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Perspectives on family business from Rahul Bajaj, Chairman of Bajaj Auto Limited.

Of late, several business schools have begun courses on family-run businesses. There are many kinds of such business—some do not own shares, but are part of top management; in some others, the owners are the controlling shareholders. However, all said and done, family-run businesses are not that different from other kinds of companies, because professionalism and competence are the core of any successful business. In fact, some recent reports have shown that family-run businesses in India are actually better than others.

When a business grows, it is also important to divide it among family members, depending on their individual competencies. While my son Rajiv is the Managing Director of Bajaj Auto and Sanjiv is the Executive Director, Sanjiv is also the Managing Director of Bajaj FinServ Limited (BFS). If BFS goes public, it has the potential to gain a market-cap of up to two to three times that of Bajaj Auto.

One more thing about family businesses is that ego should not come into the picture when several siblings are handling different divisions of the business. My brother Shekhar manages the appliances business, while Neeraj takes care of Mukand, the steel business—and we are all a part of Bajaj Limited. However, when we realized that Shishir had a different way of doing business, we amicably parted ways and let him handle the Bajaj Hindustan Group.

There are pros and cons to every business. When you look at the advantages, there are two—the assurance of continuity and the fact that there is no external need for incentives. By this I mean that the chances that your business will be sold off are slim.

If you have an heir, the business is most likely to continue. Moreover, one does not need incentives like stock options or exorbitant salaries to hold back one’s own family into the business.

The disadvantage of having a family business in India is that most often you will see owners trying to hog the top management spots in their companies. Now, if one is incompetent, not in terms of education, but in terms of skills and managerial qualities, running the business becomes difficult. Moreover, with an incompetent person heading a company, it becomes difficult to recruit top professionals who will have to be content with positions below the top management level.

It is important to have your company professionally managed, even if it is a family-owned business. Unless the owners are thorough professionals, it makes sense to hire professionals to run the business. Even when handing the business down to the next generation, competency and a sense of ownership are the two most important things to look out for.

©Entrepreneur October 2009

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Bajaj, family business, Rahul, smetv