Family Business Education Key To Governance

Farhad Forbes, global chair of Family Business Network and co-chair of Forbes Marshall, talks about what family businesses must do to survive in an interview with Ayaan Kartik and Neeraj Thakur

- Ayaan Kartik and Neeraj Thakur

There is a theory that family businesses do not survive beyond three generations-is this true?

The perception that family firms do not last is incorrect. Family firms do last. The question is why they last a limited number of generations. The fundamental issue is business challenges. Over 60-90 years, the business environment changes, technology affects things. If you do not keep up, businesses fail or get taken over. This happens with nonfamily firms too.

What is unique for family firms is the need to address family governance issues. If not addressed, problems arise, especially at the point of succession, leading to conflicts that divert attention from the business, causing them to fail. Corporate governance is as necessary for family firms as for non-family firms, but family firms also need to focus on family governance.

Indian families do spend enough time on family governance, leading to these issues. However, many family firms [across the world] do invest in family governance and survive for many generations. We have examples of Japanese firms in our network that are 12, 18 and even 30 generations old.

How can family businesses get governance right?