Tackling crisis of family owned businesses


Most family owned businesses face a sobering reality the odds are stacked against their long term success. Around 90% of family-run businesses do not survive as a single entity beyond the third generation worldwide. A similar trend has been seen in India as well, as ambition, greed and aspiration of the newer generation leads to family feuds, resulting in disintegration.

Things are hunky-dory in the family and business prospers while the patriarch is alive, and is calling the shots. Since he is the head of the family, the business is run professionally enough, with few bickering by the other members.

The risk to the business comes from within the family, usually when it migrates to the second or third generation. Things begin to change with new elements coming in, and outside influences. It may be something to do with the education or ambition of the new generation, experts say.

If the head of the family views each member of the family (sons) equally and delegates equal responsibility after a consensus is reached, then matters stay is control.

To hold the family together and be involved in business at the same time, many family businesses have devised a unique model of floating a holding company. Like in the case of Sweden’s Wallenberg empire, which is governed by the family’s holding company which holds controlling or large equity stakes in leading Swedish multinational companies such as ABB, Scania and Ericsson. In India, a similar example is Tata Sons where Ratan Tata is the chairman of the holding company, while all other businesses are run by professional managers.

But if the scion of the family decides to carve out a bigger role for himself he may decide to be at the helm or become involved in the business. In this case, the company should put in place an independent assessment process to evaluate whether the family member (be it the son of the patriarch) can fulfill the role, as desired by the organization. Otherwise, it should get a professional.

But what happens in cases where there is no professional management structure, or a clear succession plan has not been laid down.

A good example is Thermax where Anu Aga handled the succession issue successfully when her husband died suddenly.

Sometimes, complications arise because of the women in the family. The environment in the family may get vitiated if the ladies of the house stay together, and the seed of discontent is sown if one of them feels that she has been ignored. A way out in this case is that the family sets up a governance council to understand the needs and aspirations of each family member, and how these can be fulfilled in a fair manner.

The Murugappa family in the south has stayed together for several years because of its chairman, MV Subbiah which handled both family issues and governance very well. He created a Murugappa Corporate Board, quit as CEO and became a mentor-director, placing an ombudsman-like role ensure that the family does veer from the mantra of corporate governance.

It then becomes difficult for the family business to remain as a single entity. The Modis, Nandas and recently the Singhs’ (Analjit versus Malvinder) and the Ambani spat are all cases in point.

A few of them such as the Delhi-based Munjals and and Jindals have, however, defied the odds and continued to thrive, with or without a split.