Ten success principles

The multitude of overlapping roles individuals play within a family business make it a unique challenge to manage. Family businesses that have lasted multiple generations follow several principles for success.

PRINCIPLE 1

Communication
Culturally, Indians are more implicit than explicit in communication. The lack of clarity when a person is silent leaves room for different interpretations by others. More so, when family members are also preoccupied with business challenges. They may assume many things and take for granted their relationship with other family members. Structured formats, such as a family assembly and a family business forum with a specified time to meet (physically or virtually) and discuss emerging issues is needed. Most families with an intention to perpetuate their business follow this principle. They make a conscious effort to communicate with their kin as stakeholders in the business.

PRINCIPLE 2

Trust
The fundamental factor that bonds any relationship is the trust members have in each other. Family members who manage business and family affairs are acting as custodians of the material and spiritual wealth of the rest of the family. Hence, families have to ensure complete transparency in whatever they do, to create and sustain the trust of others. The Murugappa Group, for example, has successfully evolved as an institution over five generations. They may not have a written constitution, but they do practice unwritten rules of engagement that ensure business dealings are above board and in the interest of all.

PRINCIPLE 3

Codify Conduct
Variations in attitudes, behaviour and conduct among family members are often a source of friction. Particularly when a family's transition through different levels of prosperity happens within a short period of time, and those involved in wealth creation incorrectly assume the existence of a set of rules of conduct for family members. The continuing feud of the Ambani brothers could probably have been avoided had they followed a set of guidelines to indicate their priorities in life.

PRINCIPLE 4

Loose Coupling
Relationships often break up for want of breathing space among different units within a family. The feeling of suffocation is greater when some family members show a tendency to micro manage others. Many business families now ensure that they have enough privacy within their joint family system or they live as separate units with enough of collaborations both on family and business fronts, retaining their separate family and business identities.

PRINCIPLE 5

Handle Money Carefully
Money is a double-edged sword; if handled carefully, it serves you, otherwise it may leave you bleeding. Many disputes in business families arise due to poor management of wealth. Transgressions may range from abuse of entitlements in the business to lack of transparency or poor management of family wealth. Several families have a clear control on what one is eligible to. It is important to discuss this from time to time, as the demand and supply of money in the family changes over time.

PRINCIPLE 6

Professionalise the Business
Professionalisation is an attitude. It functions irrespective of whether the business is managed by family members or by outsiders. Family members who are involved in business often confuse their professional and family roles and responsibilities while taking business decisions. Mid-size businesses that are forced to chart their own path often flounder without guidance on professionalisation. Dr Reddy's Laboratories is a classic case of successful professionalisation, including at the board level that enabled not only Dr Anji Reddy to move out of operations completely but also facilitated building of a nonfamily team led by the son and the son-in law.

PRINCIPLE 7

Ownership Clarity
Many families tend to get into trouble for want of clarity about "who" owns "how much" of "what". While taxation is an one reason/excuse to have cross-holding by family-promoted investment organisations in some cases, in several other cases it is because not all family members get shares in all group companies. A family-level holding company model is the best structure to address this challenge. The GMR Group has followed this model and that has enabled it to grow exponentially through new investments, without worrying about the complex issues of ownership.

PRINCIPLE 8

Retirement and Succession
These are two sides of the same coin. Leaders, particularly those who have spent all their life in the business, hesitate to retire for want of a clear road map for the rest of their lives. They often need subtle career counselling and hand holding on whether they should remain associated with the business or not. Developing social ventures that add value to the business is a good route. The transition of two leaders has to be handled like a relay race—with meticulous planning and adequate but not prolonged overlap in transition. Advance planning helps in succession, as in the case of Preetha Reddy succeeding Dr Prathap Reddy of the Apollo Hospitals Group, with full endorsement of all her sisters.

PRINCIPLE 9

Groom Early
As life becomes busier for business heads and gets centered around themselves, very little time gets allotted for grooming children to be good family members and business people. While "compassion orientation" is essential for the family, business success requires "competitive orientation". Families need to plan and spend quality time with children and tap outside resources appropriately to groom their children with the right qualities.

PRINCIPLE 10

Leadership
Leadership is critical everywhere, especially in a context as complex as that of a family business. The qualities required for the business and family are different. Families should consciously decide who should lead and not necessarily fall into the societal assumption of "eldest is the best". The leader should be one with humility as a value, besides all other qualities. Sudarshan Chemicals follows the principle of meritocracy when it chooses its business leader. In essence, family businesses need to make a conscious choice to remain together to build their family wealth. This is not possible unless the family members are educated on the challenges and the processes of managing family businesses.

— Kavil Ramachandran is a Thomas Schmidheiny Chair Professor of Family Business & Wealth Management, Indian School of Business, Hyderabad.