Conflicts in Family Owned Businesse free essay sample

Conflict of course can be a dangerous attribute for an organisation if not handled properly. Conflict might be present in both competing situations and also in collaborative situations. The presence in a competing situation is well understood by virtue of inconsistent goals, but in collaboration also conflict might occur, mostly because the method of approach to reach the goal might be different for different stakeholders. Thus we cannot expect to isolate conflict from our daily life scenarios. 1. Types and Causes of Conflict We believe that a conflict generally arises when one party perceives that the other party has negatively affected, or is about to negatively affect the interests or something else that the first party cares about. The causes of a conflict can be multi dimensional. They range from religious to regional biases, interpersonal issues, social issues, economic or environmental reasons and even emotional causes. The conflict is defined based on what is the reason behin d its presence. Some conflict types are Intrapersonal conflict, interpersonal conflict, intra-societal conflicts, inter-societal conflicts, military conflict etc. Conflict can also be grouped on the basis of the effect it has on the group as a whole. These types are Functional conflict: Conflict that supports the goals of the group and improves performance. Dysfunctional conflict: Conflict that hinders the performance of the group. Task conflict: Conflict that arises over controls and goals of the work. Relationship conflict: Conflict based on interpersonal relationships. Process conflict: Conflict that arises on the basis of how work should get done. A conflict process has five stages †¢Potential opposition or incompatibility This is when the opportunity or conditions for arising a conflict are created †¢Cognition and personalization This is the stage when the potential of conflict gets actualized. †¢Intentions The intentions intervene between people’s emotion and perception and their overt behaviour. They are basically nothing more than decisions to act in a certain way. †¢Behaviour This is the stage when intentions and the presence of conflict becomes clear and statements are usually made by the parties involved. †¢Outcome This is the result of all the four stages above. It might be a positive (functional) one or a negative one (dysfunctional). 1. 3 Family Business A family business is a company, owned, controlled and operated by members of one or several families. Many public companies today were originally family owned businesses. Though the top positions of such enterprises are allotted to the members of the family, they have many non family members as employees. Family participation in a business can strengthen the business because family members are very loyal and dedicated to the family enterprise. However managing a family business, and particularly succession planning, can present some unique problems. Often family interests conflict with business interests, for example hiring a family member who is less competent than a non-family member or keeping an underperforming family member in a position when their performance is hurting the company. Psychologists are often consulted to help families successfully manage issues that affect both the family and the business. Indian business is mostly a family managed enterprise. Among the most respected business houses are the Birlas, Tatas, Ambanis, Bajaj’s etc. These business houses are well known across the country and internationally as well, and they have been in the limelight for some conflicts that have risen due to the family conflicts. Thus the importance of conflicts in family businesses is of major concern to the Indian managers who at some point might be involved with a family owned business house. In the following study we attempt to undermine the nuances of this delicate topic of conflicts in family run business enterprises, and its effects on them. 2 Literature Review An operational definition of a family firm can be given based on a family’s involvement in the business: ownership, management, and trans-generational succession. Family involvement alone is not sufficient to define a family firm; the family involvement must result in certain behaviours that render some distinctiveness to the family firm. Thus a family firm can be defined as â€Å"a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families. † This definition clearly distinguishes family ownership from family management and/or governance. Therefore, a family having a controlling ownership in a firm may choose not to be involved in operational management, but through its ownership and governance, may exercise influence on the management in strategic decisions such as management succession, shaping of long-term vision, values, and so forth. Such firms are considered to be family firms. This in turn leads to two primary categories of FOBs—family-owned and family-managed businesses and family-owned and governed but professionally managed businesses—thus separating ownership from management. Family-owned firms are one of the foundations of the world’s business community. Their creation, growth and longevity are critical to the success of the global economy. Although facing many of the same day to-day management issues as publicly-owned companies, they must also manage many issues specific to their status. Family firms form the basic building block for businesses throughout the world. The economic and social importance of family enterprises has now become more widely recognised. Internationally they are the dominant form of business organisation. One measure of their dominance is the proportion of family enterprises to registered companies; this is estimated to range from 75% in the UK to more than 95% in India, Latin America and the Far and Middle East. The manner in which family firms are governed (the way in which they are directed and controlled) is therefore crucial to the contribution which they can make to their national economies as well as to their owners. Some of the positive factors that position family firms distinctively are efficacy of family teams, positive customer perception of family ownership, willingness of family members to sacrifice for the firm, trust among family members, and the family’s commitment to integrity and reputation. Planning for succession is believed to be one of the most challenging tasks faced by family business managers. Only about 30% of the family businesses make the transition to the second generation and only 10% to the third generation, the remaining sold or liquidated. Family firms include all enterprises that are owned, managed or significantly influenced by a family or families. This is the case when the family has the final say in whoever is responsible for managing it. In the same way, it makes sense to treat family firms as an international business form, on the basis that they face similar opportunities and problems and that those similarities outweigh the national and cultural differences between them. 2. 