‘Balancing business, family difficult but achievable’

NAGPUR: “Lack of proper governance within the entity is generally observed that results in 30% of

family

businesses in the small and medium enterprise (SME) sector being passed on to the second generation, 13% to the third and only 3% to the fourth,” said

Rajiv Agarwal

, a consultant, on Wednesday. However, a ‘family constitution’ can help resolve the issues, if any, he added.

Discussing the topic at a city hotel, organized by Entrepreneurs’ Organization, Agarwal said that family-owned businesses find it hard to survive through generations as members find it difficult to maintain equilibrium between prioritizing family and business.

Agarwal stated the importance of family businesses across the world, saying they contribute about 75% to the gross domestic product (GDP) globally.

“The most important thing is to understand what objectives you want your business to achieve,” he said. According to Agarwal, a ‘family constitution’ will lay down set rules and by-laws on how the business will be managed and what kind of benefits the members will get.

“Many large companies which are family owned use a family constitution. They prescribe the eligibility for a family member to enter the business, remuneration to owners and redressal of disputes within the family,” said Agarwal.

Agarwal also stressed that needs of each family and their business is unique and therefore forming a set of rules of governance to fit these specific needs is important.

“A very basic form of governance would be forming a family assembly which will include all family members who do and don’t own shares in the business. But they don’t directly communicate with the independent board of directors. That will be the job of the family council comprising members representing both the shareholders and non-shareholders,” said Agarwal.

He said it is important to get rid of wealth reducing assets as they can impact the longevity of any business. “This happens when siblings running a business get the same things. For example, if one sibling buys a car worth Rs60 lakh, others will do the same. This hampers the growth of a business,” he said.

Siddhesh Sharma

, president of

EO

said, “The organization holds such programmes for entrepreneurs as a learning opportunity from the best minds in various industries.” EO organizes discussion sessions on various facets of business operations with experts in finance, business management, production, marketing and other aspects.


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