Family businesses face governance challenges

Family businesses face governance challenges

New Delhi: Indian business families currently face challenges that include forming a family council, attracting independent directors, opening up to private equity investments, and fraud risk management, according to audit and consulting firm Grant Thornton.

“At the time when family businesses are expanding, hiring professionals, being investing into by private equity firms, and going to different countries, it is important for them to have good governance, not only for the stakeholders who are members of the family, but for the other stakeholders as well," said Lav Goyal, partner, Business Risk Services, Grant Thornton India.

An estimated 95% of all the businesses in the country are family owned, according to a journal published by the Confederation of Indian Industry (an industry lobby) and Family Business Network, India. Out of the 30 companies that comprise the benchmark Sensex, 11 companies are family run and account for about 30% of the total market value of the Sensex.

“Governance plays two important roles. First, it safeguards the interest of the stakeholders and second, it increases transparency," Goyal said. “Family councils and independent directors are a healthy way of governance."

“In India, family businesses range from small to very large. The degree of relevance of these challenges depends on the size and the industry but the business will have to deal with them at some point," said Siddhartha Nigam

Partner, mergers and acquisitions, Grant Thornton India.

The mindset of business families in India has been changing and they are more open to changes related to structure, governance as well as to the issues related to private equity investments.

“Indian business families have always been hesitant in letting external capital flow in, as with money comes external stakeholders," Nigam said. “What these companies need to understand is that with infusion they are not bringing stakeholders but business partners, who would not only invest money but help these businesses to deal with risks related to management capability, competition,organic versus inorganic growth etc."