1 The Distinctiveness of Family Firms It is essential at the outset to recognise that the governance of a family firm is in many ways more complex than the governance of a firm with no family involvement. Family relationships have to be managed in addition to business relationships. 2. 1. 1 Strengths – Visions and Values It is the ‘kith-and-kin involvement’ in family firms which marks them out from other types of business organisation and is a potential source of strength. It is the family commitment to building up a profitable enterprise that gives the family firm its competitive edge. When the enterprise starts, the family has a single goal to which all its members can subscribe. Since the family both owns and manages the firm, decision-making is straightforward, because the interests of the owners and the managers do not have to be considered separately. For the same reason, the firm can be run with minimum overheads drawing on the family’s own resources. It is natural for the authority of the founder to be accepted at the outset and, provided the founder is competent, the firm has every chance of flourishing. Long-term Perspective Family firms do not only offer opportunities for commercial success, essential though that is for their survival. They usually see the family interest as a continuing one and so they tend to take the long-term view in coming to decisions. It is the best guarantee to those who work in them that the future will not be mortgaged for the present. It is this sense of building a business for future generations which underlies the policies of successful family firms. Building for the future leads to a concern for the firm’s reputation and to a regard for the interests of employees and the community. If a firm sees itself as retaining its home base and remaining in business over the years, it is sensible for it to take trouble over its relationships with employees, suppliers, customers and neighbours, because it expects these relationships to be continuing ones. Thus family firms have, on the whole, good reputations as employers and have often pioneered advances in conditions of employment. A Clear Identity in a Faceless World Family firms also have a clear identity in an increasingly faceless world. Family firms are built on a human scale and the people who work in them know for whom they are working. It is not, therefore, surprising that family firms generally win the loyalty of entire families of employees and that there is often a continuing family tradition of working in them. 2. 2 Conflicts and their Possible sources in a Family Firm 2. 2. 1. Risks – Family Tensions Family firms have much to offer to the community, but they can also face particular problems that may strain the relationships between members of the family and so affect the firm’s ability to compete in the market-place. ) Blurring Work and Family The problems arise from two sources. The first is the reverse side of the coin of family commitment. Commitment derives from the family seeing the business and their family life as one, as a unity. There is no separation between family relationships and business relationships and no relief from the one in the other. Those who work for someone else can le ave business frustrations behind them when they return home, or seek refuge from home problems in the office. If the family is the firm, its members are denied that safety-valve. One potential area of difficulty, therefore, is that personal relationships are important in a family firm and those involved cannot stand back and look at business issues separately from family issues. b) Growth over Time Other sources of difficulty are the growth of the firm and the passage of time. The founders of firms and their immediate family may well be able to manage their relationships successfully, because the business hierarchy will probably match that of the family. This straightforward pattern of relationships may not hold when it becomes a question of bringing in the second generation of what by then will be an extended family. The continued existence of a firm as a family firm depends on maintaining relationships within a widening family circle. c) Sharing Power Equally important, if a family firm is growing it will have to draw in managers from outside the family. This will require management of the relationships between family and non-family members of the firm. The sharing of power, which the acceptance of non-family managers requires, is one of the hardest issues for family firms to come to terms with. 2. 2. 2. Growth – Patterns and Consequences Family firms come in all shapes and sizes and experience every kind of success and failure. Those which never make the grade or expire with their founders will not reach the stage of forming a board and appointing directors. There will also be those which deliberately decide not to grow in order to retain their original pattern of organisation. The focus is on the issues faced by those family firms which need to formalise their structures in order to grow, but which aim to do so in ways which will both retain the family commitment and promote the business success of the firm. ) The Owner/Manager Evolution The relationships between the members of a family who depend on the family firm for employment, for income, or for both, are put to the test as time passes and the firm grows. One change which growth brings is that ownership is spread more widely among the family and the proportion of non-family to family managers increases. As a result there is no longer such a close identity betwe en the family and the business. Family members still involved in managing the firm have more room to breathe and more outsiders with whom to discuss the firm’s affairs. Growth also leads to tensions within the family, because the interests of members of the family will tend to diverge: this is particularly so between those members of the family actively involved in the management of the business and the rest. Those managing the firm may well feel that they are keeping the remainder of the family in the state to which they have become accustomed. They see themselves as doing the work and carrying the responsibility, while their relations enjoy the results and are free to criticise their efforts into the bargain. Equally, the members of the family who are owners but not managers may consider on their side that their interests as shareholders are being subordinated to