perception. Family-managed businesses, save for a few exceptions, have historically been seen as un-professional and therefore been unable to attract and retain the requisite non-family management talent to drive these businesses to create value. This reluctance is largely due to the fact that these businesses are seen to operate on the whims of the owners or promoters. The lack of formal talent development plans, performance management systems and the absence of transparency in promotions and remuneration deter potential talent from entering and participating in the management of these companies. Now that we have identified the risks inherent in the characteristics of family managed businesses, the logical next step would be to provide solutions to address these risks: Corporate Governance and Corporate Performance: Good corporate governance must include the framework of a strong performance orientation. Conformation to good governance is a hygiene factor performance is important. Good governance needs to incorporate leadership and management imperatives that can lead to strong financial and strategic performance. Corporate governance and

performance are not mutually exclusive on the contrary, the companies with sustained sterling performance are usually the paragons of governance too. I would like to describe some of the initiatives and tools that can be used to promote the performance culture: Performance linked variable remuneration Having a significant number of employees on a Performance linked variable remuneration system linked to appropriate metrics can make a significant difference in beneficially aligning incentives of employees and shareholders. At the Godrej group, we use EVA (or Economical Value Added) as an across th e - board metric to provide a performance linked variable remuneration to our employees. One needs to have a strong performance mana gement system in place. Top perf ormers should be rewarded disproportionately and laggards be put under the scanner. The best talent should be identified through a structured process and mentored carefully. Rewards and recognition can be used to spur both individual and team performance. Corporate Governance and Human resource Management: The best custodians of the long-term interests of a company are its employees provided they are empowered with appropriate opportunities to do so. No one cares more about the future of a company than an employee who has been with and plans to be with the company for a considerable period. One needs to build HR processes, both formal and informal, around this principle. Corporate Governance and the Board: The third important dimension of corporate governance is the Board of Directors. An alert and well performing Board inhibits conflicts of interest, ensures the presence of strong internal controls and a commitment to compliance; and confirms third-party verification.A great board comprises great directors. And, the hallmark of a great director is courage. He or she must have the courage to protect the interests of the Company, even if it means standing firm and opposing popular opinion including those of the promoters of the company. The board should comprise professionals of distinction in their respective fields. The independent directors should be well compensated and be expected to spend quality time with the company. The Board should inspire and ensure strong corporate governance, strategic posture and performance orientation in the company. Corporate Governance and Succession Planning: The last facet of a robust corporate governance system is to have a clear set of guiding principles that lay down the mores of stewardship for the family so as to preserve harmony within the family, manage expectations and plan succession through transparency and fairness.

However, many believe that FDI, especially in multi-brand retail may harm local merchants. Lets look at it in detail to find out

Will FDI kill the local businesses?

It may definitely affect local Kirana stores and small retail shops, but only to a certain extent. It will not wipe out their businesses as has been projected by many! Out of 10 local kirana stores in a neighbourhood 2-3 may shut down, 3-4 may take a hit and 3-4 will still manage to do well. Kirana stores in urban locations with proximity to new super stores may face the maximum brunt, while the ones in rural areas may not be affected at all because of this. Infact, the Wal-Marts and Ikeas of the world may never even look at going to rural areas for atleast a decade given the lack of spending population in rural India.
How many families does one kirana store benefit?

In 99% of the cases, it is the owners family who runs the shop. Right from the sweeper to the elderly at the counter belong to the same family and even with the rise in nuclear families it has been the same only the family size has shrunk but the business remains in the hands of one family. So say a family makes 20,000 per month. This family is at the risk of losing its income.
How many families does a Super Store like WalMart benefit?

Ans. Many A mart opens in a neighbourhood where there is a potential for small spenders to spend more on goods at a cheaper rate. The mart employs people at various skill levels unskilled, semi skilled and highly skilled. The unskilled basically are used for the loading, unloading and other physical activities. This section basically consists of locals from nearby villages or poor pockets of a city and each city has plenty of those. The marts that come up will use the existing supplier initially and hence that part of the chain wont be affected. The semi skilled are the ones with soft skills. Many a times, marts have their own training for this section. Each mart has approximately 5 cash counters, each having at least one or maximum 2 people. Skilled section is the managerial section. They are managers across all levels, right from the store to the top rung. So management students from b-schools across the spectrum may be placed in these stores, offices. The unskilled and semi-skilled are mostly the ones who initially didnt have a job or were doing a daily wage job. So, on a large scale, a national perspective the number of families that may be displaced due to introduction of marts will be more than compensated by the jobs it will offer. And if the local kirana store has to survive it will simply have to innovate or diversify its business.

The agriculture sector may take a beating since most of the next generation farmers may end up preferring a steady pay service job rather than an unsteady one. But the marts that open up agriproducts section will tie up with local farmers for produce. This tie-up has to be monitored by the govt by setting up Amul-esque co-op, to ensure that the farmers arent exploited but also benefited from the contract. In conclusion, yes, there will be a few who will suffer due to companies like WalMart coming in India, but there will far more people who will benefit, including the consumers who will essentially save a lot of money due to superior supply chain they will offer..

Family business: yesterday, today, tomorrow.

