Family business

Retaining control over the business and passing it on to the next generation is the driving passion for Indian entrepreneurs, according to a recent study. The study says 46 per cent of Indian businessmen feel their successor should be from the family. In comparison, only 22 per cent of North Americans and 24 per cent of Europeans subscribe to this view. And as many as 57 per cent of the 185 Indian businessmen covered say the shares in a company should be transferred only to family members. The study makes for interesting reading inasmuch as it shows how unprepared are Indian family-owned businesses for the respected distinction between family, ownership and management.
This study is all the more interesting in the backdrop of the Ambani-versus- Ambani battle being fought in full glare of the media. Reliance Group patriarch Dhirubhai Ambani, who started as a small-time trader, built a $22-billion industrial empire in his lifetime. During his period he placed his two sons in managerial positions, and oversaw the generational transfer of ownership and control. As many as 461 of India's 500 most valuable companies are family-owned enterprises; many of them were once under single ownership but with the break-up of families after the passing away of the first generation, they are now individual entities. And most are pale shadows of their past glory. The best-known business families, the Birlas, the Modis, the Bajajs, the Singhanias, the Walchands, the Shrirams and the Sarabhais have seen brother battling brother for control and ownership. With the collapse of these families, their business empires have splintered into smaller entities. Many have disappeared altogether. Clearly, business and family should not be mixed.
The more irritating part of the family business in India is the way it takes the investing public for a ride. Though businesses are run by families, most of the money to run the business actually comes from the public by way of equity investment and debt provided by government financial institutions, which again use public money. In fact, the contribution of most Indian promoters to the companies capital will not more than 10 per cent, which means the entire money used to run a family business comes ordinary people, who but have no say in the management of these companies. And history has shown repeatedly how such families have got away unscathed while their business rotted and their stocks crashed leaving investors with worthless paper, as was the case of Nocil, once a bluest of blue chip stocks on the Bombay Stock Exchange, run by the Mafatlals. And one cannot for sure say whether Reliance, which incidentally bought Nocil recently, cannot have a different fate.

This is an editorial published in Oman Tribune