the interests of those managing the firm. One of the most difficult transitions for a family firm is the move from the owner/manager stage to the stage when ownership is to a greater or lesser extent separate from management. For shareholders that are not managers this requires an acceptance of the owner’s role which may not come easily. Owners have their say in the election of directors but once those directors are elected, hether or not they are from the family, they have to be left to run the firm. It is often hard for family shareholders to accept that they have no say in the day-to-day management of what they still regard as ‘their’ firm. In effect, the relationships within a family firm change through time from being essentially family relationships to becoming essentially business relationships. If the only business enterprise which the family knows is its own, it is hard for its members to judge what an arms length business relationship means, let alone know when it has become necessary to establish such a relationship. As a firm grows, what was once a single family management group splits into three: – Family owners – Family owner/managers and – Non-family managers To complicate matters still further, some of the owner/managers may see themselves as having responsibilities of a trustee kind for their shareholding relations, in addition to their direct responsibilities as owners and as managers. Managing these new relationships depends on all of those involved being clear about their own roles and responsibilities and those of everyone else. 2. 2. 3. Organisational Imperatives There are three organisational requirements which need to be addressed if family firms are to manage successfully the consequences of growth. They need to be able to recruit and retain the very best people for the business, they need to be able to develop a culture of trust and transparency, and they need to define logical and efficient organisational structures a) Recruitment and Promotion The family firm’s policy on recruitment and promotion is crucial to its continued success. For a firm with no family links, there should be no difference of view between the shareholders and the managers on management succession. Both groups want the best people for senior posts. The family firm will have the same primary aim, but it may, in addition, have such secondary aims as maintaining a family interest in the management of the firm and holding a balance between different branches of the family. A particularly critical issue for a family firm is how to ensure that capable non-family managers are both recruited and retained. There are two general points which are relevant to recruitment and training in family firms. The first is that family firms tend to value hands-on experience more than formal training. Members of the family are often well-trained in a practical sense, being brought up in a business atmosphere and working their way through all the activities undertaken by the family firm. But the very thoroughness of the practical grounding which the family members have received may make them sceptical of the capabilities of those who have not shared that experience and of the benefits to be derived from education and training of a less specialised kind. The second point is that the recruitment and training needs of managers are ongoing, but recruitment from the family will be by generations, until there is a reasonable family spread to choose from. This may lead to the appointment of family managers and directors at a much younger age than would have occurred in a non-family firm. It is, however, difficult to combine a promotional pattern for non-family managers based on increases in responsibility every three to five years with a cycle for family managers based on the twenty-five year gap between generations. One of the strengths of the family firm is that its strategic planning horizon is measured in generations, but the same time horizon does not fit easily into the planning of management careers. b) Family Appointments The future of a family firm depends on its ability to pick and promote the right members of the family and, equally, to provide attractive opportunities to managers from outside the family. The problem with family appointments is quite straightforward: it is more difficult for the family to agree on their assessment of insiders (in the sense of members of the family) than of outsiders. It requires the family to come to terms with a business hierarchy which may be quite different from the family hierarchy. The first will be based, in a sense narrowly, on business competence, while the other takes account of seniority and all manner of other attributes. A consequence of the family overlay is that the insiders find it difficult to separate their knowledge of their relations as members of the family from their experience of them as managers. c) Assessment The problem of assessing the abilities of family entrants is compounded when it involves an older generation judging a younger one. To some extent, the younger generation will be judged by their parentage, a test which could not be applied to outside recruits. In addition, all the usual tensions between the generations can be expected to surface – modern methods versus accepted practice, qualifications against experience, new ventures as opposed to sticking to the core business, and so on. It is never easy to promote juniors over their seniors, and this is especially so within a family. Making the most of what two different generations of a family have to offer to a business is an issue that is peculiar to the family firm. In practice, there are two distinct policies that apply when bringing family members into a family firm. – Selective Some firms take the view that they will only recruit those members of the family whom they regard as likely to reach senior positions. – Open Door Others will take on any recruits from the family who are prepared to work hard, provided that they accept they will have to find their own level with no guarantee of promotion. Either way, there are advantages in encouraging prospective family entrants to qualify themselves for executive posts, before joining the firm, both through study and through experience in other businesses. d) Bringing in Outsiders The family firm, however, needs not only to make the right family appointments but to attract non-family managers of the required calibre as well. The objective of the family firm, as it grows, is to ensure equal opportunities for all, family and non-family alike. To establish this objective, family firms may well demand more of their family entrants than they do of outsiders. Unless the family interest in the management of a firm can be maintained, it ceases to be a family