Family businesses that dream of corporate longevity do not have the bandwidth of a medieval court to accommodate differences and visceral hatreds. They need to take steps early on to ensure the families that lead or govern, control or operate the businesses retain the bonds while also ensuring business perpetuity.
Among the leading Indian family businesses that have survived for more than five or six generations, the Godrej group has been in the news for some time now and more so in recent days with details dripping in of the shape and form the group division is likely to take. Without getting into why the split within the group or the triggers for a possible drift if any, friends of the family do seem to suggest an amicable approach to sorting things out and an intent to resolve rather than pass on issues to the next generation.
However they approach it, one element that does seem to stand out about the Godrej group is the branch wise division of the business with each family elder and his children in similar kind of business with no cross holding. This is much like in the case with the TVS group where each branch of the family is pursuing a different business. These seems different from say the approach taken by the Murugappa group where the family members are across the group businesses and the family is not divided based on business. A third approach is that of the Dabur group that has separated ownership and management with the operations in the hands of professionals beyond the ranks of the family. A fourth model is that of the holding company, which is again dominant in Europe and in India best showcased by the Tatas. The Pilani Investments of Birlas and Bajaj Holdings of the Bajaj group are the other examples.
The family business models from Europe tend to have separation of ownership and management as an integral component, they also prefer a holding company model.
So, what distinguishes the models from India and how have they evolved? “In India, many businesses started with the Hindu Undivided Family (HUF) structure. The HUF accounted for the unique joint family structure in India, the pooling of resources and efforts by all family members to run a business, and their contribution in its success,” says Dr. Nupur Pavan Bang, Academic Director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business (ISB). However, she finds that “with the desire to have clarity in ownership of assets and businesses, of late, we find that more and more larger business families are gravitating towards the holding company structure. Holding company structure allows the families to pool their businesses and assets under one umbrella and provide a transparent ownership structure.”
Family business models
Compare these models with say that of E. Merck KG of Germany, which for over 350 years been a family business across 13 generations with a model that separates ownership and management. Frank Stangenberg-Haverkamp, chairman of the executive board and general partner at E.Merck KG, Darmstadt, Germany once told this writer: “You have to differentiate between ownership and management and I tell the youngsters that as a family member remember that you are just trustees who need to pass on your shares of the company to your children and grandchildren. If your forefathers had not done this, you would not be sitting here.”
In the Indian context, it is apparently relatively early in the cycle of family business evolution and the families tend to be typically more actively involved and “whenever families are actively involved in operations it is not easy to find convergence across generations,” says Kavil Ramachandran, professor of family business and entrepreneurship and also senior advisor, Thomas Schmidheiny Centre for Family Enterprise at ISB. But then, there is a way out. “Maintaining convergence is a constant endeavour for drifts do not happen overnight,” he says.
The progenitors of the family businesses need to take a call early on since family businesses continue be remain integral to the India growth story and form a bulk of the companies that are listed on the Indian bourses.
Leading Indian family businesses, he however feels, have been able to amicably evolve models that have ensured perpetual bonds despite either a split in business or after its redesign. There have off course been exceptions too with some bitter family feuds.
Since most members of business families align on the goal to ensure business perpetuity rather than perpetual anxiety, addressing the questions of ownership and management early on may be crucial. This alone could help business families decide on the business model with clarity on the lattice of business and the role of the families that founded it. For it is with good reason that the Woodruff family still figures when discussing Coca-Cola or the Agnelli family in the case of Fiat.
