Macro Economy

`Indian family businesses going through churning and changes’

Jayanta Mallick Kolkata | Updated on July 15, 2014

Splitting family businesses has worked well in India for groups that have scale. However, staying together appears to be the trend for the smaller business family groups.

Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at Indian School of Business says Indian family businesses were going through churning and changes on multiple fronts.

On the sidelines of an Indian Chamber of Commerce-organised event, Ramchandran said that in terms of not only handling inheritances and redistribution of business assets, but also regarding grabbing growth opportunities or managing growth in view changing business risk perception, adoption of professionalism and technology family-owned business houses were attempting transformation.

“There are instances of more than one family bonding together to form a powerful group, which grew in competitive environment”, the B-school professor said. Example of a family-run business building a strong group of independent directors as a part of the business strategy was also an Indian reality, he told Business Line.

“There seems to be more clarity on transformational issues now. Families are following stratagem, be it reward structures (for the family members) or responsibility assignment”, he said.

Realization that split cannot be the omnibus solution for the business interest has dawned on. He pointed out that in case of some families, which had created a complex web of crossholdings among the entities caused enormous problems at a later stage.

There is a discernable trend among some promoters in “institutionalising” the corporate entity and its management practices. The first generation entrepreneurs, particularly in service as well as in small and medium sectors were generally were sans “zamindari” culture in terms of ownership and control.    

He said Indian business families hardly share information about themselves. “Any study has to make do with secondary data”, he observed.  

However, he noted that some of the so-called “professionals managed” public companies and groups show traits and idiosyncrasies of a family-owned business. “The long-term impact of these on the companies could be serious in terms of leadership, direction and sustainability,” Ramachandran felt.

Published on July 15, 2014

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