Lessons from Hinduja brothers' battle

It is time business families focussed on governance

The battle among UK-based Hinduja brothers has re­ached the High Court of England. The eldest bro­ther, Srichand, represented by his daughter Vinoo, wants the court to declare illegal a letter in which the four Hinduja brothers “appoint each other as their executors”. The other three brothers maintain that their group is collectively-owned — “ev­erything belongs to everyone and nothing belongs to anyone”. 

Stakes are high and no resolution is in sight. This dispute yet again highlights the need to focus on an important aspect of family business that often remains neglected — that of family governance.

Family governance provides a mechanism that formalises the ow­ner family’s relationship with business. It comprises regular family meetings, a family council and the family constitution that describes the family’s vision, values and policies. 

A well-designed family governance architecture strengthens family harmony through clarity on issues, roles and responsibilities. Open communication, rule-based decision-making, and clear demarcation be­t­ween ownership and operational involvement facilitate collaboration among family members.

Family governance often remains overlooked because individuals are preoccupied with managing business operations, while the family is taken for granted. In business, legal compliance ensures creation of governance structures like the board and committees. However, in a family, the need for formal governance is never apparent.

In the early stages, the family is not considered separate from business; informal rules serve well. Over time, both the family and business become more complex, intertwined and prone to dysfunctional conflicts — as it happened in the Hinduja group. The lack of formal family governance, eventually becomes a survival threat.

 

 

Establishing family governance involves arriving at a mutually ag­reed position on important matters that affect the family and its relationship with business, and creating an implementation mechanism. This is possible only when family members have mutual trust, sincerity, reliability and confidence in their capabilities. The following measures can help business families establish an effective family governance mechanism:

• Start discussions early: Establishing family governance is easier when family businesses are in the early stages of their lifecycle because both the family and business are simple and flexible. Family members have high levels of trust, strong bonding, shared vision and values, and less conflicts and insecurities. Hence they are more open to discussing and accepting new ideas. In contrast, agreements are difficult to arrive at when the family and business become more complex, disjointed and rigid.
• Develop and decide an appropriate governance architecture: Every business family is unique, so is its governance framework. This framework evolves in several rounds of discussions. The scope of a family’s activities determines its family governance architecture. Some families prefer a simple governance mechanism comprising only a family council. Others may develop an elaborate structure with a family business board, family office, family foundation and a family constitution.
• Overcome resistance by winning over: Family members often resist formal governance mechanisms because those impose boundaries. This resistance is high when there is emotional baggage or when changes are implemented from top-down. Sustained dialogue that clears family members’ misconceptions overcomes change resistance. When all family members adopt governance measures by consensus, adherence to those norms is high.
• Adopt and implement: After several rounds of discussion when there is consensus in the family, the family governance framework is formally adopted. An implementation plan with deadlines must also be agreed on. A complex governance architecture may require multiple phases to refine and implement. All family members must be equipped for family governance changes and everyone must participate in its implementation.
• Monitor and revisit periodically: Regular monitoring and feedback is essential to ensure effectiveness of family governance. For this, families can appoint family governance champions. They may hire professional family business advisors to suggest areas for improvement. A periodic review and update would ensure that the family governance system evolves with changing requirements.

Business families suffer a lot when disputes turn into ugly legal battles. Hopefully, better sense will prevail in this case and the Hindujas might settle the matter among themselves. Learning from this example, family businesses must develop their governance mechanism. This will strengthen the family-business bonding and ensure long-term sustenance.

The author is a senior researcher with Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business