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Bijoy Ghosh

(from left) Mr J. N. Amrolia , Executive Director, Construction and Allied Business, Ashok Leyland Ltd; Mr Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds Ltd; and Dr Srini Srinivasan, Consultant in Global Business Strategy, at the inaugural session of a conference on `Family Business’ organised by The Round Table-30 and Chennai Business School, on Saturday. —

Our Bureau

Chennai, Nov. 7 Family-owned businesses in the country have been a major source of entrepreneurship in the country over the years. Now, to fire the spirit of entrepreneurship in these businesses, they need to move from the ‘c’ of comfort to the ‘c’ of challenge, said Mr Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds Ltd.

Delivering the keynote address at the inaugural of a one-day conference on ‘Family business’, organised by the Madras Esplanade Round Table 30 and Chennai Business School here today, Mr Srinivasan said that over a 30-year time frame, family businesses have outperformed the index by 30 per cent. But now these businesses need to do a few things to keep entrepreneurship alive in the business.

Family-owned businesses need to create alternate careers for new family members who return from some of the best business schools abroad. “Many don’t want to be in the family business but they should feel proud of having an alternate career path. There are so many other avenues today,” he said. Family businesses also need to institutionalise their CSR programmes, which could be handled by a family member.

Mr Srinivasan pointed out that some of the old business families in Europe gave at 20 per cent of their profits to such foundations involved in charitable work.

Family businesses need to invite private equity capital to their companies.

“It’s the most powerful form of sustaining family businesses. In Europe there are special funds which invest in them. When businesses mature, there is a need to ‘evergreen’ and revitalise them,” said Mr Srinivasan. Private equity funds can also be a great source of discipline, he added.

That apart, businesses needed an exit option: one way of sustaining family businesses is to allow family members to exit or even allow the family to exit the business altogether.

While family businesses are value-based and have a deep respect for the local community and also have the advantage of being able to make quick decisions, there are a few issues they don’t want to confront, he said: agreeing to a business strategy, assessing the performance of family members, making professionals key stakeholders, on how much money needs to stay in the business and how much is to be shared and lastly how to let go of people and allow them to come back.

To top it all, keeping the family together through generations is the key as the family and the business are intertwined.

“The very fragile flower called trust has to be nurtured well for that,” said Mr Srinivasan.

Dr Srini Srinivasan, Consultant, Global Business Strategy, giving a global perspective of family businesses, said they were more prominent globally than one would think.

They account for 95 per cent of the registered companies in Latin America, East Asia and India; they constitute 85 per cent of all business enterprises in north America and employ 62 per cent of the workforce and account for 75 per cent of all businesses in the UK and employ 50 per cent of the workforce.

Referring to global trends, Dr Srinivasan said the trend over the last ten years in family business is toward equality, where businesses have a system of multiple leaders and transition control of the business to the next generation in the form of a leadership group.

Also, many family-owned businesses are closing because the recession has outlasted their ability to hang on. The US Bureau of Labor Statistics estimates about 4.3 million businesses with 19 or fewer employees closed between the end of 2007 and the end of 2008.

Many family-owned firms are either merging with other companies or are being acquired (for example, Daiichi Sankyo’s acquisition of Ranbaxy).

Another trend globally, Dr Srinivasan said was that over the past five years, woman-owned family businesses have increased by 37 per cent. Women-owned family businesses are better prepared for transition scenarios and have higher success rates than businesses controlled by their male counterparts.

He gave the example of Ms Giovanna Furlanetto, President, Furla, the Italian luxury products company. Also, the number of women holding leadership positions in their family businesses has increased five-fold since 1997.

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