Converting Family Business Into A Corporate Entity
In our country industry segment has always been dominated by family controlled businesses. In the early seventies, when the entry into private sector was controlled by multiple layers of filters, business families represented most of the private sector initiated new venture creation. For a variety of reasons, business families chose to or compelled to manage their business venture in certain ways.
With a immature Stock Market and limited ownership outside the family, it was the responsibility of all the family members to take care of the health of their business. It is important to remember that in the seventies most of the private businesses were controlled by the family members of different business communities. Education and skills were considered secondary to own a business, only the non family employees used to be professionally qualified.
In other words, business was an opportunity for the family members to engage themselves role of the professional employees was limited to certain rung of the growth ladder This was particularly comforting when one thinks of a job reserved for you, which was also relatively easy in absence of open market competition of any significant level.
The main reason for promoter family to rely on it's own members to hold key positions was the automatic loyalty and trust they attracted from others, family and non family, including the creditors and bankers. In absence of computerisation, Enterprise Resource Planning(ERP), management Information System (MIS) and control were governed by manually managed systems and processes. These systems were pours. One can imagine the challenges of management control across enterprise when we have recent experience of large scale manipulationseven in the organisations with high quality ERP systems.
Most of the key decisions affecting resource management had dimensions of integrity and secrecy built in. It was impossible to trust any non-family member since systems were wak and internal checks were manual. Families relied on employees with long years of service to take critical decisions. Over a period of time, such employees' loyalty was tested and they and they got promoted if they scored high on loyalty card. It is not coincidental that people did not change job easily.
The effective nature of relationship between family members and non family employees was that of master and subordinate. This was because the boss, the family member would have the freedom as well as right to come and go as he wished, access to business funds for personal use, and also dictate employees as they wished. Children of a business family grow up like prince in waiting. They would be groomed with the qualities to demonstrate power as that was the only style of management that was assumed to work.
In most of the entrepreneurial context, there has been no effective separation of family and business. However as the business expands, it is supposed to be an independent entity with it's own identity. This did not happen so much in India in the past 40-45 years ago. And the business remain a subset of the family. This was primarily because of the continued dominance of senior level management by the family and poorly developed.
The wind of change was first experienced during the economic liberalisation and pressure to build competitiveness started blowing with Rajiv Gandhi became prime minister, There was spiral of change affecting every cog in the wheel that forces family business to sit up and take stock of their situation. Many understoodthe significance and several changed, some quickly and some slowly. This was a paradigm shift in the history of Indian Business. Unfortunately many family business still continue to live the shadow of past and struggling to survive.
But there is an exception to the rule, Dabur was a private limited company during the seventies, all key positions were held by owners, siblings and their cousins. But the transformation took place, the professional roles were given to professionals, they were allowed to take business decisions as well as business risk, family role was confined to family affairs. The result, today Dabur has transformed from small time aryurvedic medicines and product manufacturing company to Rs 6000 Crore FMCG company. Yesterday, I read in Economic Times that Mukesh Ambani's Reliance has also launches internal constitution to define processes and policies. This will help out in delegation of authority by rolling out DoA and link it with performance, will align DoA with over all policies and formal empowerment of employes. I feel that it may be a small step in the governance and transparency in our private sector, which is utmost needed if we want to compete with US and other Mega Corps in the global Market. Let us also see if many more industries and group follow the similar practices in letter and spirit.
With a immature Stock Market and limited ownership outside the family, it was the responsibility of all the family members to take care of the health of their business. It is important to remember that in the seventies most of the private businesses were controlled by the family members of different business communities. Education and skills were considered secondary to own a business, only the non family employees used to be professionally qualified.
In other words, business was an opportunity for the family members to engage themselves role of the professional employees was limited to certain rung of the growth ladder This was particularly comforting when one thinks of a job reserved for you, which was also relatively easy in absence of open market competition of any significant level.
The main reason for promoter family to rely on it's own members to hold key positions was the automatic loyalty and trust they attracted from others, family and non family, including the creditors and bankers. In absence of computerisation, Enterprise Resource Planning(ERP), management Information System (MIS) and control were governed by manually managed systems and processes. These systems were pours. One can imagine the challenges of management control across enterprise when we have recent experience of large scale manipulationseven in the organisations with high quality ERP systems.
Most of the key decisions affecting resource management had dimensions of integrity and secrecy built in. It was impossible to trust any non-family member since systems were wak and internal checks were manual. Families relied on employees with long years of service to take critical decisions. Over a period of time, such employees' loyalty was tested and they and they got promoted if they scored high on loyalty card. It is not coincidental that people did not change job easily.
The effective nature of relationship between family members and non family employees was that of master and subordinate. This was because the boss, the family member would have the freedom as well as right to come and go as he wished, access to business funds for personal use, and also dictate employees as they wished. Children of a business family grow up like prince in waiting. They would be groomed with the qualities to demonstrate power as that was the only style of management that was assumed to work.
In most of the entrepreneurial context, there has been no effective separation of family and business. However as the business expands, it is supposed to be an independent entity with it's own identity. This did not happen so much in India in the past 40-45 years ago. And the business remain a subset of the family. This was primarily because of the continued dominance of senior level management by the family and poorly developed.
The wind of change was first experienced during the economic liberalisation and pressure to build competitiveness started blowing with Rajiv Gandhi became prime minister, There was spiral of change affecting every cog in the wheel that forces family business to sit up and take stock of their situation. Many understoodthe significance and several changed, some quickly and some slowly. This was a paradigm shift in the history of Indian Business. Unfortunately many family business still continue to live the shadow of past and struggling to survive.
But there is an exception to the rule, Dabur was a private limited company during the seventies, all key positions were held by owners, siblings and their cousins. But the transformation took place, the professional roles were given to professionals, they were allowed to take business decisions as well as business risk, family role was confined to family affairs. The result, today Dabur has transformed from small time aryurvedic medicines and product manufacturing company to Rs 6000 Crore FMCG company. Yesterday, I read in Economic Times that Mukesh Ambani's Reliance has also launches internal constitution to define processes and policies. This will help out in delegation of authority by rolling out DoA and link it with performance, will align DoA with over all policies and formal empowerment of employes. I feel that it may be a small step in the governance and transparency in our private sector, which is utmost needed if we want to compete with US and other Mega Corps in the global Market. Let us also see if many more industries and group follow the similar practices in letter and spirit.
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