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