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Family business under threat: McKinsey

BS Corporate Bureau

The next 10 years will see most family-owned businesses coming under threat because of conflict of interests among members of families, according to a McKinsey study.

Addressing a seminar "Competing in Challenging Times", organised by CII, McKinsey Director Ashok Alexander said family-owned businesses must introduce best practices and lay down clear rules on governance and leadership.

The study included 30 leading family-owned businesses in the country. Around 80 per cent of the Indian companies are family-owned.

"The family-owned businesses are giving lip-service rather than bringing in best practices. Our study reveals that these Indian firms are severely threatened."

Such businesses are moving towards third-generation ownership, the most critical phase. However, their counterparts in the West had been wiser in this regard and had introduced best practices, Alexander said.

It came to light at the seminar that only 7 per cent of the fully family-owned businesses have survived beyond the third generation.

Alexander stressed the importance of establishing a clear and valid role for the family in a business and equal treatment of professionals and family members in remuneration.

He also touched upon the issue of leadership. "Building leadership among family members and defining their roles within a family are the key to success. Also, family members who remain outside a business should not try to exert much influence," he said.

Anand Burman, Deputy Managing Director, Dabur India Ltd, said families should understand the difference between family-owned businesses and family-run businesses to strike a balance. He reiterated that family members might not be the most competent.

"In case family members are not equipped to handle a business, professionals should be recruited," Burman said. Incidentally, Dabur is an family-owned firm whose ownership is now with the fifth generation of the Burman family.

Arun Bharat Ram, Vice-Chairman, SRF Ltd, noted that disputes, jealousies and differences in style led to disintegration.

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