The Context

Family businesses are the engines that drive socio-economic development and wealth creation around the world. Family businesses have throughout been highly pervasive from small to very large, and in every era have contributed towards significant wealth creation and nation building. Their overall global impact is significant in that today they contribute more than half of the GDPGDP, employment, and account for a sizeable proportion of market capitalization. It is estimated that 85 percent of businesses in the European Union and 90 percent of US businesses are family controlled (Pistrui 2005). Some of the large family controlled enterprises include: Ford (now in fourth generation) which controls 40% of the Ford Motor Co and the second and third generation Walton family controls 39% of Wal-Mart. In Holland, small family businesses represent 75% of all companies; in the US, they generate 60% of all employment; while fifteen family businesses account for more than 55% of market value on Santiago stock exchange. Examples of family owned enterprises in India include, Tatas, Birlas, Ambanis, Singhanias, Chidambrams, Bangurs, Chbarias, Goenkas and Kirloskars. During the last two decades of the twentieth century, family business has often been at the centre-stage in debates surrounding organisational change. The focus of research on family business has shifted progressively to the dynamics of shaping its internal organization, its strategies and competitive strength. The emphasis has been on leadership succession or insider succession. The present study, besides defining family business, attempts to assess how far the contribution of family businesses to economic development has changed over the years. The study presents the distinctive features and challenges of family businesses and analyses the stages of transformation and restructuring over the years in India and abroad. How far the characteristics of family businesses in different economies have been influenced by the sociological and political factors are also discussed. Family Business: The Definition

Entrepreneurs create family-based business networks in response to economic and social needs. One may ask what a family business is. There is no single definition of family business. One way to define a family business is as a company owned, controlled and operated by members of one family whose nonfamily members may also be employed. Another definition is as a firm or a company in which the family has a strong influence in the day to day running of the business (Dutta 1997:13). It may take the form as a sole proprietorship, a partnership firm, or a company with limited liability. Further, the family control over the business may be largely informal rather than legal. Family business can also be defined as an "owner-managed enterprise with family members exercising considerable financial and/or managerial control" (Pistrui 2005: 460). A study at the Stockholm School of Economics (Rouvinez & Ward 2005: 1-2) defines family business as one that is controlled by a family and has at least one of the following three characteristics: i) Three or more family members all active in the business. ii). Two or more generations of family control. iii) Current family owners intend to pass on control to another generation of the family. According toaccording to Desai (2007), who carried out a study on the succession planning in family businesses in the US small family business is a firm with 200 or less employees that has: a) the majority of voting shares owned by one family, or b) one family exerting management control over the business. In short, family business in trade, manufacture or service, is one where a family participation in a business involves control or influence on its operations which is likely to extend over generations. The family participation may consist of three parameters: a) employment of family members full time, or b) family members employed part-time, or c) investment of funds by the family members. This definition would cover small, medium, or large enterprises, where the family influence or control tends to extend over its generations. The Characteristics Family businesses are loyal to the principles and the ideals of the founder, who was more often than not, a self-made person. Further more, even when the founder is no longer present, there remains an enduring sense of respect for what he/she succeeded in achieving. The basic premise of family business is that the family influences the business and the business environment influences the family. The reciprocity of influences is not absolutely perfect and would depend upon several family factors such as number of children, their interests and capabilities which in turn would have a huge impact on the choice of business strategy. With the changing business environment, the family businesses in great number are undergoing massive transformation, i.e, moving from one generation to the next in leadership and ownership. More than the others, family businesses are deemed to have a "human face", as their very existence is linked as much to a long line of men and women as to a specific product or service, and also they provide a true reflection of the values of their founders and of the people who pass them on from generation to generation. Succession is the final test for family business. It is the lifelong process that integrates the development of family and the business. As families prepare for succession, they learn how to interact in constructive ways in order to tow responsibility for the business and the family wealth. Succession is influenced by environmental peculiarities such as taxes and legal structure, and

psychology and culture of the owning family. Main issue of succession relates to ownership which is followed by leadership. A persistent identity of ownership and control in modern industries raises the issue of corporate governance and efficient allocation of resources. Stages of Transformation Family businesses may extend over generations and pass through three stages (Table1): Stage I: Owner-Managed--The ownership control is vested in one family member who leads the business. The controlling owner has more than 51 percent of the voting power, has prerogative to make unilateralunilateralunilateral decisions, is authoritarian, and decision-responsibility is clear. Stage II: Siblingsiblingsibling Partnership--The controlling-owner generally makes an ownership succession decision and passes the ownership to his successor who then becomes the controlling owner; or shares the voting power among his offspring or a small next-generation team. Such a team is most commonly a team of brothers and sisters and is known as a Sibling Partnership. It is a situation of consensus decision-making. At times diversity among members may bring in disagreements which can prove fatal for the business. Stage III: Cousin Confederation-Ownership control is spread among many owners, not necessarily the family members. These disperseddisperse owners are often third or fourth generation cousins. No one has absolute control and they adopt a democratic decision-making process where majority rules. The first generation creates a thriving enterprise, the second generation milks it or lives off it, and the third generation does not have anything left and has to start all over again. Chinese describe the transformation of family owned business as 'the first generation builds a success; the second generation lives like gentlemen; and the third generation has nothing left'. Another Chinese expression puts it as 'Wealth does not pass three generations'. Studies have shown that "Only about 20% of family businesses last beyond 60 years in the same family. And two-thirds of the survivors were not growing". In India only seven of the fifty largest groups in 1947 were in business in 1997; or 32 of the country's 50 largest corporations in 1969 were no longer among the top fifty in 1997 (BT, Jan 7, 1998). The average life span of family business is 24 years, which coincides with the average time the founder is associated (Desai 2007). Such dismaldismal statistics of the longevity of family business indicates lack of succession planning. The Challenges Family enterprises are sometimes, the opposite of creative and innovative environment, have abysmalabysmal records in new patent rights and are largely path dependent. They avoid innovations and change as well as growth exceeding the family resources and management capacity. They are confronted with a number of issues ranging from individual to family welfare, or community or political patronage. "One outstanding quality of Indian family business is the complete surrender of individualityindividuality, of the member to the general welfare of the family and its activities. This surrender of personal vanityVanity and ambition in the larger interest of the family and, by extension, the community or bridari, results in a unique sense of competition rather than in conflict. There is a virtual absence of fractional conflict. The cultural mores governing the individual within his family and bridari are

