Governance top priority for Indian family businesses

Interest in successful governance at Indian family businesses has grown hugely in the past five years, according to Kavil Ramachandran of the Indian School of Business.

The Thomas Schmidheiny Chair Professor of Family Business and Wealth Management told CampdenFB that a much broader focus on family business management in India is essential.

“Management is no longer seen as wholesome but as comprising three levels – governance, strategy and operations,” he said.

There is a clear distinction between how family businesses in India operate compared to the rest of the world. “The developed world has family members active at governance and strategy, but not in operations,” the professor said.

In contrast, family businesses in India have members active in operations, but a new model has recently emerged. “There is a definite trend of family members slowly moving out of operations and concentrating on governance and strategy, which will help in business growth. Family members are becoming equally qualified as non-family professionals,” Ramachandran said.

His comments are in contrast to a recent interview with eminent historian Dwijendra Tripathi, published in India’s Livemint, where he said that family businesses in India are in decline, aided by the entry of professional managers and disintegration of the famous notion of joint family.

Tripathi told Livemint: “After half a century, and this is an overestimation, no one will talk about family businesses in India.”

While research supports the idea that families start to break up during the third generation, Tripathi told Livemint that it holds more true today, with many family businesses giving up their operational control to outside professionals.

With the majority of family business analysts of the belief that good corporate governance entails the entry of outside professionals into management, Tripathi said that this entry of non-family members makes the future of Indian family businesses bleak.

But Ramachandran disagrees, instead saying that the new management model will help family businesses thrive and contribute to the country’s development.

“Families are showing tremendous interest in understanding and practicing family governance that will support the evolving business management model – and this new model will stay with some refinements,” he said.