What Ensures The Success Of Business Families?

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One of the most common forms of business ownership, family businesses are one of the most overlooked. From the Tatas, Birlas and Ambanis in India to such global giants as Wal-Mart BMW and Samsung, family businesses are present everywhere, from the corner store to multi-billion corporations.
After the first entrepreneurial generation, family businesses face the challenge of transitioning into professionally managed corporations, with a unique set of problems. In many cases, the descendants want to take over control of the company though they may not be suited to do so. And as generations pass, the number of family shareholders only increases with the holdings getting fragmented. According to statistics, less than 30% of businesses survive the third generation of ownership. However, those that do, have a record of performing better than their corporate counterparts.
Studying the life histories of family run corporations, a few truths emerge. Family run businesses face two primary challenges – achieving business performance and keeping the family committed to the business. For this, some of the things that need to work well include family relationships, ownership structure designed to provide sufficient capital for growth while retaining control of key portions of the business, good governance, a dynamic business portfolio, professional management of the family’s wealth and charitable foundations to promote values across the generations in the family.
There are many reasons for family businesses to go under, such as family conflicts over money, nepotism leading to poor management, infighting and a lack of vision. A clear definition of the family role in the business is essential for the business to grow. There have to be clear boundaries in terms of the decision-making and control of the company’s management. Even the Tatas went through different stages before evolving to the present structure.
In the post-Independence era, JRD Tata, then chairman of the Tata Group, managed his empire by dividing it into virtual fiefdoms with lieutenants like Russi Mody of Tata Steel and Darbari Seth of Tata Tea and Tata Chemicals managing their share of companies almost single-handedly. The structure changed when Ratan Tata, the current Chairman, brought about a shift in the way the group worked, with stronger controls at the centre and professional managers at the head of each group company. To achieve this, he had to wrest control away from the entrenched senior members of the board. The family still retains control at the centre, which effectively helps in strategic decision-making, but the companies themselves are run by professional managers with no day-to-day interference from the family, except where family members themselves work in the company, such as Trent which is headed by Noel Tata.
CEOs are the professional need of any company, and the family has to ensure that no interference takes place at the management level. If possible, a family council should be used to direct the activities of the business(es) to ensure their stake is looked after well, but not to the level of micro-management. A continual agreement is essential to ensure smooth working, and the continued survival and success of the venture.