further strengthened by the interdependence of its members, socially, politically and most importantly, economically" (Dutta 1997). The second major issue is that business-owning-family differs on whether the business or family issue is of prime importance. Dutta (1997) viewed it as "the business community survival is central around family welfare". From 1980s, the focus of research on family business has shifted progressively to the dynamics of shaping the internal organisation of the family firm, its strategies and competitive strengths. Emphasis has been on leadership succession, an issue increasingly being perceived as crucial affecting enterprise welfare. However, the process of leadership transition has been influenced by the fact that the family provides protection against uncertainties, especially in the changing economic environment. Family business in general has been synonymous withsynonymous with insider succession, though the practice differs in various countries. In India, all scions of business families acquire fairly wide-on-the-job exposure to the technical aspects of business during their apprenticeshipapprenticeship, in the business under peers, elders and trusted professional managers. However, in the west, sons are expected to find themselves jobs and join the family firm only after they have worked elsewhere for a few years (Dutta 1997:20). Complex situations arise when the successor heir is not competent to lead or expresses his unwillingness to accept the leadership role; or in case of number of heirs, there is absence of any unanimity on choosing the successor. In some cases when the new generation is willing to enter the business, sharp differences arise as old generation ageing business leaders are unwilling to retire and also do not adopt to the strategies and structure befittingbefitting the changing times. Family businesses have to address several special challenges as: a) succession, b) business viability, c) family harmony, d) responsible and unified ownership (Rouvinez & Ward 2005:3). Family businesses have roles that are conflicting and stressful; they wear three "hats" as, "dad", "boss", "major owner". Family businesses and their members create their own map, are based primarily on their value system; though strong sense of family, castecaste, linguistic and regional identities greatly influence the determination of business objectives and focus and the means of achieving them. The Global Experiences Family businesses are diversified and vertically integrated and dominate certain industries. For example, in travel industry the Carlson, Van Vlessiegan, and Martiz families are three of the largest five travel agencies each with more than Euro 200 bn in revenues. In the automobile industryautomobile industry,, Porsche, BMW, Fiat, Peugeot-Citroen, and Ford are family businesses. Similarly, world-famous watch makers and jewelers include, Chopard, or Audemars Pigue. Family run businesses in different economies have lead to organising of economic activities where the human and the rational are mixed in a protective environment and the individual can best develop his talents and aptitudes. As a result, the family business has different characteristics in different economies. Family businesses differ in outlook and have been influenced by sociological and economic and political factors. A study by Ward (1987) of 200 successful manufacturers in Illinois between 1924 and 1984 shows that less than 20 percent had survived over 60 years, with 65 percent of these remaining with the same family. Only 25 percent had grown significantly. The study also shows that 80 of the 200 companies closed within 30 years and the same number within 60 years. A research in the US suggested that 67 percent of family business houses normally split after the second generation takes over. With the proportion rising to 90 percent by the third generation, the chances of unity in the face of centrifugalcentrifugalcentrifugal forces seem low. Since a greater percentage of the country's largest business houses have already entered the second or third generation, anticipating and

preventing, to the extent possible, or managing the falloutfallout, of splits is, therefore, a major priority for the family. There is an urgent need to draw up a contingency plan for carving up the empire; creating alternative avenue of growth for different members of the family without endangering the core group; and apportioningapportion functional responsibilities rather than charge of business between the inheritors (BT, January 7, 1998). Asian Experiences In Indonesia and the Philippines family businesses control more than half of each country's corporate sector in terms of market capitalization. Control is also highly concentrated in Hong KongHong Kong (China and Thailand). A quarter of the corporations in Korea, Malaysia and Singapore are controlled by the ten largest families. In contrast, family control is insignificant in Japan. (Dutta 1997:2829). A study on ownership, control and performance of corporations in East AsiaEast Asia reveals that there are large differences in the distribution of ultimate control. Less than 10 percent of Japanese companies are controlled by families, while nearly 80 percent are widely held. In Korea and Taiwan (China) families control 48 percent of corporations. In Thailand family control is 62 percent, and in Malaysia 67 percent). "Company size appears to play a big role in explaining the distribution of control across ownership classes. In most economies family ownership is higher among smaller firms. This pattern is especially strong in Japan, where just one of the twenty largest corporations is under family control, while most of the smallest companies are controlled by families. The same pattern occurs in Korea and Taiwan (China). A similar pattern prevails in Indonesia, Malaysia, the Philippines, Singapore and Thailand; though many large companies are controlled by families. The exception is Hong Kong, where about 75 percent of the largest companies are under family control, while less than 60 percent of the smallest companies fall in the same category" (Claessens et. al. 2000). The significance of family business in Pakistan is highlighted by the fact that 80 per cent of the firms are owned by families and Choudhary Slahudin (2006) has indicated that there is a positive relation between founding-family role and entrepreneurial spirit. Dutta (1997) suggests that "a small number of families effectively control most East Asian Corporations". For example, about one-sixth of market capitalization in Indonesia and the Philippines can be traced to be controlled by Salims in Indonesia, and the Ayalas in Philippines. The top ten families in Indonesia and the Philippines control more than half of each country's corporate sector in terms of market capitalization. Control is also highly concentrated in Hong Kong (China and Thailand). A quarter of the corporations in Korea, Malaysia and Singapore are controlled by the ten largest families. In contrast, family control is insignificant in Japan (Dutta 1997:28-29). China The Chinese system is called the 'see-thing cauldron, with families bubbling to the top only to burst and sink back to the bottom', in the space of two or three generations. (ReddingRedding,, 1992). Chinese culture is centred on 'Confucian Values', which are built around family, social ethics, education, centralizedcentralize authority, and conformity. In China, family-centred extended networks support a cultural orientation of relationships or connections called 'Guanxi' which literally means 'relationships'. Chinese most often, feel obliged to do business with close family, extended family, neighbours, and former classmates , in that order and only then, reluctantly, with strangers. Chinese culture played a central role in supporting entrepreneur-led SME growth and development. The household and extended family tended