firm. But family firms need to succeed commercially as well as to maintain the family connection. To do so, they will have to recruit from outside the family. The introduction of capable non-family managers into the organisation is an essential step in the development of a family business. e) Perceptions of Fairness For both family and non-family members, it is essential that rewards, whether financial or non-financial, are distributed fairly and transparently and accounted for in a clear and precise way. f) Financial Returns For members of the family, there is the question of how they are to be rewarded for their contribution to the business. When a firm is still run by the original family group, the income of the firm is the income of the family. There is no call to separate return on capital from pay for work done. Family members will receive whatever reward the founder regards as appropriate and payment may be in kind, as well as in cash. Once there are members of the family who have a share in the ownership of the firm but are not involved in its management, it becomes essential to differentiate clearly between – Return from ownership and Reward for management Unless this is done, relationships within the family will come under strain. The family owners are likely to be concerned that the family managers are taking too much out of the business, while the family managers may well feel that their contribution is being under-rewarded. Even if the members of the family directly involved understand and accept the split between pay and dividends, their spouses may be less convinced. As the family circle expands, the links between the centre and the circumference become weaker and the fairness of the way in which the financial returns from the firm are divided becomes more likely to be called into question. g) Other Benefits When the family and the firm are one, it is not essential to cost out and control whatever benefits the family receives in kind, such as discounts on purchases, access to transport, use of the firm’s facilities, and so on. Such benefits can, however, become major matters of contention, when some members of the family have access to them and others do not. At the heart of the management of relationships in a family firm lies the concept of fairness. Divisions and ructions within the family can be caused only too easily through suspicion that some family members are benefiting at the expense of others, or that the contribution which some are making to the firm is not being properly recognised. The problem is to separate family judgements from business judgements and to be seen to be so doing. This is where independent, outside counsel is invaluable. h) Formalising Structure If family firms are to manage their growth successfully, they have to adapt their structure to cope with it. At the outset, major decisions are probably arrived at by the family as a unit, taking their lead from the founder. Tasks are allocated as they arise. When the firm becomes larger, a more formal pattern of organisation is required if there is not to be confusion, overlap and the danger of matters requiring attention falling through cracks in the structure. Defining Roles It becomes particularly important to define jobs and the responsibilities which go with them more clearly when non-family managers are appointed. Referring back also to the previous section, unless jobs are reasonably defined there will be no objective basis for determining how they should be rewarded. It is not, however, simply a question of being clear about who does what, although that is the essential first step. It is equally important to divide responsibilities on a logical basis from the point of view of the business. The absence of a clear organisational structure and of a board that can stand back from the day-to-day management of the firm and think about strategy is likely to cause problems within the family. Family owners, who are not involved in the running of the firm, are in a position to view the business from the outside, in a fairly detached way. They may question whether the firm is being run as efficiently as it would be if it were organised more formally. Or whether the fundamental issues concerning its future are being properly addressed by the directors – such issues as whether the firm should diversify, merge, seek alliances or even put itself up for sale. An effective board, in the sense of a board which concentrates on policy rather than on management and a logical management structure are necessary conditions for retaining broad family loyalty in a growing family firm and for the continued success of the firm itself. Once a family firm has grown beyond the point where there is a close identity between the members of the family managing it and those who share in its ownership, there is every merit in providing a clear and accepted structural division between the governance of the firm and the deliberations of the family. ) Family Councils – Promoting Dialogue It makes sense to encourage all the family members with an interest in the firm to arrange to meet at regular intervals to discuss family and business issues. Such gatherings may start by being informal, but there are advantages both to the family and to the firm in moving to some kind of properly constituted family council or assembly. This involves deciding who is entit led to membership – for example, should members by marriage who may not own shares be included? – and it is also useful to elect someone who can speak for the family, probably the assembly’s chairman. Arguably, family shareholders can be treated like any other shareholders with the opportunity to ask questions and express their views at an annual meeting. This, however, weakens the link between the family and the firm, which is what distinguishes the family enterprise from other forms of business and should be a source of its strength. It also fails to make the most of the advantages which a family forum has to offer. A family forum provides a recognised means of communication between the family and the firm. Family members can debate issues between themselves and express agreed views through their chairman. In return, family executives can explain the firm’s plans, policies and progress at forum meetings. This enables members of the family not in the business to understand the thinking of the executives and it is an opportunity to gain their support for the firm’s strategy. At the same time, the existence of a family forum makes it clear that the forum is the accepted link between the family and the firm, rather than approaches by individual family members. If whoever speaks for the forum is not involved in the management of the firm, the separation between responsibility for the