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Indian business families prefer written policies

Posted on Feb 26 2014 | IANS

Chennai, Feb 26 : There is a huge interest among the members of Indian small and medium sized business families to have a written constitution detailing policies and procedures, finds a study.

"Absence of policies and processes in critical operational business areas leads to family disputes and business break up," Kavil Ramachandran, head Thomas Schmidheiny Chair Professor of Family Business and Wealth Management, Indian School of Business, said Wednesday.

"Members of family businesses should realise the changing socio-economic values and draw out written policies and procedures on various governance issues," Ramachandran added.

He was speaking to reporters here on his study on 'Togetherness in Indian Family Businesses'.

Citing his survey, he said majority of the respondents managing family-owned enterprises have realised the importance of staying together rather than splitting the business.

"Staying together gives the business strength, brand power and other benefits which the current generation has realised," Ramachandran said.

Out of the 276 respondents to his questionnaire, 66 percent were below 40 years of age and 70 percent of them were first generation businessmen.

He said Indian business groups like Dabur and GMR have written family constitution/policies/procedures on different aspects of managing business and the emerging scenario.

"Ideally, business families should draw up the constitution before the second generation kids grow up. The constitution would detail the succession procedure, in-laws/woman in the management, funding of new ventures by the promoter siblings and others," Ramachandran said.

While agreeing that the rule of the land would prevail over such charters, Ramachandran said a written charter would make things clear on several other aspects that crop up in a family-run business.

"However, shareholders agreement between the promoters and other such agreements are legal contracts," he added.

"Family business experiences a split when the founder or the patriarch passes away. Generally, a family remains as one till the 'Chief Emotional Officer' generally the mother is there..." he said.

Ramachandran said that though family togetherness is often talked about, the complexities are huge and is not uni-dimensional.

He said there is absence of open communication amongst large number of family members and lack of clear policies on spending or sharing of wealth.

The geographical spread of business and family members managing operations at various locations often results in reduced communication between them.

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