In­ter­view

'The Key in Im­ple­ment­ing a Fam­ily Con­sti­tu­tion is the Role of an In­ter­nal Cham­pion'

FICCI Business Digest - - Contents -

Anil Sainani is a well-known ex­pert work­ing to evolve unique and cus­tomised gov­er­nance mod­els for fam­ily busi­nesses across South Asia. He is a pioneer in the arena of gov­er­nance mod­els for in­ter- and in­tra-gen­er­a­tion con­ti­nu­ity in small and large fam­ily business houses since 2004.

Hav­ing worked with close to 100 fam­i­lies across In­dia, Nepal and UAE, he has de­vel­oped ca­pa­bil­i­ties and or­gan­i­sa­tion for ad­vis­ing on pro­fes­sion­al­i­sa­tion and growth of fam­ily business, fam­ily con­sti­tu­tion cre­ation, coach­ing and men­tor­ing and suc­ces­sion plan­ning, in­clud­ing cre­ation of trusts/wills. Be­ing a civil ser­vant for over 13 years, he in­sight into, about the con­sti­tu­tional and bu­reau­cratic pro­cesses and the ways and means to bring clar­ity in defin­ing for­mal re­la­tion­ships and pro­cesses. Be­fore ven­tur­ing into fam­ily gov­er­nance con­sult­ing, Sainani gained crit­i­cal in­sights into business by work­ing for his fam­ily business for 5 years and help­ing reach align­ment of in­ter­ests, which cul­mi­nated in his fam­ily creat­ing their con­sti­tu­tion. With close to two decades of ex­pe­ri­ence of work­ing with business fam­i­lies like Go­drej, GMR Group, Dalmia Bharat, DCM Shri­ram, SRF and oth­ers, he has dis­tilled his ex­pe­ri­ence to de­vise a mech­a­nism which en­ables fam­i­lies to com­press the time taken in de­vel­op­ing a fam­ily business con­sti­tu­tion from 2-3 years to 4-6 months. In an in­ter­view with Manu Shankar

of Business Di­gest, Sainani talks about the var­i­ous as­pects of fam­ily con­sti­tu­tion and lists out key in­gre­di­ents for a suc­cess­ful im­ple­men­ta­tion of fam­ily con­si­ti­tu­tion.

How ef­fec­tive are the fam­ily con­sti­tu­tions? What has been your ex­pe­ri­ence as an ad­vi­sor to fam­ily groups?

The idea of fam­ily con­sti­tu­tion is rel­a­tively new. I think the GMR fam­ily was the first in­dus­trial body in In­dia, which built upon such an idea. Although Mu­ru­gappa, TVS or Go­drej have ex­isted for more than 100 years, they didn't cre­ate a for­mally writ­ten con­sti­tu­tion for a long time. So, hav­ing a writ­ten fam­ily con­sti­tu­tion, per say, is a rel­a­tively new idea. So, like any new idea, it's go­ing through an evo­lu­tion, where it is get­ting adapted, changed, re­de­fined. There are ar­eas, where I think, it is work­ing and there are ar­eas where it needs to im­prove.

Another thing that I would say when we talk about fam­ily con­sti­tu­tions is, in my view, all fam­i­lies have a con­sti­tu­tion, and they are not writ­ten. Ba­si­cally, a fam­ily con­sti­tu­tion, if you ask me, be­liefs that a cer­tain group of peo­ple share, which be­come the fam­ily val­ues or code of con­duct that you com­mit to. But the new trend is that peo­ple are writ­ing them down. Fam­ily con­sti­tu­tions are ef­fec­tive be­cause they pro­vide the frame­work for gov­er­nance. So, the pro­cesses of business de­ci­sion mak­ing are wellde­fined, for ex­am­ple, wealth dis­tri­bu­tion from one gen­er­a­tion to the other, or se­lec­tion of a chair­man, in­come and ex­penses are wellde­fined. A struc­ture and a frame­work is get­ting cre­ated, this con­sti­tu­tion is get­ting cre­ated. The con­sti­tu­tion pro­vides a lot of clar­ity and it fa­cil­i­tates com­mu­ni­ca­tion by doc­u­ment­ing all of these and there is agree­ment around it.