affairs of the family and those of the firm is complete. ) Decision-Making Power The essential point is that there should be no doubt where the power to make decisions lies. It is solely with the executives in charge of running the business. The wider family can, however, through its own forum, provide sound counsel which will assist the executives in their task. This relationship depends on the e xecutives keeping the family informed (within the limits of confidentiality) and being prepared to listen to their views, as well as on the family taking its advisory role conscientiously. k) The Value of a Board Family firms once they have grown beyond the point where the founder or a family partnership can effectively manage the firm by establishing a board of directors. This is a means of progressing from an organisation based on family relationships to one that is based primarily on business relationships. The structure of a family firm in its formative years is likely to be informal and to owe more to past history than to present needs. Once the firm has moved beyond the stage where authority is vested in the founders, it becomes necessary to clarify responsibilities and the process for taking decisions. It is no longer enough to allocate duties to whoever is thought to have the time to take them on. l) Clear Lines of Authority The formation of a board provides the basis not only for a logical organisational structure, but also for establishing clear lines of authority and responsibility. This starts with the board, because the board has to determine which decisions are reserved to it. The board then determines how the powers which it delegates to executives shall be exercised. Introducing order into a firm’s structure should not be seen as an attempt to impose bureaucratic rules, thereby weakening informal family arrangements which had worked well in the past and stifling creativity. A decision-making structure which is accepted and understood by everyone in the firm will avoid confusion, lobbying and the wasting of time. m) Stability and Continuity A board also offers a means of safeguarding the stability and continuity of the firm. An organisation based on informal family relationships is at risk from unexpected rows or losses in the family. A board is better placed to deal with such shocks to the system and to adapt to inevitable changes in the business environment than a more hierarchical structure. It can provide for continuity by bringing members of the next generation into the board’s council at an appropriate stage and by setting down the firm’s beliefs and policies for their guidance. An important advantage of having a working board in a family firm is that issues of difficulty because of their family implications are more likely to be dealt with, rather than put off, as they may well be in a looser form of organisation. Examples of such issues are the retirement of senior family executives, especially the head of the firm, succession within the family, the appointment of non-family members to the board and whether to become a publicly-quoted company. These are incidentally all issues where the counsel of experienced non-family outside directors could prove invaluable – a matter which deserves a section to itself. Two final points to make regarding the value of boards to family firms relate to strategy and to chairmanship Strategy Family executives in charge of growing businesses are likely to be fully occupied dealing with the day-to-day management of the firm. It is difficult for them to find the time and the opportunity to consider the longer-term future of the enterprise and to plan for it. One of a board’s key tasks, however, is to determine the firm’s aims and objectives and how they are to be achieved. Boards can only address these strategic issues adequately provided they appreciate that this is their primary role rather than that of managing the business day-to-day. Boards need to concentrate on those tasks which they alone can perform, such as setting the firm’s strategy and charting its future course. This requires a clear line to be drawn between direction, which is the job of the board, and management which is the job of the executives. Unless that distinction is clear and understood throughout the firm, there will be confusion over where the power of decision lies and over who is accountable for decisions. Equally, unless a board focuses on its strategic function, it will tend to go by default. The Chairman’s Role The way a board works depends not only on determining its role, but also on its chairman. The chairman is responsible for the agenda and for the conduct of board meetings. Chairmen are also responsible for ensuring that directors have the information which they need in order to arrive at considered decisions. It is up to chairmen to ensure that all directors are able to express their views since they all carry equal legal responsibilities for the conduct of the business. It is also for chairmen to initiate some form of assessment by board members of the effectiveness of their boards. The decision by the boards on whom to appoint as their chairmen is therefore significant in any company, but particularly so in a family firm where chairman like qualities must take precedence over seniority. Succession Family business succession can be defined as the passing of the leadership baton from the founder-owner or incumbent-owner to a successor, who will either be a family member or a non-family member, that is, a professional manager. The succession-planning process, therefore, includes all the actions, events, and organizational mechanisms by which leadership of the firm, and sometimes ownership, too, is transferred. Succession Performance The parameters that are used to evaluate succession are the subsequent performance of the firm after succession, the ultimate viability or survival of the family firm, and the satisfaction of the various stakeholders with the succession process. The average annual growth in revenues (a measure of post-succession business performance) and the post-succession survival or perpetuation of the family business for evaluating succession performance can be used for analysis. With many family business groups in India, management succession comes across as one of the critical dilemmas faced by the incumbent family managers. Although ownership succession is viewed as primarily a wealth management issue within the family, management succession poses the critical choice between another family member and a non-family professional manager. In many cases, the genesis of the problem is the non-availability of family members who are adequately trained in management or too many family members of a large family chasing a few key management positions