Indian family businesses show steady fall in promoter holdings

Fancy a family business? The reasons are not too far to seek. They enjoy a special advantage over others when it comes to decision-making speed, motivation, and values.

The point to note is promoters’ stake in these businesses is in decline as they stay on the growth path, according to a Kotak Wealth Management report. Many are becoming more widely owned and professionally managed, or acquiring others to grow.

Take Reliance Industries, the biggest player in the m-cap league, which is run by a family group.

There are challenges galore for such businesses as second and third generations are set to take the baton. Of late, issues like succession planning, integration strategies and dispute management have taken spotlight like never before.

Quite a few, in fact, are taking the challenges head-on by adopting modern practices.

The report comes as a revelation, which highlights main threats to family businesses as the difference of opinion among the older and younger lot and mismanaged expectations.

But the best part is the families concerned are resolving the issue by giving greater freedom to the young blood and allowing a greater say, grooming them to take over at an early age and involving them in key strategic decisions, the report added.

Not just that. Many families were even seen taking a more structured approach like drawing up a formalised family constitution.

Delhi-based value investor Ashish Chugh, in an earlier interaction with ETMarkets.com, had said the threat of family-run businesses is the succession issue. At times, it may even lead to a situation where the company starts to look like a battlefield.

“Decision making in family businesses happens with a long-term perspective since the owner knows he is going to be around, which may not be the case in a professional organisation,” Chugh added.