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Indian family biz going through change: study

business Updated: Jun 28, 2012 00:58 IST
HT Correspondent

India’s family-run business conglomerates, which relied on their manufacturing abilities to create wealth, fared even worse when it came to performance appraisal of family members, a new study said on Wednesday.

According to the report Challenges faced by family businesses in India released by the Indian School of Business (ISB), 56% respondents disagreed that the performance appraisal was done for family members (serving the business) as it was done for non-family executives. “But unfortunately, as a consequence, many business family members were not penalised for non-performance as was reported by 66% respondents,” said professor Kavil Ramachandran, who authored the report.

Indian family businesses are also learning to release their control where the decision-making authority, once the exclusive domain of the eldest family member, is gradually becoming participative. “Around 51% respondents disagreed that the eldest family member’s decision cannot be questioned, which means that family firms are progressively evolving from authoritarian control to an inclusive leadership,” the study said.

The concept of succession planning is increasingly creeping in the family business culture, said Ramachandran. Around 49% of respondents were sure of complete clarity on succession plans.

“It was something almost unheard of among family firms just about a decade ago,” said Ramachandran. “However, Indian families have consciously started making proper documented succession plan.”

While surveying over 300 family-run businesses across India, whose annual revenues varied from Rs. 50 crore to Rs. 300 crore, the study found that family firms are opening up to external sources of funding and throwing themselves up to financial scrutiny. “Many families have begun to take help of professional wealth managers,” said Ramachandran.

“Otherwise, the traditional business family’s intent to keep financial matters behind the closed doors was a hindrance to growth of family business,” he added.