to provide primary resources of start-up capital. Over 67 percent of businesses had at least one family investor; while 31.5 percent had two. Fifty percent of these new enterprises had a family member employed full time, while 23.4 percent had more than one family member working full time. Family is not only instrumental in helping to establish the business but also is a significant factor in the growth of the firm. Various forms of family support could include growth capital, room and board, building space, tools, encouragement and moral support to growth initiatives (Pistrui 2006). "Patrimonialism" is the consistent theme of Chinese executives and related forces for the concerned theme are: a) inability to separate power ownership; b) didacticdidactic leadership style; and c) personalismpersonalism (Redding 1992). Ownership among the Overseas Chinese is illustrated by the fact that 54 percent of the Hong Kong stock market is controlled by ten family groups, seven of them Chinese, one Jewish/British, and two British. This process of creating informally allied business groups has strategically useful outcomes for capital raising, competitive behaviour, and political co-operation, and is done by an elaborate net of interlocking directoratesinterlocking directorates. India In India family has been the hub of every activity; prevalence of joint family system and traditional caste system whereinwherein 'vaishya' caste people are engaged in trade and business, have led to strengthening of family businesses. Sociological factors in India reflect a deep relationship between families and businesses, father's business is divided among all children who eventually manage the business. This provides a safe heaven for the children who also diversify into other areas or expand original business and a business group emerges. This also provides an added impetus for creating an off-the shelf business for the son rather than asking him to set up his own. A survey of 25 leading business houses in India has revealed that every business house has expanded its range of activities and has raised resources for their diversification into new areas (Piramal 1998). Indian family business sector was smaller in 1946. Of the 127 largest companies in India, 58 were under foreign or British management at the time of independence. In 1994, family businesses dominated the private corporate sector, as 80 percent of the 500 biggest companies, as per Business Today (22 July 1994), were family businesses, though they experienced split over the years (Annexure 1). Indian family business has attracted the confidence of foreign investors which is reflected by the success of Reliance 100-year and 50-year bond issue in the US in the eighties. In addition, a number of new family groups appeared on the corporate landscape in the 1990s. These included Nambiars (BPL), Guptas (Lloyds Steel), Jindals (Jindal Strips), Oswal (OWM and Vardhman), Singhs (Ranbaxy), Shahras (Ruchi Soya), Mehtas (Torrent), Lohias (Indo Rama), Dhoots (Videocon) and Premjis (WIPRO). These groups have elbowed out the former stalwarts such as Dalmias, Modis and Walchands. Similarly, many new business groups have emerged after 1991 liberalisation measures; these have been the result of foreign collaborations, or cross border acquisitions or business restructures as a result of family split. These include Bhartis collaborating with Wallmart, and big-ticket deals like, Tata-Corus, Lakshmi MittalArcelor; Zee Telefilm's stake in Dubai based Tajtaj TV, Vodafone-Hutch, Hindalco-Novellis. Their main strength lies in understanding the environment that they operate in" (Piramal 1998). A 1996 analysis by Business Standard shows that 714 companies out of 1000 are single companies of groups in the listing. Similarly, the Business India Super 100 of 1993 shows that 51 of the 74 family businesses in the first 100 private sector companies in India belonged to family groups with more than one company on the list.

"About 75 percent of the largest companies are family businesses. There is some variation in the number of family firms in the biggest companies" (Dutta 1997). The Business India Super 100 puts the number of family businesses in the top 100 companies by sales, at around 75 percent. Birla family business is one of the examples of family businesses in India where families have not always fought over wealth, as after the death of Ghanshyam Das Birla in 1983, his five sons amicablyamicable divided the mighty empire left, though there were certain unpleasant surprises. Nitin Podar, a noted lawyer who has handled many family separations, says that, "second generation always fights for control, and not to establish itself" (BW Sept 2007). However, business legacies are rarely so uninterrupted. Some of the recent examples include, Mohan Shetty, a hotelier, shot and wounded his older brother Manohar in a literal succession battle witnessed by their mother in their lawyer's chambers; dispute between two brothers, Shisir Bajaj and Rahul Bajaj over the business empire founded by their father Ramkrishnalal Bajaj, and acrimonious feudfeud, between the Ambani brothers. Split in Ambani family had a synergy effect as both the brothers are vigorously competing to grow and sum total of the wealth of the two warring empires is higher than the size of the pre-split business. Of late, promoters are increasing their family stakes in the businesses so as to strengthen their family business. The top 17 private business groups by market capitalisation -Mukesh Ambani, Tata Group, Aditya Group, Rahul Bajaj Group, and Vijay Mallya--have increased or maintained their stakes in at least 55 companies out of the total of 91 over the past year (BW Sept. 2007). These business groups are increasing their stakes to leverage the India growth story and exercise greater control. Among the listed companies in the S&P CNX 500, promoters are opting to stay in control of 282 companies with promoter stake of over 50 percent. Of the remaining 218, only 39 have a promoter stake of less than 26 percent. Changes in the financial system of the country and also takeover threat are some of the reasons for the increase in the stake by the promoters, though in the old days, promoters relied heavily on FIs for support and were, therefore, able to run their companies with a small percentage of holding. For example, promoter's of Tata Steel have increased their stake from 30.26 percent in December 2006 to 33.77 percent in June 2007 after the takeover of Anglo-Duch steel giant, Corus; in Tata Tea, the promoters have increased their stake from 28.95 per cent in June 2006 to 35.40 per cent in June 2007 (Table2). The Way Ahead According to the 1972 Dun and Bradstreet study, 70 percent of family firms either close or are sold after the founder retires or dies (Lansberg 1988). Similarly, in India, in a sample of 105 companies in 1947, 35 continued to exist in 1987; 43 shut down because of extraneousextraneous factors like partition and change from British to Indian government. Thus the survival rate over 40 years (1947-87) of about 56 percent is comparable with the rates in the US. However, Indian companies change hands less often than the US ones. An analysis of India's 200 biggest companies shows that 16 are more than 75 years old and about 80 percent continue to be with the same ownership. The comparable figure in the US was 65 percent (Ward 1987). Also since 80 percent are amongst the largest Indian companies, Indian family businesses show greater significant growth over this period as compared to the West. Comparison of top ten family companies of 1997-98 with that of 2007, one finds that only six companies of 1997-98 find place in the list (Table 3). Place in the Share Market How do family businesses in India figure in the stock exchange? Sensex (BSEBSE index of 30 equity shares) with 1978-79 base, had eight (or 26%) non-family companies in 1996. Similarly, in the broad based National Index of Equity Prices of 100 companies, with 1983-84 base, there were only 20 nonfamily businesses. On the other hand, in Korea, only 30 percent of the Chaebolchaebol are listed on the

