Why India's family businesses continue to thrive across generations and market disruptions

For years, the alchemy of family businesses, evoking images of overbearing patriarchs and subservient professionals, has baffled governance gurus and tested the tenets of B-school teaching.

Garden variety commentaries have harped on how whims and ends trump rationale and ethics in such organisations.

But these critics have not swayed investors betting on the stocks, the institutions bankrolling them, and the markets using cold realism to reward many with valuations that defied sceptics. Why? The elements of that secret sauce, helping some grow while others shrank, was revealed at the ET Family Business Awards on Wednesday evening.


Also Read: ET Family Business Awards - How India Inc's next generation is balancing legacy with innovation

“If I was a betting man, I would say family businesses which are strong today will not only survive but flourish decades later,” said former Sebi chairman M Damodaran at the event. “From the outside, the patriarch may appear like a person for whom it’s always ‘the highway or my way’ but these persons bring a lot to the table. These groups are better in planning succession, address conflicts without outsiders getting to know. The very thinking that patriarchs should step aside and bring in professionals is baseless.”

Having led the capital market regulator during some of its most turbulent phases, he’s closely observed the changing fortunes of India Inc.

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Addressing some of corporate India's sharpest minds and largest wealth creators, Damodaran added a dash of his sardonic wit to the keynote speech: "Professional-run companies are not always professionally run. I don't want to go into them and spoil your evening."

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What's overlooked is how family businesses, some over a century old, are adapting to changing circumstances. Many families now have a charter that balances the 'legacy' and 'hustle' -- twin forces of shared values and rules best mastered by such groups--as they preserve inheritance and explore new territories, said Vishal Kampani, managing director of JM Financial, while participating in a panel discussion at the awards ceremony.

Guiding principles are not rules in perpetuity, but a framework that must be kept flexible, said Abhijit Joshi, founder of law firm Veritas Legal.

A feature that captures the evolving nature of a number of houses is their interplay with private equity players, often perceived as domineering partners with fat cheque books.

The PEs, said Kampani, are no longer seen as just a source of capital but are considered partners that instil pre-listing discipline, lend experience in diversification, and iron out differences among family members over critical choices such as dividend payouts versus growth.

Trusted brands, according to Godrej & Boyce executive director Nyrika Holkar, are often linked to families, and while quarter-on-quarter growth counts, the commitment to patient - not passive - capital, even when returns are not forthcoming, is a differentiator. Often an unstated framework, along with a sense of informality followed by consultation with the boards, shapes capital allocations, said Apurva Parekh, executive vice-chairman at Pidilite Industries.

Since a decade, capital contribution from family business groups has pursued another path, albeit indirect, yet significant. Many groups associated with traditional businesses and trusted brands are betting on new ideas and innovations through family offices, said Kampani. Large US family offices have played a key role in deepening the American venture capital pool in backing entrepreneurs, new businesses and technology.

"It's difficult to replicate the passion that a family brings in... I would call it 'family-in-business' rather than a 'family business'," said Anchit Nayar, chief executive of beauty ecommerce at Nykaa. Few probably would differ. However, even as next-gen members learn by osmosis, their ability and willingness to handle complexities amid changes in the external environment is reducing, Joshi said.

Indian family business houses that survived the 70s era of 97% marginal rate of income tax and navigated the licence-permit raj, were stunned by the 1991 liberalisation.

"It was a seminal moment for family businesses. People wrote their death sentence. The prominent houses who set up the Bombay Club to stave off foreign competition are the most successful today," said Rajiv Memani, chairman and chief executive of EY India.

With so many twists and turns, the story of family businesses that beat the odds may never cease to fascinate.