Family Business Governances issues and strategies
By S V M Sastry
Senior Advisor - PFBI
January 21, 2015
Two sutras for family business success are,
a. Reactivity to Proactivity
b. Resistance to Resilience
Family Businesses contribute to 70- 80% of the GDP of the respective countries,
70% of the employment, posted better performance over the non-family owned companies
and survived down turns better than non-family owned companies.
The good news about family business is that there are many family businesses world
over prospering through multiple generations by being / staying together. However,
on the flip side, only 30% of the family businesses survive beyond the second generation
and barely 3 to 4 % of them make it beyond the 3rd generation.
a. Reactivity vs Proactivity
Human behavior is very well described in the Mahabharata in a story about 3 fishes
in Shanti Parva.
- A proactive person who establishes preventive measures is called Anagatha Vidhata.
- The person who uses his presence of mind and finds a way to defend himself or to
get through a situation is called "Pratyunnamathi"
- There is the third category of persons called "Deergha sootris" who in all
circumstances procrastinate, delay unnecessarily and ultimately perish.
People who belong to the first category will live happily under all circumstance.
The second category of people have a good chance to use their presence of mind and
survive, but sometimes their strategies might not work. Most of the attitudes of
human beings fall into one of these categories and the family businesses are no
exception as to how they respond to a situation.
In Family businesses, those who survive through generations by being proactive are
like "Anagatha Vidhata". They are alert, can see the big picture and act
quickly & comprehensively. They are high in ethics and governance. These are proactive,
progressive and responsive families.
Those who are like “Pratyunnamathi” exhibit presence of mind, situational
intelligence, and improvise every time they confront a problem. They manage to overcome
problems most of the time, however, they might not be successful all the time.
The other extreme category is “Deergha sootris”, who do not wake up till
the problems arise, adopt a callous attitude “let us not touch till it isn’t broke”.
They push aside major issues like succession, ownership and conflict management.
This attitude leads to a situation either ‘nothing can be done’ or ‘ it is too late’.
Most dangerously they may try to solve business problems with solutions in the family
or vice versa. Such solutions lead to splits in the family or sale of the company
in course of time.
...To be continued