stock exchange, and the biggest four Chaebol contribute 50 percent of the country's GNP. Table 4 shows that family businesses are not only splitting, they are fast losing values, as their market capitalization has shrunkshrunkshrunkshrunk from 67.95 % in 1992 to 55.71% in 1998. The share of transnationals has increased from 22.28% to 33.69 % in the meantime. Family businesses, thus, are migrating from being the owner-managers to strategic investors and are bringing in more professionals. In the words of S. Goenka of RPG Enterprises, "Family businesses must change. They must think big and become nimble-footed". The share of market capitalization of family businesses was approximately 40 percent in value (as well as in number) as on March 16, 2007 (see Annexures 2 &3). Indian businesses, according to Piramal (1998), are subject to five threats viz. splits, successionplanning, takeovers, trans-national competition, and lack of focus. Of these, the transnational competition poses the biggest danger followed by splits in the family. Further, the three major dilemmas faced by family businesses are: * How to find, and hire, the best managers a group can afford? * How to ensure that the next generation is able and capable of taking over the baton? * How to encourage each business unit within the group to become focused, and to maximize its core competencies to best advantage? Similarly, the reported relative perceptions are: * Family-owned companies are the least-preferred employers * Career development is uncertain * Business families strategise by lobbying for protection * The level of transparency in business houses is below average * Family businesses compare poorly on leadership qualities "While the increasing compulsions for professionalizing the managerial functions will almost, certainly, force the appointment of qualified senior managers from outside the family, the business house could well choose to reserve the rank of commander-in-chief for one of its own" (BT, Jan 7, 1998). "Succession planning.... integrates three considerations, namely, ownership issues, family relationship related issues and business related issues. Studies show that less than 30 percent of closely held businesses have succession plans (Desai, 2007)." Lastly, how come family businesses pass through generations without much of inside bickeringbicker and disputes? Settlement of family business feuds becomes difficult where there is a single business which has grown larger and larger; example is that of Hindustan Construction Company (HCC), which was created on the separation of century-old Walchand Hirachand group. In case of a number of successors, says Ajit Gulabchand, chairman HCC, a trust should be created and the management should be left to professionals like Ford Motors did in the US. There cannot be one single model to end family disputes. Three possible options are: a) the family can divide the shareholding amicably among members; or b) the family's shareholding can be pooled into a trust which manages it as in the US and Europe; or c) to hold the family wealth in a single investment company such as Pilani Investments by the Birlas, or through investment companies, like that of Reliance held before the split (BW Sept 2007).

Sum Up Family businesses are undergoing transformation, reformationReformation, and restructuring. In India, as in other countries, family businesses have fought for wealth and control, have experienced splits over the years and are increasing their respective stakes to tighten their hold. At times there are differences on amicableamicable settlement among family members; and in the absence of the practice of pooling of family shareholdings in a trust, it is essential that family businesses should have succession plan to guard against the risk of discontinuitydiscontinuity. Splits are inevitable, and in order to survive they have to be creative and think of newer businesses to survive in the competitive environment. Family businesses, though experienced split due to sociological, economic and political factors, have robust growth and a bright future, primarily because of understanding of Indian environment and image.

Areas of research

Looking at the present scenario of the family businesses, following can be the possible areas of research:

* Family businesses are found to have a life cycle varying in different economic environments. Splits have, in general, led to decay of family businesses and in some cases brought in synergy effect. What are the influences on the life cycle and the two diverse directions of growth? And what factors account for the disintegrationdisintegration of family businesses while in others they remained united over generations?

* What had been the points of similarities and differences in their growth paths?

* Succession planning is not very common among Indian businesses. Insider succession has been the main concern of family business in India. How far the practices of insider succession and having professionals vary among different countries?

* Family businesses are every where have grown over the years, though family control over the businesses varied among businesses in different countries. What are the similarities and differences of family control in different countries?

* Indian family businesses have primarily been based on their value system, influenced by caste, regional and linguistic factors. Of late, there has been a tendency to increase promoters' shareholdings to avoid take-over threat. How do we account for the varying influence of joint family over family businesses? Will such practice bring in change in the growth of family businesses in India?

20 challenges faced by a family owned business


17 08 2006

Every business organization has a unique set of challenges and problems. The family business is no different. Many of these problems exist in corporate business environments, but can be exaggerated in a family business. Family business go through various stages of growth and development over time. Many of these challenges will be found once the second and subsequent generations enter the business. A famous saying about family owned business in Mexico is Father, founder of the company, son rich, and grandson poor (Padre noble, hijo rico, nieto pobre). The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and and empty bank account.
Prepare now and help your grandson avoid the poorhouse. 20 challenges for the family business 1. Emotions. Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members. 2. Informality. Absence of clear policies and business norms for family members 3. Tunnel vision. Lack of outside opinions and diversity on how to operate the business. 4. Lack of written strategy. No documented plan or long term planning. 5. Compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified. 6. Role confusion. Roles and responsibilities must be clearly defined. 7. Lack of talent. Hiring family members who are not qualified or lack the skills and abilities for the organization. Inability to fire them when it is clear they are not working out. 8. High turnover of non-family members. When employees feel that the family mafia will always advance over outsiders and when employees realize that management is incompetent. 9. Succession Planning. Most family organizations do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions. 10. Retirement and estate planning. Long term planning to cover the necessities and realities of older members when they leave the company. 11. Training. There should be a specific training program when you integrate family members into the company. This should provide specific information that related to the goals, expectations and obligations of the position. 12. Paternalistic. Control is centralized and influenced by tradition instead of good management practices. 13. Overly Conservative. Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation. 14. Communication problems. Provoked by role confusion, emotions (envy, fear, anger), political divisions or other relationship problems.

