What is Corporate Governance? Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. It is all about a company promoting corporate fairness and transparency w.r.t. its responsibilities to stakeholders. What is family business? A Family-owned business is one that is owned, managed and controlled by two or more family members. In such a business two or more extended family members influence the directions of the business through the exercise of kinship ties, management roles, or ownership rights. The majority of the ownership or control lies within a family. There is an element of dualism in the concept of family businesses – on the one hand persons involved in the business are part of the core team that directs the business and on the other hand they have a family bond or tie (which of course may not always be rosy).
The importance of family-owned businesses in the economic growth and development of the country can hardly be over-exaggerated. An environment that is conducive to such businesses can go a long way in encouraging such businesses to come up. In the Family Business Governance Handbook prepared by International Finance Corporation under the World Bank Group, it has gathered important information, facts and suggestions on how to develop a family business. The Handbook states that: "Family businesses constitute the world's oldest and most dominant form of business organizations. In many countries, family businesses represent more than 70 percent of the overall businesses and play a key role in the economy growth and workforce employment. In Spain, for example, about 75 percent of the businesses are family-owned and contribute to 65 percent of the country's GNP on average. Similarly, family businesses contribute to about 60 percent of the aggregate GNP in Latin America."
Corporate Governance in family business – whether an impossibility
Good corporate governance and family-run businesses are not necessarily opposed to each other. They may happily co-exist. However, understanding Corporate Governance in the context of family businesses turns out to be a little more complex task for the following 2 reasons:
Family businesses are of diverse types. There are no two identical family businesses. So a unique model of CG applicable to all family businesses does not exist.
Over and above commercial elements in family businesses there are other important governance elements like emotion, family bond, rigid conventions, culture and so on.
In theory it is not difficult to incorporate good corporate governance practices in family businesses. But in practice, in majority of family-run businesses, the above elements act as hindrances towards growth and development of these businesses. So said, despite this difficulty, some family businesses around the world have successfully implemented formal structures for both, corporate and family aspects thus making way for good corporate governance practices within. However, in many such family businesses, a question mark still hovers around the ease of implementation of these structures.
Family Businesses of global repute
In this section I will throw some light on some of the oldest and largest family-run businesses and corporations around the world. The point I want to drive home is the sustainability of such business and their capability of peaceful co-existence with good corporate governance.
A. Oldest family businesses worldwide
Kongō Gumi Co. Ltd. is a construction company of Japan that is said to be the oldest company of the world with a history of more than 1400 years. Founded in 578 AD it was also the oldest (and longest-running) family-run company in the world and is currently managed by the 40th generation of the Kongō family of Osaka, Japan. The company historically built wooden temple architecture. In 2006 however, the company lost its family-run business status as due to extreme difficulties faced by the company for its survival, the family ownership was divested and it became a subsidiary of the Takamatsu Construction Group.
Nishiyama Onsen Keiunkan is the world’s oldest hotel and spring bath company dating from 705 AD and run by a family for more than 1300 years.
Following closely another hotel company, Sennen-no Yu Koman, was founded in 707 AD in Japan. It is a traditional Japanese Ryokan-style hotel located in Toyooka city in Japan. It is a family run business with a history of more than 1300 years.
Hōshi Ryokan, formed in 718 AD, is a hotel company in Ishikawa Prefecture in Japan that is more than 1300 years old. It is currently run by the 46th generation of the same family.
Genda Shigyo, founded in 771 AD, is a company producing ceremonial paper used for weddings, funerals and other occasions. Based in Kyoto, Japan, this family run company is more than 1250 years old.
Stiftskeller St. Peter founded in 803 AD in Salzburg in Austria is the oldest company in the world outside Japan. It is a restaurant run by a family for more than 1200 years.
Staffelter Hof dates from 862 AD. It is a family-run wine company in Kröv, Germany and has a history of more than 1150 years.
Tanaka-Iga Butsugu, another Japanese family-run business was founded in 885 AD. The company based in Kyoto produces religious good and has been continuously in operation for more than 1130 years.
Sean’s Bar is an Irish pub located in Athlone, Ireland. Established in 900 AD, this is another very old family-run business.
The Bingley Arms is another pub established in 953 AD in Leeds, UK. The 1069-years-old family-run pub is almost like a public house and not just pub.
B. Oldest family businesses in India
Wadia Group founded in 1736 by Lovji Nusserwanjee Wadia
RPG Group founded in 1820 by Ramdutt Goenka
P.N. Gadgill Jewellers founded in 1832 by Ganesh Gadgil
Aditya Birla Group founded in 1857 by Shiv Narayan Birla
Shapoorji Pallonji Group founded in 1865 by Pallonji Mistry
Tata Group founded in 1868 by Jamsetji Nusserwanji Tata
C. Largest family businesses worldwide
Walmart Inc
Cargill Inc
Ford Motor Company
BMW AG
Aldi Group
Dell Technologies Inc
Volkswagen AG
ArcelorMittal S.A.
Reliance Industries
Tata Group
Aditya Birla Group
IKEA Group
Nike Inc
L’Oreal Group
LG Group
Family businesses in India
India is also one of those countries where the highest generator and creator of wealth are family-run businesses. The issues faced by these businesses are more or less the same all over the world. Such businesses are like extended units of the family and reflect the culture and values of the family owning it and the employees are expected to adopt the same. The thin line that divides the family and the business is rather blurry. However, there is no denying the fact that India has had, and still has some very big families in business. They have helped put the name of the country in the global business scenario. Some of these family-run businesses have existed for centuries and considerably influenced the economic and political scenario of the country.
Bottomline
The success and proven sustainability of all the family-run businesses in India and worldwide discussed hereinbefore go to show that good governance or ‘Corporate Governance’ is not against family businesses. Corporate Governance is not an obstacle to growth of family businesses, nor a threat. Family businesses that can incorporate good corporate governance practices in their systems survive, for centuries.