available in the group. With dramatic increase in competitive intensity in recent times, the need for well-trained and experienced professional managers assumes critical importance. The stress should be on the importance of a rigorous selection process of the successor and strict adherence to meritocracy, including external evaluation, coaching, and experience for family members to achieve management positions. However, it is quite obvious that this process can be no substitute for the external market of competence. It is preposterous for any family to presume that it will continue to produce the best management competencies within the family or that it can match the external market in competence. Moreover, in today’s highly competitive world, the competencies needed to successfully lead and manage businesses are dynamic. If a true meritocracy were to be followed, as many family businesses profess to do, then it is only inevitable in the long run that the management of the business is professionalized and management separated from ownership. Also, hiring professional managers for the top job lends flexibility to correct any mistakes quickly (which can otherwise have an adverse impact on the business), which is not easy if family members are chosen for the position. 3. Case Studies . 1 The Bajaj Family Feud The Bajaj family has been among the most respected business houses in the country. They have had a strong presence in the two wheeler segment and their share in the motorcycle market of India has been steadily growing. It has been ranked at 1946 in the Forbes 2000 list for global players for the year 2005. It is currently headed by the chairman Mr. Rahul Bajaj, who is worth over US $1. 5 billion. The company was formed by Jamnalal Bajaj in the year 1945 and has had a steady growth. But the company has recently come into the limelight for all the wrong reasons. The effect of differences in the family had an effect on the business also. We will take a look at how the conflict process evolved and try to understand the different stages that we can associate with the previously given definitions. The undercurrents of the feud were visible to the market from the year 2002, when there were implications on the Bajaj family trying to oust Shishir Bajaj, a sibling of Rahul Bajaj, from his share in the Bajaj Sevashram and Jamnalal Son Pvt Ltd. The issue had much media hype and there was an agreement signed by the two parties about how it needs to be resolved. If we go by the definition of the Conflict that we have given, the two parties here are the two brothers, Rahul and Shishir and their representatives. The potential opposition stage could be traced back to the time when these two entered into the family business. Now the conflict became clear when the case first received media attention in 2002. The steps were taken at that time to reach a solution and an agreement was reached by the year 2003 between the two parties. But the scope of the conflict was beyond this span as recently, in the year 2007 itself, we have seen another issue on the same topic coming out again. This could mean that either the reason of the conflict is beyond the economic share between the two parties, or the solution reached earlier was not good enough. Assuming that the problem was with the solution reached, as analyzing any other cause will be beyond the scope of this text, we can safely assume that at the stage when the agreement was reached the intentions of the involved parties were clear. Thus we have effectively reached the third stage of the conflict process. Now in the initial stage the point of agreement was reached, which meant that the intention was of collaboration. This also is in conformance with the fact that as a family business, the involved parties would definitely have the same goal of making the family business more profitable. If this conflict hinders the groups performance overall, it will be a dysfunctional conflict, whereas an increase in the performance level would mean that it is a functional conflict. the issue in question here, which is the allocation of ownership of certain units to the concerned persons, is debatable in the sense that we cannot really conclude who would be a better choice as it would give rise to a hindsight bias. Now after the agreement was reached, another reason gave rise to the conflict to come back to haunt the groups. This was because the steps in the agreement were not completely followed and this caused certain unrest between the parties again. Rahul Bajaj issued a notice inducting his cousin and son as additional directors in the holdings of the companies under disputed ownership with his brother Shishir. This again was seen as a threat to oust Shishir from the board of these companies and wrest control of Bajaj Hindusthan and Bajaj Consumer Care from him. This behavioral stage was preemptive in a sense that the parties have had a tryst with a conflict based on the same premise. Various allegations by representatives of the two parties defending and scorning the moves were made at this stage. While Shishir’s representatives believe that the move was to promote Rahul’s own family interests, his representatives believe that there was no other intention except the common good of the entire company. The conflict was back to square one after this stage when both the parties hardened their stand on the settlement and ownership issues. Legally though since Rahul Bajaj owned a higher stake in the companies, he was the rightful owner and had the authority to make such a move. Now this shows that the conflict was actually a dysfunctional one, since legally there was not much of an issue with the chairman taking a decision to induct new directors. But it was the family connection and the legal heirs law that comes into action since the company no longer is just a company, but more like a property owned by the family in which the members all have a share. Though both Shishir and Rahul have an equal stake in the concerned companies, the conflict has risen due to family connections. The outcome of this conflict was that the company owners ended up washing dirty linen in public. The family name and legacy was subject to petty comments and attracted a lot of media flak. There was a fluctuation in the market perception of the share values also. In the whole this conflict was a source of negative influence over the company. This conflict would probably not have shaped in such a way if the two directors were not family members. The appointment of new directors consequently would not have again been family based and thus their competencies would be subject to a fair trial among all the current directors at that time. This would in turn help the company choose the best set of directors. Also if we consider the factor of agency cost here, since the family should be interested in minimizing the effect of agency cost to their business, they should be in constant communication with the shareholders. But this controversy acted as a negative effect adding weight to the agency cost due to a sort of miscommunication about the company ethics. Thus we can conclude that the family angle added to this situation helped in worsening the conflict into a dysfunctional one. There was no positive result to either of the parties, and the common goal of the company was hindered. On the other hand if there was no family angle involved, the conflict would have in all probability been a functional one. 3. 