Priorities for family businesses
By Kushal Khandwala
Family businesses have always been an integral part of the Indian economy and society. Largely founded on the joint family principle of ownership and management, their contribution has always remained very high. However, family business as a system has inherited an identity associated with features such as, non-professionalism, conservatism and poor governance. The fast-paced changes in business environment in the past two decades have altered this to an extent. Today family owned businesses are perceived as much more respected, entrepreneurial, growth driven and much better governed, contributing immensely to the country’s growth story.
90% of businesses are in the dominant control of the families, from small Kirana stores to large Conglomerates, Corporates and SME’s. A family-owned business may be defined as any business in which two or more family members are involved and the majority of ownership or control lies within a family. In India there is a huge emotional connect in addition to the business aspirations. Families have established and running large businesses which are growing further. The commitment levels and the passion have been astounding. What makes it special is the relentless participation of the next generation in the existing businesses for further growth with a modern and a much matured professional outlook.
Every business organization has a unique set of challenges and problems. A Family business is a commercial organization or economic system which is owned by several members lineally descended from a common ancestor. But in today’s era, the joint family business is degrading due to disputes among family members which lead to partition in business. Some reasons for a partition include mismatch of ideology, mismatch of the thought process, the death of a member, etc.
Family businesses contribute to the national economy very highly. Over the past two decades, the performance of family businesses has been better than either a public sector or even multinational companies. This means that the Indian economy is highly dependent on the destiny of family-run businesses. SMEs should learn from the experiences of the big companies. There are enough examples for the companies which started from scratch and became big.
The key challenges perceived among Indian family businesses over the next five years are more or less the same as those perceived by family businesses across the world: the need to innovate, keeping pace with digital and new technology, attracting or retaining talent and dealing with competition. The general economic situation, which is ranked lower by Indian family businesses, is the exception-and rightly so given the positive economic outlook for India.
One of the most important challenges faced by family business is ensuring the successful transition of the enterprise to the next generation. Succession Planning can do just that. While non-family-held businesses commonly have a clearly defined hierarchy and hiring process to fill open positions, family enterprises often don’t have a plan for handing power to the next generation, leading to conflict and divisions. Implementing a succession strategy is a complex process involving trust, thoughtful planning, and specialized approaches that address sensitive issues and critical factors for the business.
Managing conflict in the course of succession at the heart of how Continuity serves its business families. Continuing family relationships are crucial and the needs of all stakeholders must be taken into account in both the planning and implementation phases.
Some of the priorities that Continuity Family Business Consulting manages in building the right succession plan are:
– Identifying the next generation leaders and developing their skills to lead
– Ensuring that the estate planning documents match the intent of the owner(s)
– Making sure stakeholders have an aligned vision for their family and their enterprise
– Reviewing shareholder agreements
– Structuring governance for effective oversight, mentorship, and conflict management
– Developing organizational policies to accommodate the needs of next generation leadership
– Evaluating the company’s financial health
– Managing conflict and expectations within the family business system
– Identifying actionable ways for the family leadership to support the business succession plan
– Good Governance is Essential to Succession
While management and decision-making hierarchies are more formal in the business than in the family, creating an organizing governance structure with policies and procedures can improve the bond between family leaders during the succession process. A family council can promote effective and timely decision making among family members while also reinforcing the shared values that are critical for cohesive asset management and healthy, continuing relationships during a transition.
According to PWC family businesses survey, 74% said that they understood the tangible benefits of moving to digital and had a realistic plan for measuring this. This is significantly higher than the global average of 59%. However, India numbers drop and the gap with global reduces when one discusses strategy formulation to incorporate digital, integration of digital as part of the business’s culture and the ability of the business to deal with a data breach or cyber-attack.
The writer is Director, KIFS Trade Capital