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Family-run businesses: Risks and reward at same time

Family-controlled large business houses may be strong pillars of growth for India Inc, but experts warn that their internal feuds and succession issues also pose significant risks.

PTI|
Last Updated: Feb 05, 2012, 03.59 PM IST
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NEW DELHI: Family-controlled large business houses may be strong pillars of growth for India Inc, but experts warn that their internal feuds and succession issues also pose significant risks -- not only for the groups themselves, but for the entire economy as well.

Many of the biggest corporate groups in India have their majority shareholding with the promoter families and the top management personnel of some of these businesses houses also include persons from the largest shareholder family.

According to a study conducted by global financial services major Credit Suisse, two out of every three listed companies in India are family-controlled, making it the country with highest presence of family businesses in Asia.

However, India has also seen a number of family feuds in the large corporate houses and their business interests have been hurt on many such occasions due to such disputes.

Another study by Barclays Wealth found that 40 per cent of world's wealthy population has direct experience of their family fortunes leading to disputes, but the percentage is even higher in India, where 61 per cent of the rich have seen relationships deteriorate into feuds over money.

"...transfer of their (wealthy individuals) material, income-generating creations to their human, cost-incurring ones can be an extremely daunting proposition," it said.

Asked whether family feuds are inevitable given the huge fortunes being at stake, auditing and consultancy major Grant Thornton India' National Managing Partner Vishesh Chandiok told PTI that "family businesses are faced with unique threats that must be identified and addressed as they arise."

"Successful FMBs (Family Managed Businesses) carry out ponderous wealth creation over the years. However, feuding may become a cause of destruction of the created wealth," he said.

"While success of the business is affected, this is not the only loss. A threat to personal relations is a bigger loss which results from a lack of understanding of how the family interacts with the business and the rules within a family," Chandiok noted.

He said there are some well-established governance and communication structures in vogue in the West to address such issues and these are being replicated in India also.

Experts say that the promoter families can hire external professionals to lead the growth and further changes could be seen in coming years, given the trends like generational shifts and globalisation that mandate a higher level of corporatisation, transparency and competence.
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