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All In The Family

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Jacob Joy, 37, director at Cochin-based JJ Confectionery, is on a mission. His grandfather, M. Chacko Pillai, was a builder and contractor who built many dams and power projects in Kerala in the first half of the 20th century. Today, the business built by him has disintegrated into a number of small groups. Joy, who wants to unite the various factions of his Perumbillil family, spent Rs 5 lakh on a week-long course in family business at Switzerland-based IMD business school in 2008. He also holds two regular MBA degrees — in finance from the University of Pune and in international agri-food management from ESSEC Business School in Paris. Joy is hopeful that the learning from the family managed business (FMB) course at IMD will help him achieve his mission. 

Not every family business scion will have the drive that Joy has, but many still opt for an FMB course at a business school. Scions of family-run companies such as Haldiram, Liberty Shoes and Siyaram do just that at Mumbai's S.P. Jain Institute of Management and Research (SPJIMR). According to Parimal Merchant, chairperson of FMB at SPJIMR, when the institute had started this course in 1997, the aim was to equip Indian family-run businesses with right managerial and professional skills, as regular MBA graduates mostly went to multi-national companies (MNCs), The strategy worked. What started with 16 students has grown into a 260-student programme now. Other institutes that started offering this course have seen similar growth.

That is not surprising. There are 4,978 listed companies on the Bombay Stock Exchange today. Of this, more than 80 per cent are family businesses. These companies' promoters would want their next generation to take specialised training in managing the family business.

 The Dynamics Of A Specialised Course 

What It Is About?
Courses in family businesses are carefully targeted at the kind of companies the students are going to serve and, hence, the method of teaching varies at each institute. Those who apply have to show a two-year balance sheet of their family company but there is no minimum requirement of net worth. Some, like SPJIMR, insist on a pedigree and don't take entrepreneurs, while others like Nirma Institute are not so strict about this. Plant visits, interactions with industry leaders and global tours are de rigueur everywhere. SPJIMR conducts classes twice a week and asks the students to implement the learning in their work. Nirma Institute, though, insists on a full-time residential course six days a week, to equip the students with all the other requirements of a regular MBA too so that they are capable of taking up a job if need be. The cost of a two-year course ranges between Rs 4 lakh and Rs 5 lakh, while short-duration executive courses are available at IMD or ISB, Hyderabad. The four-day programme at ISB costs Rs 1.5 lakh, while IMD charges roughly Rs 5 lakh for a week-long course.

Family businesses are different from professional companies, and inter-personal relationships play a huge part. At times, even with no more than two brothers in the family, the idiosyncrasies and differences in aspirations of each can lead to a split. Various studies the world over have shown that only 13 per cent of family businesses survive till the third generation and only 4 per cent go beyond this, says Seema Mahajan, chairperson for MBA in entrepreneurship and family business at Mumbai's Narsee Monjee Institute of Management Studies (NMIMS).

As a result of economic liberalisation in the early 1990s, a number of small and mid-level companies spawned by first-generation entrepreneurs had emerged by the end of the decade. With that, the need for a separate line of management studies, which would help the younger generation keep the family business intact and also grow it across boundaries, was clearly being felt. So, SPJIMR and NMIMS, both based in Mumbai, came up with family managed business courses. That the two most popular and established institutes in this part of India came up with this course around this time and that too in financial capital Mumbai is self explanatory. Most business houses are based here.

In 2004, Ahmedabad-based Nirma Institute of Management started offering the FMB course as well. "Our catchment area is the western region, where most of the Gujarati and Marwari businessmen are based," says Satish Nair, chairperson of the family business and enterpreneurship course at Nirma Institute
of Management.

It is Different
Teaching youngsters who are used to giving orders and not worrying about jobs is not easy, though. "It is difficult to make these students focus on what they are being taught since there is no pressure on them to excel and hunt for a job at the end of the course," says the coordinator of the FMB programme at SPJIMR. "They are not diligent like regular MBA students." At the same time, she says, their know-all attitude also makes them more open to risk-taking, which turns out to be good for their business.  

That is why FMB courses have been tailored to suit the needs of this different category of students. SPJIMR's initial FMB course was a virtual copy of a regular MBA curriculum, but over the years, it has been fine-tuned. A student of a routine MBA course may think nothing of a Rs 60,000 a month salary package but in family businesses, the packages are much smaller. "These students need to understand the cost of economics at an entirely different level, since they are the ones who are going to create money," says Merchant.

The level of responsibility that they are taught to shoulder is also on a different level. When MBAs working in a company take a decision, they win accolades from all quarters if it turns out to be good. But if it ends in a disaster, the worst they face is resignation. In a family business that is not possible. "A wrong decision has to be suffered, endured and corrected," says Merchant. A very close understanding of the implications of one's actions is a survival tactic here.

While regular MBAs generally specialise in one area, the students of family business courses are taught to be jack of all trades. In a corporate environment, jobs and roles are defined, but to handle one's own business one must know everything.  

FOREIGN VIEW: Joachim Schwass, director-family business centre, IMD business school, Switzerland

 Winds Of Change
Over the years, the takers for family business courses in India have grown. In fact, the number of girls enrolling in such courses has also increased, that too from conservative Marwari and Kutchi business families. Though the ratio is still heavily skewed in favour of boys — in SPJMIR out of 260 students, only 30 are girls — it is much better than what it was a decade ago.

"India is opening up to the outside world," says Joachim Schwass, director of family business centre at Switzerland's IMD business school. "This provides new growth opportunities that are typically best explored by next generation members in family businesses." IMD has been researching and educating the world's leading family businesses for the past 22 years, and it sees significant participation in its executive programme from India every year.

While it would be too much to expect FMB courses to help stop family businesses from splitting in future, what they can surely do is train family members to run their businesses more professionally.

shalini dot sharma at abp dot in

(This story was published in Businessworld Issue Dated 28-06-2010)