What are the hindrances to the growth of Indian family businesses?
Family businesses play a crucial part in the economic growth of a country when they move with the times. Many Indian family businesses are still stuck with the traditional ways of functioning. Here's what they need to do to break archaic chains and flourish
Family businesses in India represent 70 percent of publicly traded companies and 85 percent of private firms. Worldwide, family businesses are responsible for 79 percent of employment and hence are crucial for a country’s economic health and growth. Interestingly, family businesses in some countries are more innovative and have higher performance compared to professionally run businesses. This is because family businesses have unique strengths (if they can leverage these)—family businesses where the owners are also managers can make quick and agile decisions without layers of bureaucracy and hierarchy. In addition, they are uniquely positioned to resist short-term profitability pressures and invest in long-term innovation.
IIM-Bangalore has been running the MPEFB (a certificate program for family business owners) for the past 12 years. One insight that jumps out at us time and again is that Indian family businesses differ greatly. Some families are at the cutting edge, continuously seeking and adopting the latest management and technological practices. Interestingly, these same families also keep up with the times socially, treating heirs of both genders equally and ensuring that outside professionals are valued and empowered. Even more interesting, these progressive families follow good governance practices, maintain clean books, and pay taxes in line with their revenues. These families scale faster because they attract big investors, corporate clients, and foreign partners, all of which conduct due diligence and require good corporate governance practices. What we see is that families that are open and progressive when it comes to innovation in technology and management practices are also open and progressive when it comes to internal family dynamics and external stakeholder management. These families stay together because open, transparent, non-hierarchical communication is the key to peace within the family. Without peace within the family, it becomes difficult to institute a new technological or management practice in the firm. Hence the two are linked. The same families that treat family members in a fair, open, and non-hierarchical manner, also keep clean books and attract and retain the best professionals, investors, large corporate clients, and foreign partners. These family businesses survive, innovate, and grow.
Also read: Indian family businesses resilient to pandemic; only 30% needed more capital in 2020: PwC report
In contrast, families that follow an authoritarian, traditional culture, are also the most defensive and fearful in allowing outside perspectives and knowledge. They run a higher risk of conflict within the family, especially with the younger generation. They are secretive and do not plan properly for a smooth succession. They have complex and archaic governance practices and find it hard to scale and survive in a rapidly changing economy. The good news is that committed family business owners can learn new ways of being and communicating. They can learn the best ways to hire and retain mentors and outside directors, transform governance, update their skills, and grow into an open, innovative, and transparent organisation, hence strengthening both family relations and the family business.
The author is an Associate Professor at IIMB and coordinates the MPEFB (Management Program for Entrepreneurs and Family Businesses) program, which is open for applications and scheduled to begin on July 25th 2022.
Last Updated :
June 17, 22 10:47:19 AM IST