*Family Business.Entrepreneurship DevelopmentModule 05.ii semester MBAVTU Syllabus.

*Importance of Family Business.Family owned business play a crucial role in the economy of most countries. Much of the retail trade, the small scale industry, and the service sector are run by family businesses. World wide, family managed businesses employ half the worlds work force and generate well over half the worlds gross domestic product. In India, family owned business have played and will continue to play a central role in the growth and development of the country. Indian family business have been and will continue to be key drivers of the economy and what changes these business need to undertake to continue to succeed.Worlds oldest family documented family business is a construction company - Kongo Gumi based in Osaka, Japan was founded in the year 578.

GSSSIETW-IMS MYS P.K.KUMAR.*Importance of Family Business.Some of the statistics of family business of interest is as follows;75% of registered companies of the world are family businesses,One-third of fortune 500 has families at their helm,50-60 % of the workforce in the world are engaged in family controlled businesses,In India 95% of the registered firms are family business.

Some facts about Indian Family Business by global financial services major -Credit SuisseIndia has the highest percentage of family businesses in Asia, accounting for 67 percent of the listed companies with market capitalization of more than $50 million. The study reveals that 663 out of 983 listed Indian firms were familybusinessesand they account for half of all corporate hiring. Family businesses in India account for 46.8 percent of the total market capitalization. The study, also found that the family-controlled businesses were delivering impressive investor returns and have been crucial sources of wealth and job creation

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Indias Top Family run businessReliance TCSBharathi AirtelWiproJindal Group

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GSSSIETW-IMS MYS P.K.KUMAR.*Family Business Indian Perspective.Family businesses have existed in India since time immemorial. With time, the contribution of family businesses has gone beyond simply paying taxes and employing people. Some family name is synonymous with business Marwaris, Saits etc. During the last 100 years or so, Indian family businesses have made significant contributions in three areas;The Freedom Movement,Spirit of Entrepreneurship,Philanthropy

The freedom movementIn the early years, firms were created to pursue ideals such as import substitution and economic freedom from the colonists.

Ex: The Godrej enterprise, was started by Ardeshir Godrej in 1897 with a vision to promote Indias economic freedomGSSSIETW-IMS MYS P.K.KUMAR.*

Spirit of entrepreneurship Family business have done an excellent job of keeping the spirit of enterprise alive especially through the years of quasi-socialism.

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Indian family business have played a significant role in giving back to the community.

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Philanthropy by Tata GroupThe Tata Group has helped establish and finance numerous quality research, educational and cultural institutes in India.The Tata Group was awarded the Carnegie Medal of Philanthropy in 2007 in recognition of the group's long history of philanthropic activities.Some of the institutes established by the Tata Group are:Tata Institute of Fundamental ResearchTata Institute of Social SciencesIndian Institute of ScienceNational Centre for Performing ArtsTata Management Training CentreTata Memorial HospitalTata Football Academy

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The Giving PledgeAzim Premji has become the first Indian to sign up for theThe Giving Pledge, a campaign led byWarren BuffettandBill Gates, to encourage the wealthiest people to make a commitment to give most of their wealth to philanthropic causes. He is the third non-American afterRichard BransonandDavid Sainsburyto join this philanthropy club

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GSSSIETW-IMS MYS P.K.KUMAR.*Family Business Indian Advantage.Family businesses in India have several inherent advantages that provide them with unique strength;Trust lowers transaction costs,Small, nimble and quick to react,Information as a source of advantage.

GSSSIETW-IMS MYS P.K.KUMAR.*Family Business Definition.There are various definitions of a family business. However, in general, a family owned business is one:In which two or more extended family members influence the business through the exercise of kinship ties, management roles, ownership rights and/orWhich the owner intends to pass a family heir.

GSSSIETW-IMS MYS P.K.KUMAR.*Family Business Definition.From the point of study, the definition of family business is divided into two. One defines on the basis of structure of the business while the other based on the process of administration.

Structural Definitions- these definitions focus on the firms ownership or management arrangements (1) Legal control over the business by family members (2) Single family effectively controls firm through the ownership of greater than 50 % of the voting shares; a significant portion of the firms senior management is drawn from the same family

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Process Definition these definitions stress on how the family is involved in the business(1) transfer of ownership across at least two generations. (2) Continuous relationship between family & business.

