Tatwamasi Thursdays – Strengths and Weaknesses in Family Businesses

An interesting case study is of Mr. Subbiah, the presiding head of the Murugappa Group, a family business that had been operating for the last 150 years, once gave a fascinating interview. As it turned out, he had worked out a transition for all the companies in the group from “family managed” to “professionally managed” companies by creating two separate boards: the governing board and the operating board. The governing board was made up of family members, and oversaw policy and performance in addition to ensuring that the business was aligned to the vision, mission and goals of the family. On the other hand, operating boards were composed of professionals, and were in charge of managing the day-to-day, year-to-year operations of the Group. Mr Subbiah revealed that this structure played to the strengths of family businesses in that family companies create and nurture a unique work culture across many decades, because they can provide an environment of continuity in their values. This is in stark contrast to purely professionally-managed companies, where the culture could change with every new CEO.

The founders and successors of the Murugappa Group have always been known for their simple way of living. Simplicity, lack of ostentation, eye for detail, yearning for perfection, were all hallmarks of the family, and these values permeated the companies and its employees. This was made possible thanks to Mr. Subbiah’s sound leadership that played to the strengths of both family and professional executives in the company, creating a synergy of a well run, professionally-managed company rooted in strong family values.

Another case is that of the Tata Group wherein, the effects of a family value driven family can be seen with Jamshedji Tata, founder of the Tata Group. Jamshedji wanted his home country of India to be self sufficient, and Tata therefore became a pioneer in textiles, power, steel, automobiles, and in software. He embarked on these giant projects at a time when few had the courage or the vision to make such long-term investments in India. In addition to these business driven investments, he helped to set up the Indian Institute of Science for basic research called the Tata Institute of Social Sciences to improve the intellectual capital of the country. These pioneering forays have now grown into world-renowned institutions over the last 100 years.

Today, the culture of Tata Group continues to bear the Jashedji’s stamp. Most of the profits of the Group go to the holding company Tata Sons, which in turn funds charities through various Tata trusts. Shockingly, the Tata Group prioritizes this culture of charitable giving over the compensations to the Tata family members, so much so that they are not counted among the top 100 wealthiest people in India!

 

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