What is the story about?
Family-run enterprises are characterised by the centralisation of control of all business affairs and key decision-making within the members of the same family. As more generations are added to the mix, the process of running the business becomes more complex over time due to differing opinions, ambitions and interests of family members, often reinforced by traditional family hierarchies that influence business conduct and can limit the ability of younger members to voice alternative perspectives.
Traditionally run through brick-and-mortar stores, globalisation has changed that for these businesses. Now they must expand beyond their existing regions to tap into a wider customer base to stay competitive. Their flexibility to navigate the evolving market dynamics and adapt quickly will determine their progress in future.
According to Deloitte’s report on family enterprises titled Resilience and growth: Perspectives of Indian business, continuity for family enterprises depends on governance anchored in fairness, transparency and accountability to all stakeholders—not just the family—so that trust compounds over generations.
Deloitte cautions that “asymmetry” in benefits or information between owner-managers and other stakeholders erodes trust; leaders must “walk the talk” so the culture consistently reflects the values they espouse. Most family-run enterprises across the world skirt around the decision to make a succession plan. Apart from deciding who will take the baton forward, the owner’s emotional ties with both business and other family members make it a sensitive topic.
The hallmark of a successfully run entity is the proclivity of its leaders to be objective when making critical decisions. However, this becomes complicated in family businesses as owners are more likely to take a subjective approach due to existing biases. Moreover, their personal relationships might lead to short-sighted actions. Weak governance practices, unclear roles, and lack of formal policies and formal communication channels further complicate succession planning.
To counter this, Deloitte’s family enterprises report recommends codifying a “family constitution” with clear entry/exit norms and conflict-resolution pathways, and running merit- and values-based succession overseen by an empowered board rather than lineage alone. The report highlights early, formal succession planning and staged leadership development for next-gen as practical guardrails.
Bringing independent directors into the picture
Family businesses do not want to compromise on the values and heritage they worked so hard to build. They want to remain competitive without losing their traditional strengths, which often makes them reluctant to bring in external professionals. The answer to their quandary lies in bringing independent directors who do not have any form of relationship with family members.
Besides having an objective approach to management, they bring professional expertise and a balanced perspective, fostering rigorous, independent evaluation of issues and encouraging open and transparent deliberation on matters such as risk management, compliance, governance and strategy formulation. This helps them formulate a clear strategy that keeps both family and business interests in mind rather than focusing only on problem-solving.
Shaping more resilient boards
Independent directors play an integral role in upholding high governance standards and accountability within family-owned enterprises. On various occasions, arriving at a decision is preceded by disagreements. If there is animosity among family members, zeroing in on one solution becomes difficult. Independent directors help address such issues because their role extends beyond objective deliberations to include conflict resolution.
Their impartial position is also critical in reinforcing discipline around governance practices, particularly in ensuring a clear separation between business and family assets and cash flows, which can otherwise become blurred during periods of stress or emergency. The advantage of this impartial position gives them the freedom to ensure fairness in each business aspect.
Their key responsibilities also include maintaining regulatory compliance by keeping an eye on any potential irregularities, such as related-party transactions and undisclosed stakes. Keeping each stakeholder’s interest in mind, they put in place formal communication channels and governance mechanisms to shift decision-making from being promoter-driven (centralised within the family) to system-driven.
Bringing fresh perspective and credibility to family businesses
What makes an organisation successful is its ability to understand its customers and customise solutions to their needs. In family businesses, the rigidity to change often leaves little to no room for innovation. Independent directors help in facilitating open and inclusive discussions on emerging risks, competition landscape, upgradation of new technology, HR policies and senior-level talent hire, etc.
Most family businesses rely on their limited pool of funds for their pursuits. When independent directors join these businesses, they have no material interests. Their objective guidance can help raise funds by building investor trust.
