Settle issues in family head's time: Bajaj

Rahul Bajaj, chairman of the Bajaj Group, today strongly advocated separation of ownership and management, clear division of equity holdings and management control of different group companies in the presence of family head to avoid messy squabbles in future.

Delivering the BMA Golden Jubilee Lecture in Mumbai on Wednesday night, Bajaj said family management was a global phenomena and training of successors as well as planning of succession are extremely important when the family head is around.

Pointing towards the role of new generation, Bajaj said the new generation sometimes tends to feel insecure about their capability and are thin skinned about criticism.

Add to that differences within families, typically between brothers. This is possibly why the life cycle of a family firm is said to be three generations.

Bajaj commented that the family management was having its own advantages and disadvantages. In family business, there is a deep commitment to the company. Promoters are not in a hurry to make money from the company.

Secondly, they are able to take a long view of the company, because quarterly results do not materially affect them. Their shareholding is for keeps and not for trading. Thirdly, there is much less jockeying within their companies. Relationships are stable.

At the same time, there are also higher chances of things going wrong in family companies, he added. Errors of the owner CEO cannot be corrected easily.

Also, over generations, the chances of failure increase since positions are not always hard earned, based on performance unlike in professional companies.

Of the 100 private sector companies with market capitalisation of over Rs 1,000 crore in India, in Bajaj's assessment, about 75 are family managed, 18 are subsidiaries of MNCs and 7 are managed by professionals.

He added that one can quibble about the numbers, but the overwhelming fact is of family management. In the auto sector, Toyota, Ford, Fiat, Peugeot, BMW or almost half of the top 10 companies have significant family ownership and/or management involvement.

In the last decade, there has been a move away from the simplistic "professionals good, family managements bad" clich"�.

This has been partly due to misconduct by professionals in Enron, Tyco etc. Even legends such as Jack Welch have been found lacking discretion. It is also because family managements bring some valuable things to the company, he added.