15. Systematic thinking. Decisions are made day-to-day in response to problems. No long-term planning or strategic planning. 16. Exit strategy. No clear plan on how to sell, close or walk away from the business. 17. Business valuation. No knowledge of the worth of the business, and the factors that make it valuable or decrease its value. 18. Growth. Problems due to lack of capital and new investment or resistance to re-investment in the business. 19. Vision. Each family member has a different vision of the business and different goals. 20. Control of operations. Difficult to control other members of the family. Lack of participation in the day-to-day work and supervision required.

India's Big Problem: Nurturing Entrepreneurs


#GBJ #Leadership

The country has significant entrepreneurial talent. It must enact major reforms to unleash it.
01 August 2012 by Daniela Yu and Yamini Tandon 123>

India has one of the fastest growing economies in the world. It also has a significant youth population. So why doesn't the country have a substantial number of entrepreneurs? India needs to minimize barriers and provide support that will accelerate entrepreneurial growth. A 2011 Gallup study of 20 economic entities in Asia showed that India ranked in the bottom quartile on several important indicators of a well-functioning entrepreneurial ecosystem. Although cross-country comparisons may not be ideal because of Asia's economic, governmental, and cultural diversity, ranking in the bottom quartile across a majority of indicators does arouse major concerns. If India is to tap the entrepreneurial talent of its people, its leaders must enact significant reforms that increase support for new businesses in the formal sector. Significant room for improvement

At a glance, you wouldn't think India has a problem. Entrepreneurs have consistently contributed to the country's vibrant growth-oriented economy since its economic liberalization in 1991. Entrepreneurship has become increasingly important in sustaining India's rapid growth. Micro, small, and medium enterprises (MSMEs) also contribute to the country's inclusive growth and job creation. The Ministry of MSMEs estimates that between 2007 and 2010, the number of working MSMEs grew at a rate of 4.51% annually, while the number of people employed in the sector grew by 5.29% annually, and production of the sector grew at 11.48% annually. This sector contributed 8.72% of India's GDP in 2009. But as the Gallup study shows, there's significant room for improvement. Gallup's framework for entrepreneurial ecosystems stresses the mutual interplay between individual variables (for example, talent and attitude) and contextual variables (for example, the role of government and access to information). It explicitly captures the role of human motivations, perceptions, and behaviors in explaining entrepreneurial decision making as well as the external contextual factors that support entrepreneurship and individual entrepreneurial traits.

Based on Gallup's research from March 2012, 16% of Indian adults report that they currently own a business. Of those, 22% say they formally registered their business. Half of business owners report working alone, and 47% have hired five or fewer employees. Twelve percent of all business owners say they plan to hire more employees next year, and 55% say their number of employees will stay the same. Among Indian adults who are not business owners, 9% have thought about starting their own business. Of those, 5% plan to put their thoughts into action and start a business in the next 12 months. Clearly, India needs to minimize barriers and provide support that will accelerate entrepreneurial growth and enable entrepreneurs to satisfy an existing demand, create jobs for people other than the business owner and his or her immediate family, and contribute to the growth of India's GDP. The key barrier to current and aspiring entrepreneurs is the lack of a robust support system. The analysis based on the Gallup framework shows that India ranked in the bottom quartile on

external factors such as government support, culture, social capital, and access to training. By contrast, intrinsic factors -- such as entrepreneurial talents and attitudes -- ranked much higher than external factors in enabling support for aspiring entrepreneurs. Improved external factors may help unlock more of the Indian population's natural entrepreneurial potential. Entrepreneurial talent is abundant; a willingness to take risks isn't Gallup defines an entrepreneur as an individual who proactively seeks to generate value through expansion of economic activity and who creatively responds to challenges and needs encountered in the process of accomplishing this outcome. The terms proactively seeks and creatively responds capture the talent approach to entrepreneurship, which identifies areas of strength and weakness relevant to the entrepreneurial potential of an individual. Not every individual, even armed with training and reinforcement, can be a successful entrepreneur. Success comes more naturally to those who have inherent talent for the endeavor. Successful entrepreneurs are likely to be optimistic, goal-oriented, and persistent. When examining Indians' profiles using these criteria, the population appears to have an abundant reserve of entrepreneurial talent. More than 60% of the Indian population possesses personality traits that are crucial for success as an entrepreneur -- such as business thinking (69%), optimism (66%), and persistence (65%) -which suggests a wealth of entrepreneurial capacity. However, willingness to take the risk of running a business is not a common trait among a majority of Indians.

Perceived risks may include personal risk (emotional strain, the unpredictability of success), financial risk (loss of savings, no resources to fall back on), know-how risk (lack of adequate knowledge and skills), or vested interest risk (lack of fair and transparent regulations and effective law enforcement). Though reducing these risks depends heavily on contextual support, few Indian entrepreneurs can claim that they feel comfortable taking risks as a result of robust support from the government, the public, and the entrepreneur community. Contextual factors lag behind individual characteristics A key problem for entrepreneurs has been finding the right type of funding. Individual personality characteristics, behaviors, and attitudes are embedded in and influenced by cultural context, and entrepreneurs act within social and economic systems. So contextual support is as vital to the success of entrepreneurship as are individuals' characteristics, and lack of such support is the bottleneck currently holding back the formal MSME sector in India. The following four factors are of particular concern. 1. Reliable support from honest and efficient government institutions is essential.