2 The Birla Family Feud The Birla family is one of the foremost business houses in India. Their businesses vary from petrochemicals and textiles to automobiles and Infocomm. The founder of the Birla Group was Baldeo Das Birla, a member of the successful Marwari community from the westerly state of Rajasthan. He moved to Calcutta to set up the family business during the late nineteenth century, and with it established close ties to the freedom movement of the time. The Birlas are known for their work and support of the nation during the freedom struggle, and the family was close friends of Mahatma Gandhi. Even today, the Birla name is considered synonymous with wealth, dignity and power in India. Recently the Aditya Birla group owned Hindalco, announced a buyout of the US based aluminum sheet maker, Novelis Inc in an all cash deal worth US $6 billion. Very recently however there was a conflict that was received with a lot of flak in the media circles. The main issue of contention was that of ownership again. The main problem came into the public scrutiny when Priyamvada Birla made her chartered accountant, R S Lodha, as the beneficiary of all her property. Ever since, inheritance has been a major point of concern in the Birla family. The issue was portrayed in the public as a case of bad understanding within the Birla family which would mean a split in the company and a probable turnover of the Birla legacy and code of conduct. Such public concerns usually translate into negative pulls to the company in concern. This raised questions in the public about the ability since the general feeling developed was that the legal successors were not considered worthy enough by the predecessor herself. The conflict rose when the will of Late Priyamvada Birla was read out to the family members by her CA, Mr. R S Lodha. The will stated that all the property under her name will be transferred to the auditor, M r. Lodha and not to any of the Birla family members. This sudden unexpected turn of events led to the Birla’s filing suit against Mr Lodha of forgery. Internal conflicts among the family members were highlighted and the family dispute was one of the most controversial issues which affected the company in adverse ways in terms of public image. After the issue with Mr. Lodha was addressed, the youngest Birla heir demanded his share by filing a public suit. This was followed by the two sisters of M P Birla (Priyamvada Birla’s husband) family also moving to court. The controversy showed up the Birla Empire to be a myth, with the Birla family spread far and wide, with a multitude of groups within, each with its own chiefs and their progeny. The disorganized manner of the way in which the legal issue was handled by the Birla family was a big indicator and it affected the image of the Birla’s who were considered a strong and close knit group once upon a time. 3. 3 Murugappa Group The Murugappa group is a $1. billion conglomerate based in Chennai, consisting of businesses ranging from fertilizers, finance, bioproducts etc. it consists of 29 companies and employs over 20000 people. They have had a strong revenue growth rate of 13% per annum from 1999 until 2004 and a net earnings growth rate of about 15% till the same time. The group came into existence in 1900 when Dewan Bahadur A M Murugappa Chettiar established a money lendin g business in Burma (now Myanmar). The group had moved into India in the 1930’s before the Japanese invasion of Burma in World War 2. The group survived many vicissitudes and grew steadily and is now into its fifth generation. They received the annual award for Distinguished Family Business in the year 2001, by Lausanne, for its continued value addition, change management and social contribution. It attributes its success to the fact that they have constantly strived to refine strategies to separate family from the direct management of the family firms. It is one of the first Indian firms to have begun the process of transformation from a family owned and family managed to a family owned and professionally managed firm. The group originally had a CEO from the family who took care of the activities till about 1990’s. After the 1990’s the group formed the Murugappa Corporate Board (MCB) with family members at the leadership positions at that time. During the liberalization phase of India in the 90’s the need for professional managers from outside the family was called for and by 1999 the process of separating ownership from operations was completed. The group at this stage had professionally competent outsiders acting as CEO’s of the seven groups within the conglomerate. This was a very wise move as the separation enabled the family members to handle the more complex situations that arose in the market. The ability to transition from the phase of being the CEO to supporting the CEO was very important and was very elegantly handled by the group. The potential for a cause of conflict was very high at this stage, but instead the common goal of the company and the group as a whole was given utmost importance and this enabled the group to move ahead without conflicting views and attain a high growth percentage as mentioned above. Future opportunities of conflicts were also handled at this stage itself by a very systematic approach. The family members in MCB had 3 major tasks in their role. The first was to handle a strategic arm of the group across all the verticals within, a mentoring role to the CEO of an arm the member has not led before, and a mentoring role to one or more of the younger members of the family. There were clear cut criteria established as to how a member will be eligible to enter the MCB. This way meritocracy was the rule of the day rather than the legal heir route. As the business group moves from family managed to family governed, the formalization of family’s business approach is being discussed and finalized. A family constitution was developed that would articulate the family’s roles, responsibilities and relationships. This clear cut approach to succession rules in a family owned business has worked wonders for the group which has managed to pose a profit over the period since it moved from a family managed to a family governed model. This shows that a possible conflict can actually be converted into a positive outcome for the group and work to their advantage. 