Governance Practices in Family Enterprises: A Study of Selected Indian Family Enterprises

Abstract

The word (good) governance is a current buzzword not only in management literature but also in every walk of life. It implies how an organisation is directed and controlled under a set of mission, values, and philosophy (Cadbury, 1992). But unfortunately, over time, the common investors all over the globe have suffered a lot in the hands of the greedy managers and scams like Enron, Adelphia, Tyco, Worldcom, Xerox, Paramalt, and Satyam have shattered the trust in the very mechanism of corporate management and governance. However, despite a lot of initiatives had been taken around the world in the form of codes/laws for ensuring good governance for corporate sector, the issue of governance practices of family enterprises operating in India had not been discussed in detail. But, in view of the contribution of the family enterprises to Indian Economy over the years, a renewed interest on their governance mechanism is the need of the hour. Family businesses have many things going for them - they tend to be flexible,reliable, and proud, they can think long-term, have a strong culture and their people are committed. But they can also carry a daunting set of disadvantages - they can be rigid, inward-looking, and unresponsive to change and sometimes swamped by emotional issues. It’s a fascinating and complex mixture of advantages and disadvantages, costs and benefits, strengths and weaknesses. The larger a business-owning family becomes the more complex and diverse it becomes; and developing the skills required to forge a common agenda and resolve differences among family shareholders involves great challenges. Creating effective and transparent governance enables discussion and resolution of the complicated and often emotional family, ownership and business issues that confront mature family companies. Family members, therefore, need to devise strategies that help them to approach the business in a unified way, and they need to learn to communicate and share their thinking about the critical issues the family must face up to. Starting from Tata to Birla, Ambani, Goenka, Ruia, Mittal etc. Corporate India had a long heritage of domination of family governed firms. They contribute significantly towards economic growth of the country, employment generation, boosting up Gross Domestic Production as well as accumulation of foreign reserve through growth in export and also engaged into cross border Merger and Amalgamations. However, time and again the issues of governance and succession policy had perturbed the smooth sailings of these family dominated firms in India. Recent examples like clash between Ambani brothers, inheritance issues in Birla clan proved that case. In this backdrop the present study is a humble attempt to enquire the state of affairs of corporate governance in major family dominated firms in India.