As family businesses work towards their goal of scaling and gear up for generational transition, independent directors can support their efforts stay aligned with market dynamics. Through better governance and a strategic approach to balance family and business interests, they ply family-run enterprises with the tools needed to build for the future while sustaining their credibility in the long-run.
Traditionally run through brick-and-mortar stores, globalisation has changed that for these businesses. Now they must expand beyond their existing regions to tap into a wider customer base to stay competitive. Their flexibility to navigate the evolving market dynamics and adapt quickly will determine their progress in future.
According to Deloitte’s report on family enterprises titled Resilience and growth: Perspectives of Indian business, continuity for family enterprises depends on governance anchored in fairness, transparency and accountability to all stakeholders—not just the family—so that trust compounds over generations.
Deloitte cautions that “asymmetry” in benefits or information between owner-managers and other stakeholders erodes trust; leaders must “walk the talk” so the culture consistently reflects the values they espouse. Most family-run enterprises across the world skirt around the decision to make a succession plan. Apart from deciding who will take the baton forward, the owner’s emotional ties with both business and other family members make it a sensitive topic.
The hallmark of a successfully run entity is the proclivity of its leaders to be objective when making critical decisions. However, this becomes complicated in family businesses as owners are more likely to take a subjective approach due to existing biases. Moreover, their personal relationships might lead to short-sighted actions. Weak governance practices, unclear roles, and lack of formal policies and formal communication channels further complicate succession planning.
To counter this, Deloitte’s family enterprises report recommends codifying a “family constitution” with clear entry/exit norms and conflict-resolution pathways, and running merit- and values-based succession overseen by an empowered board rather than lineage alone. The report highlights early, formal succession planning and staged leadership development for next-gen as practical guardrails.
Bringing independent directors into the picture
Family businesses do not want to compromise on the values and heritage they worked so hard to build. They want to remain competitive without losing their traditional strengths, which often makes them reluctant to bring in external professionals. The answer to their quandary lies in bringing independent directors who do not have any form of relationship with family members.
UK Sinha, former SEBI Chairperson and retired IAS officer
Besides having an objective approach to management, they bring professional expertise and a balanced perspective, fostering rigorous, independent evaluation of issues and encouraging open and transparent deliberation on matters such as risk management, compliance, governance and strategy formulation. This helps them formulate a clear strategy that keeps both family and business interests in mind rather than focusing only on problem-solving.
Shaping more resilient boards
Independent directors play an integral role in upholding high governance standards and accountability within family-owned enterprises. On various occasions, arriving at a decision is preceded by disagreements. If there is animosity among family members, zeroing in on one solution becomes difficult. Independent directors help address such issues because their role extends beyond objective deliberations to include conflict resolution.
Their impartial position is also critical in reinforcing discipline around governance practices, particularly in ensuring a clear separation between business and family assets and cash flows, which can otherwise become blurred during periods of stress or emergency. The advantage of this impartial position gives them the freedom to ensure fairness in each business aspect.
Their key responsibilities also include maintaining regulatory compliance by keeping an eye on any potential irregularities, such as related-party transactions and undisclosed stakes. Keeping each stakeholder’s interest in mind, they put in place formal communication channels and governance mechanisms to shift decision-making from being promoter-driven (centralised within the family) to system-driven.
Bringing fresh perspective and credibility to family businesses
What makes an organisation successful is its ability to understand its customers and customise solutions to their needs. In family businesses, the rigidity to change often leaves little to no room for innovation. Independent directors help in facilitating open and inclusive discussions on emerging risks, competition landscape, upgradation of new technology, HR policies and senior-level talent hire, etc.
Most family businesses rely on their limited pool of funds for their pursuits. When independent directors join these businesses, they have no material interests. Their objective guidance can help raise funds by building investor trust.
As family businesses work towards their goal of scaling and gear up for generational transition, independent directors can support their efforts stay aligned with market dynamics. Through better governance and a strategic approach to balance family and business interests, they ply family-run enterprises with the tools needed to build for the future while sustaining their credibility in the long-run.