3. DABUR Group The Dabur Group, based in New Delhi, is one of India’s oldest family business groups that manufactures and sells a range of personal-care, healthcare, and food products. The group primarily operates through its flagship company Dabur India Limited and its subsidiaries,which had consolidated revenues of about US$ 350 million for the year ending Mar ch 2004. Over the last three years, the consolidated revenues of the group grew at a compounded rate of about 12% per annum, which was twice the average growth rate of the industry, while the net earnings of the group rose at an astounding 30% per annum. The Dabur Group was established by Dr. S. K. Burman in 1884 in Kolkata, India to manufacture and sell traditional nature-based, Indian medicines called Ayurveda. Over the years, Dabur launched a variety of nature-based, Ayurvedic personal-care and health-care products ranging from hair-care and oral-care to healthcare and food products. The group’s experience of about 120 years in Ayurveda has resulted in a strong herbal and natural positioning of its product range. Dabur has evolved from a family owned and managed group until 1997 to a family owned and professionally managed group now. Similar to the Murugappa group, this group also planned to move from the family owned to family managed model. The process adopted was that of hiring a consulting firm which suggested them the steps to hand over to a professional set of people the role of executives in the group. Once the group realised that it was not a practical approach to accommodate the interests of each family member for an executive position, the transition began. In 1998 the reins were first handed over to a non family CEO, Mr. Ninu Khanna and now are taken over by Mr. Sunil Duggal who has been with the company since 1995. He was inducted into the board in the year 2000 and in 2002 he was designated as the CEO of the company. Simultaneously DABUR restructured the corporate board, inducting more independent directors and constituting more audit board committees, remuneration, shareholder grievances etc. They developed various whistleblower policies and ethical practices to reduce the family dominance in roles and have had a good degree of success in such programs. A C Burman, from the fourth generation relinquished his chairmanship in favour of his brother to set an example and avoiding possible conflicts in turn like we saw in the case of BAJAJ. The group created a family council which acts as a channel of communication between the family and the managers and provides long term direction to the group. This formulation was a key development that helped in tackling challenges of professionalization, separating the family interests from the business interests and giving the required space for the family, while the management represents the interests of the family without and daily interactions. The roles of the management team, board of directors and the family council were formalized in 2002. Some assets were liquefied and personal entrepreneurship within the family encouraged on a merit basis which eased any folds of conflict within the family. This also helped in easing the tendency of the family members to seek positions of authority within the group. The DABUR group’s policy of considering the Family as a trusteeship with twin aims of perpetuation of family values and sustained growth of business has worked to the advantage of the company and has helped in easing out the presence of any conflict situations within the family to affect the growth of the business interest. 4. Conclusion From the few cases discussed above we can conclude that Conflict situations are prominent and entangled in a family owned business. With loads of legal issues of ownership, succession and morality coming into question, it is more often than not that decisions taken by the family leaders are plagued with controversy. A family owned business is still the most successful and most prevalent form of business in our country. Thus it is very important that we understand when the conflicts arising can be channelized into functional ones rather than having a dysfunctional one hampering the growth of the company. As future managers it is imperative to understand the nuances of such conflicts that arise and be aware of certain plans and methods adopted by various business houses to eradicate or solve a conflict. Removing a conflict from the very bud is desirable, but it is more desirable to not let a conflict get seeded and remove it even before it is produced. As seen in the case of Dabur and Murugappa group, their approach of succession has stowed away any possible conflicts that could have plagued the company with controversy. Such an approach before hand would have helped the Bajaj and Birla group to have avoided their conflicts and being chided by the general public. Conflict management in a family run business is not an easy job, and it requires a perfect blend of all the competing behaviors adopted at the right time to see the company through the conflict situation. A properly handled conflict can do wonders for the company, like recently we saw in the case of RELIANCE group, the split and de-merger helped the company to have a better defined delegation and helped boost the market capitalization and performance. Thus it is important that a conflict is nurtured properly and handled in the most precarious manner. One false step here can lead to a disastrous situation. A few steps that the family businesses can keep in mind to avoid conflict and ensure smooth operations for the betterment of the company are †¢Clarity of role: The role to be played out by the family members, the management team, the council of directors should be all clearly defined so that there is no overlap between ownership and management activities and interests. This will go a long way in reducing ownership related issues among the family members. An effective Board: A family business can be assured of continuing success provided it is headed by a sound and logical board. The board should be a proper blend of people from outside and inside who can amalgamate the experience and knowledge, and the family members strengths can be complemented by those from outside. †¢A logical organization structure: The structure o f the firm should be clear and aligned to the purpose of the firm. The chain of command should be clear and well defined so that no issues of infringement of control take place.