So why do you think that peo­ple these days are writ­ing down the rules, rather than go­ing by the tra­di­tional un­writ­ten rules?

Hear­ing peo­ple like GM Rao, or when you look at the global best prac­tices, or fam­i­lies which have lasted for long, when things are not writ­ten there are gaps in un­der­stand­ing or when things change and there is no de­fined process for chang­ing. So, if there are strong lead­ers – lead­ers who be­lieve in the wel­fare of fam­ily or ev­ery­body looks up to them – then their word be­comes the law. But as so­ci­ety is grow­ing, peo­ple are be­com­ing more ed­u­cated, women are get­ting ed­u­cated, so a lot of ques­tion­ing is hap­pen­ing and be­cause of this, peo­ple feel it is a good idea that we start writ­ing down then the clar­ity is so much more, the align­ment is much more. And then when you look at the best prac­tices, that is, what all the con­sti­tu­tion com­prises, then you re­alise that there are cer­tain ar­eas that we haven't ad­dressed and as so­ci­ety is chang­ing, those ques­tions are com­ing to the fore.

How is the Western con­cept of fam­ily con­sti­tu­tion dif­fer­ent from the In­dian one?

Western so­ci­eties are far more open and demo­cratic. But In­dia is also get­ting more and more demo­cratic, but in the Western world there is open­ness and ac­count­abil­ity. The In­dian one is more tra­di­tional, you live with your par­ents, lis­ten to them. Also in those so­ci­eties, peo­ple are far more open to re­tire or look for al­ter­nate ca­reers, so in my view, the suc­ces­sion plan­ning there is much bet­ter.

Does a fam­ily con­sti­tu­tion re­strict the role of women mem­bers?

This is per­haps one pos­i­tive change, I see, in large num­ber of fam­i­lies in In­dia to­day. And when I say large num­ber, maybe two-third to three- fourth of the fam­i­lies are giv­ing a say to women in fam­ily af­fairs. In­creas­ingly, fam­i­lies are in­volv­ing women in a big way in creat­ing the con­sti­tu­tion.

The sec­ond ques­tion in this con­text is – Are women be­ing given a role in the business? The moot point is that not all women want a role in the business. While tra­di­tion­ally women were re­stricted to home or to do­ing phil­an­thropic ac­tiv­i­ties, for women who are will­ing, fam­i­lies en­cour­age them to pur­sue their pro­fes­sional ca­reers or set up new busi­nesses. Some fam­i­lies are also will­ing to give them man­age­ment role in the fam­ily

Fam­ily con­sti­tu­tions are ef­fec­tive be­cause they pro­vide the frame­work for gov­er­nance. So, the pro­cesses of business de­ci­sion mak­ing are wellde­fined, for ex­am­ple, wealth dis­tri­bu­tion from one gen­er­a­tion to the other, or se­lec­tion of a chair­man, in­come and ex­penses are wellde­fined. Are women be­ing given a role in the business? The moot point is that not all women want a role in the business. While tra­di­tion­ally women were re­stricted to home or to do­ing phil­an­thropic ac­tiv­i­ties, for women who are will­ing, fam­i­lies en­cour­age them to pur­sue their pro­fes­sional ca­reers or set up new busi­nesses. Some fam­i­lies are also will­ing to give them man­age­ment role in the fam­ily business.

business. The num­ber of such women re­mains small. One of the de­ter­rents to their work­ing in fam­ily busi­nesses is the con­cern that workre­lated dif­fer­ences may cre­ate fam­ily dis­cord.

