IIM Lucknow research reveals secrets of family structures in business triumph

NEW DELHI: A new research from the Indian Institute of Management Lucknow emphasises the significance of having a cohesive family structure with clearly defined duties and responsibilities for every member in order to manage a successful family business. They also emphasise family unity and dispute resolution processes as crucial mechanisms for extending the life of a family the company.

Sabyasachi Sinha, associate professor of strategic management at IIM Lucknow, and Vinod Thakur, assistant professor at Management Development Institute, Gurgaon, published their study findings in the Journal of Small Business Management.

The study reviewed existing literature, researching how successful family firms throughout the world manage their governance structures and the consequent economic and non-economic advantages. Family governance include creating ground rules for dispute resolution, encouraging effective communication, building family ties, and instilling a sense of attachment among family members to one another and the business.

Discussing the research, Sabyasachi Sinha explained, “As businesses expand in size and scope, they become increasingly complex. Similarly, families managing businesses face complexity as they become multigenerational and increase in size. The adoption of family governance structures by family businesses results in transformative changes both within the family and the business. It leads to the peaceful resolution of family conflicts and successful addressing of business challenges.”

Five key family structures

The research team also identified five key family structures: family meetings, a formal family council, a family office for wealth management, and a family constitution, which is a written document detailing policies and principles. Furthermore, informal governance structures, such as family celebrations, activities, and retreats were regarded vital.

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Enhance family unity

Emphasizing the relevance of having family mechanisms in place, Sinha added, “Our advice to family businesses is that as they expand their business and family, they should conduct more structured family meetings, establish family offices, and initiate processes to adopt a family constitution. These measures will enhance family unity, build a more coherent relationship between the family and the business, ensure a smoother transition of succession, and better utilize the capabilities of family members.”

Future research on different family governance structures

The research team stated in their report that future research should distinguish between different family governance structures while investigating their impact on family and business systems. Governance arrangements may satisfy various needs of a corporate family. Future study should look at why family-owned businesses choose particular governance structure over another and how these structures are developed.