The Hindu Business Line : How quarrels in family-run businesses begin

Quarrels in family-run business often have their roots in a general unwillingness to address issues related to ownership and management and nip them in the bud

Most parents also tend to think highly of their own children and more so sons (in our culture at least) and consider them to be worthier than others, including themselves.

A financial newspaper recently carried a news item headlined `PEs tune into family soaps' . It reported that well-run family-managed companies are bringing cheer to private equity (PE) managers, helping them pick up substantial stakes in these companies at bargain prices thanks to internal squabbles within the families. The Economist is being proved prophetic in its prediction, made in an article a few years ago, that family squabbles are the biggest threat to the survival of family-owned and managed organisations in Asia.

Unlocking value

Why does this happen and can it be prevented? Before delving into the underlying reasons for this, let us answer the second question first. In spite of its size and there being few siblings and enough wealth and companies to own and manage, even the Reliance group was not spared the unpleasantness and public exposure of a family quarrel for supremacy.

Notwithstanding the marketplace crowing about `unlocking value', there is no gainsaying that even if the powers that be tried to prevent it, the issue continues to provide enough grist to the rumour mills.

Though it is difficult to prevent a break-up, a survey of the scene, both in India and abroad, shows that with forethought and wisdom, the unity of enterprises could be kept intact and protected from the vicissitudes of partner/sibling rivalries and idiosyncrasies. But that is not the focus of this article!

Let us look at why these things happen. For this, as they say, you have to go to the beginning. More often than not, an enterprise is the creation of a person or a small group of persons with an entrepreneurial vision. The founders work hard trying to make a success of their venture and would hardly have the time to argue about sharing the `spoils' or dwell on the foibles of one another. It is said that poverty, like death, is a great leveller, and one is willing to share any amount of it with others . At this stage, there seldom is any documentation of relative roles or sharing of profits excepting an oral or, at best, a badly drafted agreement among the partners. And usually one of the partners, the main driving force, is the leader.

However, as the business starts prospering, the need to define roles and rights is keenly felt and since this is not necessarily a pleasant task, it is postponed to another day. Or gets done in a most perfunctory way. It is seldom realised that the more prosperous the business becomes, the more quarrelsome a discussion on sharing can become.

Suddenly, you find partners noticing the `foibles' of one another, and divergence of views about strategies. One might like to think that differences crop up due to major differences about strategies. Believe me, though they do play a major part, just as ideological differences do not prevent political parties from being strange bedfellows, they have a lesser role in deepening dissensions. This could extend to things like one partner's `habit of going on expensive holidays' or another's `going to holy men' or another's `style of not consulting or informing others even on minor matters' or `I was not given a seat on the dais'. It is rarely realised that what are called `minor virtues' are as important as major virtues to keep people together and happy.

Fair share for children

Soon the children come of age and thoughts of their future in the business start dominating the minds of the promoters. Every one of them, close friends and those who used to stand together through thick and thin earlier, start wondering about ways to get his/her children a larger share (rationalised as `fair share' in their own minds) of the wealth and power he/she helped create. My grandfather used to say that like water, affection flows downwards and is more selfish. Altruistic towards co-owners till then, they start nursing thoughts about carving a bigger slice for one's own children, seldom admitting the unfairness even to themselves.

Most parents also tend to think highly of their own children and more so sons (in our culture at least) and consider them to be worthier than others, including themselves. Till recently, entry of daughters was a near impossibility, since many families considered sons-in-law not to be factored in for induction into the business for various reasons.

In a male-dominated arrangement, if by any chance, one or two partners had only daughters and the others had sons, the situation would be further exacerbated! Slowly but surely, `private agendas', as opposed to `common agendas' for the business good, would start dominating the thought processes of individual partners. And many `hangers on' or `relatives' or `advisors and friends' of individual partners would also be available in plenty to give `sound' advice!

Formalisation

One then starts hearing about the `need to formalise' things, from those for whom a `formalisation' process would help. Others, whom the status quo perhaps does not favour, demand `restructuring'.

Each partner tends to entertain `exaggerated' notions about what he/she has brought or is bringing to the table and totally the opposite about the others. Unfortunately for the business, business objectives are subordinated and the `private agendas' take over.

There is a quote attributed to Adlai Stevenson, a veteran US politician, which I am very fond of — he is reported to have asked the then USSR representative to the UN during a Security Council debate on the Cuban missile crisis: "Mr. Ambassador, on what conclusions are you basing your facts?" If we think deep enough, we will realise how true this is of most of our interactions! Discussions among partners about relative roles and rights are clouded by preconceived inferences, opinions and suspicions and seldom dictated by facts

It is this general unwillingness to address issues and `nip them in the bud', to use an old cliché, at the right time which lies at the root of this problem.

Writing a will

This is very similar to most Indians being unwilling to write a will. This is in the belief and hope that `it cannot happen to us'; `we partners and heirs are unified enough not to fight over any issues'; `let them take care of it'; or more commonly `we are not going away tomorrow'. It is the same fatalism, coupled with distaste for definitiveness, if I can call it that, which may be making people reluctant to address the need for installing formalised arrangements early enough.

Pre-nuptial agreements are often de rigueur in many marriages in the West; at that point in time, the man and the woman are so much in love with each other and they would be reasonable or even charitable in giving away what is his or hers than after the events leading to a separation. Similarly, while setting up a business, friendship among promoter partners is deeper and the readiness to give and take and to be reasonable is higher.

It is best that sound practices and agreements on respective roles and rights are built in early enough to avoid the business being hurt should a separation become inevitable later.

(The writer, an alumnus of IIM-A, and a management consultant, worked earlier with the consultancy division of ASCI, Hyderabad, and A.F. Ferguson & Co. His Top Management Consultancy Services specialises in strategic planning and counselling for family-managed companies. This is the second of a series on family businesses by the writer)