 "40 Years Ago... and now: The way families managed their businesses")
Dabur was essentially the Burman family for four generations and a span of about 100 years. In 1974, it became a small private limited company with Dabur shifting its base to Delhi from Kolkata. Following the footsteps of the founder, all Burmans grew up with the preparedness to join the business, after completing education. In the early 70s, five cousins of the fourth generation were responsible for the key jobs at the company. This tradition continued for another quarter of a century before the family decided to separate ownership from operational management of the company. Dabur went through multiple rounds of metamorphosis to become one of the most successful FMCG companies in India with a turnover of Rs 7,000 plus crore now.
Dabur successfully moved away from some of its business practices through introspection and self-realisation. But many did not, and paid a heavy price for their lethargy. We will discuss some of the key features of how business was done in India 40 years ago.
Indian industry has always been dominated by family-controlled businesses through numbers, range of activities and entrepreneurship. In the early 1970s, when the entry into private sector was controlled by multiple layers of filters, business families represented most of private-sector-initiated new venture creation. For a variety of reasons, families chose to or were compelled to manage their business ventures in certain ways.
Business as family responsibility
With an immature stock market and limited share ownership outside the family, it was the responsibility of all family members to take care of the health of their business. It is important to remember that in the 70s most private businesses were controlled by the members of different business communities. In most instances, education was considered secondary to learning on the job. Only the non-family employees used to be professionally qualified. That is why we have been categorising key employees as "family and professional".
In a different way, business was an opportunity for family members to engage themselves. This was particularly comforting when one thinks of having a job reserved for you, which was also relatively easy in the absence of open market competition of any significant level.
Loyalty as the source of trust
One of the reasons for a promoter family to rely on its own members to hold key positions was the automatic loyalty (and trust) they attracted from others, family and non-family, including creditors and bankers. In the absence of computerisation, enterprise resource planning (ERP) and internet, management information system and control were governed by manually managed systems and processes. These systems were porous. One can imagine the challenges of management control across enterprise when we have recent experiences of large scale manipulations even in organisations with high quality ERP systems.
Most key decisions affecting resource management had dimensions of integrity and secrecy built in. It was impossible to trust any non-family member since systems were weak and internal checks were manual. Families relied on employees with long years of service to take critical decisions. Over a period of time, such employees' loyalty was tested and they got promoted if they scored high on the loyalty card. It is not coincidental that people did not change jobs easily.
The effective nature of relationship between family members and non-family employees was that of a master and subordinate. This was because the boss, the family member would have the freedom (and right) to come and go as he wished, access to business funds for personal use, and also dictate employees as they wished.
Family children grew up like princes-in-waiting. They would be groomed with the qualities to demonstrate power as that was the only style of management that was assumed to work.
Business as an extension of family
In most entrepreneurial context, there has been no effective separation of family and business finance. However, as business expands, it is supposed to be an independent entity with its own identity. This did not happen so much in India 40 years ago, and business continued to remain a subset of the family. This was primarily because of the continued dominance of senior level management by the family and poorly developed governance practices.
Changes since 1984
The winds of economic liberalisation and pressure to build competitiveness started blowing with Rajiv Gandhi becoming the Prime Minister of India. There was a spiral of changes affecting every cog in the wheel that forced family businesses to sit up and take stock of their situation. Many understood the significance and several changed, some quickly and some slowly. This was a paradigm shift in the history of Indian business. Unfortunately, many family businesses still continue to live in the shadows of the 1970s.
Dabur successfully moved away from some of its business practices through introspection and self-realisation. But many did not, and paid a heavy price for their lethargy. We will discuss some of the key features of how business was done in India 40 years ago.
Indian industry has always been dominated by family-controlled businesses through numbers, range of activities and entrepreneurship. In the early 1970s, when the entry into private sector was controlled by multiple layers of filters, business families represented most of private-sector-initiated new venture creation. For a variety of reasons, families chose to or were compelled to manage their business ventures in certain ways.
Business as family responsibility
With an immature stock market and limited share ownership outside the family, it was the responsibility of all family members to take care of the health of their business. It is important to remember that in the 70s most private businesses were controlled by the members of different business communities. In most instances, education was considered secondary to learning on the job. Only the non-family employees used to be professionally qualified. That is why we have been categorising key employees as "family and professional".
In a different way, business was an opportunity for family members to engage themselves. This was particularly comforting when one thinks of having a job reserved for you, which was also relatively easy in the absence of open market competition of any significant level.
Loyalty as the source of trust
One of the reasons for a promoter family to rely on its own members to hold key positions was the automatic loyalty (and trust) they attracted from others, family and non-family, including creditors and bankers. In the absence of computerisation, enterprise resource planning (ERP) and internet, management information system and control were governed by manually managed systems and processes. These systems were porous. One can imagine the challenges of management control across enterprise when we have recent experiences of large scale manipulations even in organisations with high quality ERP systems.
Most key decisions affecting resource management had dimensions of integrity and secrecy built in. It was impossible to trust any non-family member since systems were weak and internal checks were manual. Families relied on employees with long years of service to take critical decisions. Over a period of time, such employees' loyalty was tested and they got promoted if they scored high on the loyalty card. It is not coincidental that people did not change jobs easily.
The effective nature of relationship between family members and non-family employees was that of a master and subordinate. This was because the boss, the family member would have the freedom (and right) to come and go as he wished, access to business funds for personal use, and also dictate employees as they wished.
Family children grew up like princes-in-waiting. They would be groomed with the qualities to demonstrate power as that was the only style of management that was assumed to work.
Business as an extension of family
In most entrepreneurial context, there has been no effective separation of family and business finance. However, as business expands, it is supposed to be an independent entity with its own identity. This did not happen so much in India 40 years ago, and business continued to remain a subset of the family. This was primarily because of the continued dominance of senior level management by the family and poorly developed governance practices.
Changes since 1984
The winds of economic liberalisation and pressure to build competitiveness started blowing with Rajiv Gandhi becoming the Prime Minister of India. There was a spiral of changes affecting every cog in the wheel that forced family businesses to sit up and take stock of their situation. Many understood the significance and several changed, some quickly and some slowly. This was a paradigm shift in the history of Indian business. Unfortunately, many family businesses still continue to live in the shadows of the 1970s.
Kavil Ramachandran
Thomas Schmidheiny Chair Professor of Family Business & Wealth Management, Indian School of Business
Thomas Schmidheiny Chair Professor of Family Business & Wealth Management, Indian School of Business