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April 1, 2000
The Rediff Business Special / M D Riti
'Need to nurture tradition of family businesses'
"Discussions of family and business values must move from the dining room into the office."
"Are your daughters an unused and wasted resource? Or do you consider yourselves justified in regarding them as liabilities? Why don't you involve your wives and daughters more in your businesses?"
It was a rather unusual congregation. A gathering spanning three composite eras as grandfathers, uncles, fathers, sons and cousins rubbed shoulders with each other, bridging the generation gap.
An assembly of entrepreneurs who took a break from the boardrooms, loosened their collars and talked candidly about what they felt were important factors in running and sustaining family businesses in India.
As the media was not supposed to report on some of the closed-door sessions at this conference, some of the observations from Indian industry leaders on the issue would remain a secret.
However, of the above quotes, the last was by Gita Piramal, business historian, commentator, and wife of business tycoon Dilip Piramal.
Right from the oldest, 87-year-old S P Godrej, to the youngest, the 22-year-old scion of the Dina Malar media business family, the delegates at the conclave were unanimous in their opinion there is a strong need to sustain the grand tradition of family businesses.
The meeting, held on March 23-24, was designed to find solutions to common problems being faced by Indian family businesses, and to provide a forum to these firms to discuss their functioning openly.
This was the second such conclave to be held in as many years. The last one too was held in Bangalore a year ago, and was attended by representatives of 120 family businesses.
CII has now set up a family business council with M V Subbiah, chairman of the Murugappa Group, as its chairman.
This council aims at studying the working of family businesses in India, identifying the common problems and issues that they face, and helping them formulate a blueprint for the future.
The approach that CII adopted for this was to invite John L Ward, clinical professor at the Kellogg School of NW in the US, to conduct and manage the entire meeting.
Ward, who has vast experience in studying family businesses the world over, made presentations on topics as diverse as family business governance, and managing discontinuity in the family business. His stewardship helped in regulating the meeting along a productive path.
However, one came away with the feeling that it is the traditional wisdom of the Indian business family that must be tapped to ensure the continuity of its tradition.
While there are several characteristics that are common to businesses everywhere, Indian business traditions are strongly linked to the nation's culture and spiritual identity.
"Last year's conclave felt that they should be given more time to share each other's experiences, and not just be preached," says V Vasan, executive officer of CII. So at the end of every session, the participants were given an opportunity to react and share views.
"The market believes, for some reason, that it is getting better quality and service from family businesses," says Ward. "This is why more and more businesses in the US are advertising themselves as family businesses."
Several interesting bits of information emerged at the conclave: like, family firms still have a dominant presence in global business. Almost 70 per cent of firms in Portugal are family-owned, while in Italy, the tally is as high as 99 per cent, according to surveys conducted by IMD International.
Family firms are responsible for as much as 71 per cent of the market capitalisation in India, according to Gita Piramal. Forty per cent of the country's sales turnover comes from them, as do over 30 per cent of assets.
However, according to IMD International, 40 per cent of family firms die within the first five years. About 66 per cent of the remainder, die or leave the control of the founding family during the first generation itself. Only 17 per cent of those still left, survive up to the third generation of the founding family.
The participants at the conclave tried to work out collectively just how they could bring competitive strength to a family business and, simultaneously, strengthen the families, too. This twin objective, they concluded, could best be achieved by treating the business as an incubator for values and goals.
Sharing ideas and knowledge would in itself strengthen family ties, too. Interestingly, many businessmen felt that regular social get-togethers, for birthdays, weddings or even at funerals, helped this process greatly.
So how can a business family make its business a treasure to be cherished by future generations?
"By earning social respectability for the family through its business practices," said R Lakshmipathy of the Dina Malar family. "The brand-building exercise is important in family businesses. Documenting the experiences of the family at every stage would also help to provide future generations a good record of what has been done so far."
Ward agreed with this viewpoint, saying that he had found that family businesses which lasted, invariably had strong corporate identities.
Chalking out clear succession plans well in advance and making them known to the family members, helps avoid uncertainty and disappointment, said Hemant Aradhya, director, Aradhya Steel Wires. This would help the present and future owners of the family business develop a strong sense of belonging, and simultaneously give them pride of ownership. Key employees must be in the know of all this.
"Building a sense of family pride would greatly help to sustain family businesses," said Arjun Menda, partner, K Raheja Development Corporation.
"Regular corporate meetings must be held, and the families should not get together only at social dos. Ensuring that all family members enjoy a very good standard of living will also help to motivate them to help sustain the family business."
Participants listed several other factors as contributing to sustaining family businesses, such as, ensuring that there is smooth communication between various generations of family members, and between the family's men and women.
It was felt that a professional approach to management is crucial. However, as several young men pointed out, this need not only refer to the bringing in of non-family professionals.
The sons and daughters of most big businessmen are getting themselves professionally and technically trained these days, and the business family of yore, which was almost illiterate, is virtually non-existent.
Another interesting viewpoint that emerged was that the business and the family must not be dependent on one another or survival. It should be able to remain unified even in the absence of a common business interest.
Likewise, the business should be able to outlast the family, if necessary. Only then could the family business really thrive.
"We have been able to talk openly with friends and strangers at this conclave," said Subbiah, speaking to rediff.com at the end of the two-day meeting.
"Now when we go back, we'll certainly have such sharing of ideas with our own family members, who are also our business partners. I think it's time we began spending more time sorting out family problems, and not just thinking that businesses can grow only out of our offices."
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