Indian family businesses take inter-personal ties for granted: Study

Half the companies in the NIFTY index are family-owned. Almost 75 per cent of the top 500 companies in the country are family-run. Research has established that over a long-term horizon of 10 to 15 years, family-run businesses deliver greater value.

One would assume that all is well in the country when it comes to family business. But recent research by the Indian School of Business (ISB) on interpersonal relationships (togetherness) among the members of business families reveals a glaring deficiency, which, if left unchecked, could bring about a major upheaval, leading to corporate break-ups. Most Indian business families, the research says, takes this togetherness for granted.

"Togetherness spans three levels - familial (emotional), business operation, and trans-generational," says Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at ISB. "In our survey of 300 small- to medium-sized family businesses, we found they fared well when it came to familial togetherness. This includes commitment to the well-being of all family members, supporting other family members in difficult times and having clear ethical standards. But when we began to look at business operations and inter-generational togetherness, critical gaps emerged."

He adds that on parameters such as allocation of roles and responsibilities, shared beliefs with regard to growth aspirations and trust in each other's intentions/integrity, only half the respondents said things were fine. This number fell further when it came to issues such as entry of family members, ownership and transfer issues, starting new ventures, and retirement of family members.

Only a third of the respondents said they had clear policies in place to tackle these issues. The research reveals that family businesses do not make the effort to put in place systems that govern their behaviour. They wait for a crisis to happen and then react. By then, it is too late. They are seldom proactive.

"Only familial bonding will not help, as lack of policies and processes will lead to postponement of critical decisions and trigger larger problems such as the break-up of the family. Building comprehensive togetherness is a complex issue and requires time," says Ramachandran.

Family businesses, he adds, need to recognise the realities of changing socioeconomic trends and develop governance mechanisms. Nurturing and cementing family bonding is paramount in ensuring long-term sustainability of family businesses, Ramachandran adds.