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All in the family
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Family business is here to stay but the onus is on the younger ones to take it beyond the third generation
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BUSINESS MATTERS M.V. Subbiah PHOTO K. ANANTHAN
"The Reliance group break up is a classic example of the second generation break-up in family business.
Management of succession is vital in family run business," says M.V. Subbiah, advisor of Murugappa Group, Chennai.
He was in Coimbatore to talk on `Family Business Management - key issues and challenges,' at a gathering of management students organised by GRD School of Commerce and International Business.
Referring to the substantial contribution of family businesses to the economy of countries all over the world, he says that almost 60 per cent of employment in the country and 70 to 80 per cent of National Stock Exchange movement comes out of family business.
"Family businesses are here to stay and their performance is always better than their competitive non-family partners," he adds.
But, the flip side is that families lose their control over the business over the third generation, because more time is spent on developing business and very little on managing the family.
Lessons to learn
Why does it happen? "The founder who builds the company for 20 years becomes a dictator and is not willing to give up his position. As the saying goes `he died in his boots,' Ambani died as the chairman of Reliance and both the brothers wanted to take over. The necessity to plan the succession is very important in family business," he adds. Communication within family is very important.
The older generation believes in providing better education to the younger generation. Also in helping them gain experience outside or starting from the scratch in the family business by learning the facets of manufacturing and marketing, and grooming the person in getting along with others.
Putting in a structure
"The younger generation expects them to plan a smooth transition, clear family disputes and give them the freedom to be on their own. Introducing family members early in the business and putting a family governance structure in place is the key," he explains.
Parents tell the next generation when and what to do next.
"Instead they should find out what they want to do to better the growth rate. Be clear in ideas when you handover or just walk out. In most cases, the younger generation tends to become good managers rather than entrepreneurs. It is important to groom entrepreneurship and leadership in succession — something like running a bullock cart with two bulls. All five fingers cannot be the same but put together, they represent power and strength. Most successful families adopt this approach."
Planning succession is an extremely complicated process spread across four stages — family, ownership, management of the team and management of one's self and immediate family.
Rules of succession
"The family values get diluted when partners join. That's the reason companies in the U.S., Europe and U.K. develop a `constitution for family' with a flexibility to change," Subbiah explains. On issues like hiring inefficient people within the family, he says: "Transparency in family principles should be clearly understood by everyone in the family at a very young age to handle this issue. "
Subbiah started his career manufacturing sand paper and grinding wheel 43 years back and went on to become the chairman of Murugappa Group in Chennai.
"Family or non-family business, relationship with human beings is important. Listening to people and maintaining efficient people are important. Apart from physical aspects like the salary and allowances, motivating them to perform is vital," he adds.
Enjoy thyself
He had a message for the students too. "Change is the constant factor in life. In this age of globalisation, you cannot live in isolation. Academic institutions do not prepare people for the industry. Use your head to think and be quick on your feet. Try and loosen and enjoy yourself. If the college is not encouraging change, you should take the step," he explained.
K. JESHI
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