Leadership and Control in Family Business

Family businesses have played vital role in the evolution and development of Indian economy; the Birlas, Tatas, Ambanis and Bajajs to name a few. Single Family Businesses are unique in their blend of family and business. This combination of two distinct ecosystems makes them strong but complex too. Any business decision needs to be screened from business as well as family perspective as the interests may sometimes be conflicting. Though these businesses have large success stories in our country, the fact that they are short-lived cannot be ignored. It has been observed that most of the family businesses do not survive after second or third generation. As the family tree grows, there are differences in mindsets resulting into family clashes and further into split of the family business. Leadership and control has great influence on the success and survival of family businesses. History shows a change in leadership from one generation to another in such businesses can either pave way for growth and expansion of the business or can ruin it completely.

What is a Single Family Business?

In the past, family businesses were not given much importance and therefore only a few experts defined it. Over the time, the significance and economic contribution of these firms is recognized and many researchers made moves to explore the concept in detail. A simple definition is provided by Sharma et al (1996), “the family business is a business where the ownership and management are concentrated in a family. The members of this family are seeking to maintain intra-organization relations based on family relations.”The Basic idea behind family businesses is that the majority shares are possessed by the family members. These family members spread across generations and enjoy powerful voting rights in the business. Not only this, the family members enjoy most of the top management positions and take active part in management. Though these are not the essential characteristics for family businesses yet a common characteristic is that the leadership and control is basically rooted into the family.

Leadership and Control in Family Business

Paternalism has always been the basic leadership style in most of the Indian family businesses where the male family members are given command of the business. Since the top positions are mostly occupied by the family members, the outsiders have little scope to say in a family business. Family businesses enjoy several benefits due to centralized leadership and control including complete confidentiality of matters, quick decision-making, opportunity to utilize knowledge and experience of elder family members, retention of business know-how within the family, self-motivated top management, deliberate support during any crisis, ease of building supplier and customer relations, shared values and objectives, and the availability of family capital etc. But this is only one side of the coin; these firms also face unique leadership and control challenges.

Leadership and Control Challenges of Family Business

In most family businesses there is no bifurcation between ownership and management. Being involved in active management, the top management in family business hardly gets time to design strategies. The organizational structure generally follows the family hierarchy as a symbol of respect. But the elders may not possess required skills for current competition. Moreover, there may be rivalry and disharmony among family members for top position leading to ego clashes. In the absence of effective succession planning, the situation even goes worse. Sibling rivalry and lack of succession planning has been one of the major reasons behind split of many top family businesses in India. Further, family businesses offer little opportunities to the outsiders to have their say in business decisions. This limits the ideas and innovations. There are also bright chances of favoritism and biasness towards family members so employee conflicts are frequent and labor turnover is higher.

However the times are changing and awareness levels are improving. The need for succession planning is well realized and the family businesses are increasingly offering equal opportunities to the females in the family to occupy the top position. But succession planning alone cannot assure effective leadership and control. The job responsibilities must be clear and the successor needs to be well trained for the business before taking the responsibility.

References

  • Marriot, N. (2008). 3rd European Conference on Entrepreneurship and Innovation. The University of Winchester, UK.
  • Menon, V. (n.d.). “India’s Business Families: Redefining the Roles.” Retrieved from: http://www.isb.edu/FamilyBusinessConference/India’sBusinessFamiliesDefiningtheRoles.pdf
  • Ramachandran, K. (n.d.). “Indian Family Businesses: Their Survival beyond Three Generations”. Working Paper Series: Indian School of Business.
  • Ross, D. & Lashley, C. (2009). Entrepreneurship & Small Business Management in the Hospitality Industry. USA: Elsevier.

Ankita Agarwal

Analyst at Project Guru
Ankita is working with the editorial board of Project Guru as a Research Analyst and Writer. With Masters in Commerce and Business Studies, Ankita learned much of what she knows about management through experience. She has previously worked in various financial institutions like Birla Global, HDFC Ltd. and Citi Financial. She is self-motivated and writes for the Knowledge Tank section of Project Guru. She has authored more than 80 articles so far in Human Resources Management, Strategic Management, Finance and Marketing. She likes to pen her thoughts about the latest issues gripping these areas across the world.

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