On the ques­tion of own­er­ship rights, fam­i­lies are will­ing to give same own­er­ship rights to un­mar­ried daugh­ters as sons. Also, some of them are will­ing to give own­er­ship rights to spouses/daugh­ters-in-law after say 5-10 years of mar­riage. Thus, fam­ily busi­nesses are mov­ing to­wards giv­ing more free­dom and rights to women, in their con­sti­tu­tions.

Do fam­ily con­sti­tu­tions work bet­ter in large business groups or medium ones? Do you see a dis­tinc­tion?

What im­pacts in the case of business is the size of the business, how much is the wealth. Business pro­vides you an ad­di­tional op­por­tu­nity to work to­gether to syn­er­gise or gives an ad­di­tional rea­son to ac­cen­tu­ate the con­flict. The size of the business does im­pact the com­plex­ity. Sim­i­larly, if there are more num­ber of peo­ple, com­plex­i­ties will in­crease. But at the fun­da­men­tal level com­mon is­sues are there ev­ery­where. I have seen fam­i­lies with a turnover of Rs 150 crore, creat­ing a fam­ily con­sti­tu­tion and ben­e­fit­ting from it, so there are val­ues for all to be un­locked.

What have been the ex­pe­ri­ences of fam­ily con­sti­tu­tions over­seas?

All the fam­i­lies that I have worked with over­seas – UAE, Nepal, US – all of them are of In­dian ori­gin. In Nepal, at the fun­da­men­tal level be­cause all of them are of In­dian ori­gin, the cul­tural as­pect is sim­i­lar. But those in the UAE and the US, as those parts of the world are more de­vel­oped than In­dia, there­fore, ra­tio­nal­ism, the sense of dis­ci­pline. all of that is dif­fer­ent and more. Hence, the ex­e­cu­tion chal­lenges there are far less as com­pared to In­dia.

What is the key to suc­cess­fully im­ple­ment­ing fam­ily con­sti­tu­tions? Are they able to bind, unite and pre­vent fam­ily business splits?

I would say the most im­por­tant key is an in­ter­nal cham­pion in the fam­ily who re­ally and deeply un­der­stands the op­por­tu­nity and threat of fam­ily align­ment. They know that storms do come in business, fam­ily and in­di­vid­ual lives and a united fam­ily will be bet­ter equipped to deal with them. Also, they con­tin­u­ously in­vest in the process – by creat­ing an in­ter­nal or ex­ter­nal fam­ily of­fice and seek­ing help of ca­pa­ble ad­vi­sors. De­ter­mined mind­set that prop­a­gates ‘Growth Through Togetherness’ can only pro­ceed with suc­cess­ful im­ple­men­ta­tion of fam­ily con­sti­tu­tion.

Are fam­ily con­sti­tu­tions able to en­sure fair­ness to all the stake­hold­ers in­volved?

That is the fun­da­men­tal part of gov­er­nance – fun­da­men­tal to the con­sti­tu­tion. And what is fair is a very dif­fi­cult ques­tion be­cause should com­pen­sa­tion be equal or un­equal, should own­er­ship be equal or un­equal all these are chal­lenges. For ex­am­ple, if a son had joined business 10 year ago, sec­ond son joins 10 years later, should the com­pen­sa­tion be equal or un­equal? If it is sep­a­rate the how much should be the dif­fer­ence? So, while fam­ily con­sti­tu­tion is about fair­ness, it is of­ten sub­jec­tive. So, what you en­sure is not ab­so­lute fair­ness, but fair­ness of process, which will ap­ply uni­formly with­out look­ing at the face of the per­son. For ex­am­ple, if we cre­ate a pol­icy that ed­u­ca­tion will be funded by fam­ily ir­re­spec­tive of the num­ber of chil­dren it will ap­ply uni­formly. Creat­ing those fair pro­cesses is very im­por­tant be­cause if you don't do that, then your con­sti­tu­tion is like a story book.

Photo Cour­tesy: Yo­gesh Verma

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