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GSSSIETW-IMS MYS P.K.KUMAR.*Various Types of Family Business.There are three types;A family owned business, (Mohan Bhandar)A family owned & managed business,( GSSSIETW)A family owned & led company. (Reliance).From the above it is evident that family business encompass three major issues upon which ownership rests. Tagiuri & Davis set these three into a structure called the 3 Circle Model of Family Business. It comprises of three systems representing family, business and ownership.

GSSSIETW-IMS MYS P.K.KUMAR.*Governance of the Family Business.There are three components to family governance. (i) family periodic assemblies,(ii) Family council meeting,(iii) A family constitution.From the perspective of management & decision making each of the above meeting is of immense importance as they encompass issues such as :Expansion, Employment of members, Distribution of dividends,Succession process etc.

GSSSIETW-IMS MYS P.K.KUMAR.*History of the Family Business.Recording of the family history is one of the major issues & characteristics of family owned business. There are many reasons to create a formal history. A few of the more important are as follows;Founders vision & mission,Historical accuracy,Honoring long time employees,Thanking customers & vendors,Back ground for the uninformed.

GSSSIETW-IMS MYS P.K.KUMAR.*Benefits from the History.Set the record straight,Acknowledge the perseverance of founders,Interdependence between firm & community,Succeeding members can have a resource to enhance legacy,Builds confidence among clients, customers, communities/societies, vendors, financers, new & old,Source of renewed energy & motivation for succeeding generation,Source for company reputation, PR kit, Valued treasure that is intangible, lasting impact & true legacy.

GSSSIETW-IMS MYS P.K.KUMAR.*Responsibility & Rights in family business.Be knowledgeable about company operations (product, service, design, location, competitors etc),Be knowledgeable about finance, performance reports,Attend shareholders meetings,Understand board members, their skill & talents, requirements of the same too,

GSSSIETW-IMS MYS P.K.KUMAR.*Responsibility & Rights in family business.Be constructive in suggesting & be part of the management process without being a interference.Be a positive representative of business,Publicly support management decisions,Keep necessary business information in strict confidence & be aware all shareholders are not entitled to all information of business.

GSSSIETW-IMS MYS P.K.KUMAR.*Responsibility & Rights in family business.Where possible & useful, generate business leads and new business links,Where possible and useful, provide additional investment capital,Keep afloat the family name, family business & respect in society, more so in public life,Enhance the feeling of trust & dependability* & be resourceful person available on demand.

GSSSIETW-IMS MYS P.K.KUMAR.*Rights.Timely information about business strategy, important organizational changes, financial status,Candid views of board & other shareholders on management matters,The ability to participate in the election of board of members,Fair policies to protect weak members,Acceptable economic performance & reasonable returns by way of dividends & capital gains.

GSSSIETW-IMS MYS P.K.KUMAR.*Succession in Family Business.The succession plan should include the following; Key goals for succession process, A schedule of the transition stage, Contingency plan.Family businesses need to recognize the biological time clock ticking away among their members.

GSSSIETW-IMS MYS P.K.KUMAR.*Successful Business Succession PlanFor success full business succession plan the following points may be noted;Family members to put business interest ahead of the family interests,Importance to merit over family positions,Describe & discuss the role of members during transition period namely full time, part-time, retire etc.

GSSSIETW-IMS MYS P.K.KUMAR.*Successful Business Succession PlanFamily dynamics alternate plan to work,Compensation for working members & shareholders,Treatment of loyal employees,Tax implications & consequences,Periodical review & meetings to nip mistrust & misunderstandings.

GSSSIETW-IMS MYS P.K.KUMAR.*Pit Falls of the Family Business.Lack of focus & strategy,Nepotism in family,Lack of professionalism,Inability to separate the family interest from the interest of the business,Sibling rivalry in the family business,Dispute over assets & valuation of properties.

GSSSIETW-IMS MYS P.K.KUMAR.*Strategies for improving capability.Family firms must be able to professionalize,The demise of disjoint family,Replenishing entrepreneurship,Good Management,Ability to change & adopt,Have a strategic plan,A mercurial board at helm of affairs.

GSSSIETW-IMS MYS P.K.KUMAR.*. End of Module 05.