Perspectives from ISB

In study done by the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business, significant trends in transition in family businesses were noticed.

Leadership in family business seems to be undergoing a phenomenal change. While earlier it was autocratic, now it is gradually becoming participative. The younger generation is joining the family businesses and increasingly taking up leadership roles. The senior generation has begun to regard them as capable and well-trained professionals. Some family firms have adopted radical changes in leadership style whereas at the other extreme of this continuum there still remain some firms that are being lead in traditional ways.

Succession planning was something almost unheard of among family firms just about a decade ago. Following the family hierarchy was the usual norm when it came to leadership succession. There was lack of clarity on roles and responsibilities of family members. However, family firms seem to have now learnt the importance of succession planning. The elder generation has also started to realise the importance of professional training and grooming of the younger generation to take up business responsibilities in future.

Wealth management in Indian family businesses largely remains the domain of the family. Family businesses were found to predominantly manage their wealth at the family level. Though many families have begun to take help of professional wealth managers, a significant number of family business owners are not satisfied with the existing wealth management practices and see scope for improvement in this area. An interesting shift in that area is being witnessed with family firms opening to external sources of funding and throwing themselves open to financial scrutiny. This indeed seems to have become a virtue out of the necessity for funds to propel business growth.

Family business owners have realised the importance of harmonious relationships among family members for achieving business success. They have begun to establish communications forum to help family members reach out to each other, sort out differences and have cordial relations. Family firms are slowly beginning to formulate clear guidelines for compensating non-participating family members. Retirement and estate planning is being done in many of the progressive family businesses.

Family firms are increasingly moving towards a professional approach to managing businesses. They are defining clear roles and responsibilities of all family members. In a positive move towards good corporate governance, progressive family firms are also ascertaining the accountability of family members and clearly communicating it to them. However, still processes are more flexible for family members than non-family members. Non-family members are actively scouted for their talent and are gradually being given freedom to make key decisions. Family firms are moving towards establishing stronger systems and processes.

Another trend that emerged from the study is the separation of ownership and management which is being increasingly realised by family business owners. They are gradually beginning to view business management and family ownership as two distinct phenomena. Consequent to this understanding is the realization that management and ownership may have conflicting goals that need to be balanced.

Though it sure has begun, the transition of family business towards modern management is quite a gradual process. Many family firms are yet to implement progressive changes. However, there is widespread recognition among the family business leaders that their businesses must alter the traditional ways to make space for modernity if they need to sustain. Family firms need to shake themselves out of the status quo, overcome the resistance to change and effectively reform their business. Many Indian family firms have taken lead in their march towards professionalisation and modernization. This transition bodes well for India and is a reflection of a nation that is changing for better. The future of Indian family businesses certainly appears to be promising.

Source: Kavil, Ramachandran and Bhatnagar, Navneet, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, 2012,

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