It is not easy to start a business in India. When asked about the difficulty of starting a business, 46% of Indians say the government makes it hard to start a business, while 26% think the opposite. Little progress has been made on this front. The World Bank ranked India at 166 among 183 countries in its "Doing Business 2012: Doing Business in a More Transparent World" report, a ranking unchanged from 2011. To some degree, widespread corruption might be contributing to the low efficiency and high costs of starting a business in India. Gallup started measuring corruption issues in India in 2006, and the results consistently indicate that more than seven in 10 Indian adults believe that corruption is widespread in government. More than six in 10 agree that corruption is widespread in business. Perceptions of widespread corruption in the business community are particularly high among current business owners (72%) and those who plan to start a business in the next 12 months (80%). Perceptions of a corrupt business community could give business owners incentive to do unscrupulous things, such as paying bribes to get work done, which could exacerbate the lack of respect for entrepreneurs among the Indian public. Less than half (48%) of Indians consider business owners to be good role models for the country's youth, Gallup research shows. 2. Indian entrepreneurs need more diversified, localized funding at the initial stage. The most helpful factor in becoming an entrepreneur in India is access to funding. Gallup data show that nearly three in 10 (29%) aspirational entrepreneurs who plan to start their business in the next 12 months agree they have access to the money they need, down from 37% in 2011. This level of financial support is also significantly lower than the average for all 20 Asian economic entities Gallup polled in 2011 (44%). India has attracted the attention of global investors in recent years because of its growth and optimistic expectations for its future. The key problem for entrepreneurs seems to be less about the availability of funding and more about finding the right type of funding. The majority of existing venture capital funds for startups are focused on export-oriented IT or mobile solutions. Few seem to facilitate startups that offer the high-demand products and services in the healthcare or energy sectors in India's massive domestic market. Another potential problem with funding lies in the disconnect between investment funds and local entrepreneurs. Foreign investors could make inaccurate assumptions based on funding arrangements that have worked well in their home countries or other emerging markets and, in turn, ignore that India is unique in its market demands, talent supply, and business culture. Finally, there is considerable lack of angel or seed funding and complementary assets such as investors' expertise and participation in managing startups in India. Instead, venture capitalists in India are mostly inclined to get involved at later stages, for example, by financing the expansion of existing businesses. 3. Indian entrepreneurs need more access to training and mentorship, particularly in rural areas.

Gallup's latest data show that 37% of current business owners and 28% of aspirational entrepreneurs who plan to start their business in the next 12 months know people who can give them advice about managing a business. Perhaps the best mentorship comes from successful business owners who have personal experience overcoming entrepreneurial challenges. Though India has some high-profile entrepreneurs who can serve as inspirational icons (for example, Narayana Murthy of Infosys), there are not many who offer success stories from which aspiring entrepreneurs can learn. Apart from mentorship, Gallup also found that 22% of aspirational entrepreneurs who plan to start their business in the next 12 months have access to formal or informal training to start a business. Again, this is much lower than the Asia average of 44%. India has taken significant steps to promote entrepreneurial education and has established a list of national institutions to provide special training for entrepreneurs. However, according to Research and Markets' 2011 report on "Entrepreneurship Education in India," in 2010, 1,500 students were being trained at institutions that are solely focused on entrepreneurial education, while 4,700 students were enrolled in entrepreneurship programs at different business schools and institutions across India. Even though enrollment doubles each year, it is far from meeting the nationwide demand for entrepreneurship training. In rural areas, where about 70% of India's population lives, residents have few chances to take advantage of these opportunities. Entrepreneurial education also shares many of the prevalent problems regarding the general education system in India, including a shortage of quality educators and an absence of quality content, which hinder entrepreneurial growth. 4. Enforcing agreements is necessary to protect trusting business relationships. India has a large youth population, which tends to be more willing to take risks compared to the older population. According to the World Bank's report "Doing Business 2012: Doing Business in a More Transparent World," India ranks 182 out of 183 countries on enforcing contracts. The time needed to enforce contracts in India is almost triple the average among Organisation for Economic Co-operation and Development (OECD) countries, and the cost of doing so is almost double the OECD average. Indian entrepreneurs, often strapped for cash and time, are almost powerless when business partners cheat them. Perhaps this is why Gallup data indicate that 83% of current business owners say they are the sole owner of their business, and only 16% of Indian adults believe they can find someone outside their own family to be a trusted business partner. The lack of judicial infrastructure on enforcement does little to protect the trusting relationship between entrepreneurs and business partners or between entrepreneurs and customers. A lack of trust inhibits collaboration and significantly increases the risk an entrepreneur takes, ultimately slowing the growth of the MSME sector. Implications for India's leaders

Limited access to training and funding, difficulties the government poses to starting a business, and lack of trusted business partners are all likely to have negative effects on the optimism and determination of Indian entrepreneurs. Despite these barriers, Indian entrepreneurs still rank fairly high on these individual characteristics compared with residents of other countries in Asia, further indicating that they are resilient and possess the innate talents to succeed if given the necessary support. In addition, India has a large youth population, which tends to be more optimistic and willing to take risks compared to the older population. The 2011 national census shows that more than 50% of the population of India is younger than 25. Factoring the high percentage of young people in India with India's reputation as one of the fastest growing markets in the world, there are plenty of reasons to believe in a promising entrepreneurial future for the country. Yet the speed with which the Indian MSME sector can progress compared with other countries in Asia or emerging economies worldwide and the extent to which entrepreneurship can contribute to the growth of India depend on improvements in contextual conditions. Areas where these conditions must improve include the government -- such as its honesty and efficiency, simplifying tax laws, reforming investment regulations, reducing the number of procedures required to start a business, and reducing the time and cost of enforcing legal contracts -- and society -- such as increasing the interactions and collaboration among investors, aspiring or existing entrepreneurs, and advisers or educators. It is encouraging that significantly fewer Indian adults see corruption as widespread -- down seven percentage points for government and eight points for business from 2011 to 2012, according to Gallup data. This change in opinion took place after India's Supreme Court revoked illegally awarded telecom licenses in February. Hopefully, this is not the government's temporary response to the public's outrage and protests but a sustained effort to eradicate corruption and build strong governance to support entrepreneurship development in India. In the short term, progress in formalizing governance and making it more transparent could demoralize entrepreneurs who want to grow a business informally or go underground to exploit opportunities, which could cause a decline in entrepreneurship. But this progress could lead to reducing unproductive or destructive entrepreneurship, which is necessary for healthy and productive entrepreneurship. In any case, such improvement would require long-term joint efforts by policymakers, thought leaders, practitioners, and experts from the entrepreneurial community. Survey Methods Results (India) are based on face-to-face interviews with 5,000 adults, aged 15 and older, conducted Jan. 29-March 8, 2012, in India. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is 1.7 percentage points. Surveys in prior years were conducted with between 2,000 and 6,000 Indian adults, and the margin of error for previous surveys ranges from 1.7 to 2.6 percentage points.

Results (20 countries in Asia) are based on face-to-face and telephone interviews with approximately 1,000 adults, aged 15 and older, conducted between April 5 and Dec. 4, 2011, in Thailand, Laos, Singapore, Nepal, Malaysia, Sri Lanka, Hong Kong, Afghanistan, Mongolia, Philippines, Cambodia, Taiwan, Bangladesh, Japan, Indonesia, Pakistan, Vietnam, India, South Korea, and China. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error ranges from 2 to 4 percentage points. The margin of error reflects the influence of data weighting. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

The four challenges for family business groups


AM IST

RELATED

Has Subbarao lost the opportunity to be a statesman? Lounge Loves | www.elitify. com Rewriting telecom policy, retrospectively Jacket ads, Zees sting and readership The Business Of Travel

Jayachandran/Mint Updated: Wed, Feb 02 2011. 11 01 AM IST Jayachandran/Mint There are challenges that all companies face: competition, the regulatory environment, the fight for talent and capital, the burden of compliance, and the ability to manage vendors and

dealers. And, in addition to these, there are unique challenges that family business groups face, largely arising from family dynamics and ownership. It is near impossible to understand why these businesses do the things they do, and perform the way they do, without understanding these challenges. While the challenges are not new, they have become even more in-your-face since 1991, when India openly articulated a new open-market approach that it had been flirting with since the 1980s. To be sure, after some initial missteps, many family businesses have successfully addressed, or are in the process of addressing, these challenges. Some havent, and in future issues of this series Mint will look at the successes, the successes-in-the-making and the failures. Now, on to the challenges. There are many, but almost all can be categorized under one of four larger issues. Paying for advice is one thing, listening, another Telecom, retail and finance are synergistic businesses and Bhartis diversification into the latter two would appear to be prompted by sound business logic, not the desire to find something for a family member to do. Ramesh Pathania/Mint In the 1990s, most large family businesses in India felt the need for advice that could help them negotiate the suddenly competitive environment in which they found themselves. Most hired consultants. Ballarpur Industries Ltd (the Thapar Group), the Mahindra Group, the Murugappa Group, the Lalbhai group, and the RPG group were among those that did. With the benefit of hindsight, it is evident that the consultants probably gave the family businesses which hired them good advice, at least 50% of the time. For instance, one suggested that the RPG group focus on retail because organized retail would be big in India; this was in the early 1990s, when Pantaloons was still an apparel maker and not Pantaloon Retail (India) Ltd, Indias largest listed retailer. If not all the family businesses benefited from the advice, blame it on two factors: one, some had hired the consultants in the first place to validate their own decisions and were unwilling to listen to anything else; and two, many simply didnt follow through adequately. As for the other 50% of the time, when the consultants didnt proffer good advice, it was largely because they knew little about India and less about the businesses the group that had hired them was in. Hiring professionals is one thing, professionalizing, another Through much of the 2000s, Wipro chairman Azim Premji would invariably get asked a question on succession at interviews, and he would respond by saying the board had a plan. Now, its highly likely that his son Rishad Premji could succeed him. Hemant Mishra/Mint Through the 1990s, many family businesses went out and hired professional managers. They were willing to pay top dollar, so they managed to attract good managers. However, in many cases, the managers left after a few years. Thats because many of these business houses didnt understand the difference between professionalization and hiring professionals. The former requires the founding family to define a role for itself in the business. More importantly, it requires the business house to adopt high standards of corporate governance (starting with the composition and role of the board). The few that did this, such as the Mahindra Group, reaped significant benefits.

Entering profitable new businesses is one thing, doing so to find a job for someone, another This is a peculiar challenge that faces family businesses where almost all adult family members want to be involved in the business. And unfortunately, the heads of these groups believe that this is only fair. Consequently, in the 1990s and even in the 2000s, many family businesses diversified into new businesses with the primary intention of finding something to do for a member of the family. In contrast, some companies such as Bharti Enterprises first identified new businesses to enter and then put a member of the family in overall charge of these (even as they hired professional executives). Succession in ownership is one thing, in management, another Bajaj Autos managing director Rajiv Bajaj, a bit of a greasejock, played a leading role in the revival of the companys fortunes. AFP Generally, it makes sense for a family that founded a business to continue to be associated with it. This ensures stability, continuity, and, in most instances, a constancy of values thats good for business. In ideal circumstances, this association should take the form of ownership, not a manager. Most family businesses in India do seem to realize the benefits of this. Yet, even the few that appointed a professional executive to replace an outgoing family member as head of the business did this as an interim measure, while a younger family member was being groomed to take over (caveat: it would be erroneous to assume that all professional executives make better managers than family members). Thus, in the case of Ranbaxy Laboratories Ltd as well as Eicher Motors Ltd, a young family member did take over from a professional executive. And, although the company has said nothing to the effect yet, it is quite possible that three or five years from now, the same thing happens at Wipro Ltd. This is the second in an ongoing series on family businesses. In the next few weeks, the series will feature case studies of family businesses, and interviews with experts as well as the heads of family businesses to better understand the issues that face them.