Governance issues in a family business - Essay Example

Conflicts can be avoided and resolved if arise because of good governance strategies that govern not only the business but also the family that runs that business. In this paper, I intend to describe a family business I learnt about on the internet and a governance issue related to it. Many small and medium sized family businesses are running in India today that contribute a great percentage of GDP to the country. But most businesses survive only until the third generation and very few pass on to the fourth generation because of generational conflicts and difference of opinions and perspectives between the elders and the youngsters of the coming generations.

The family business I learnt about was the Ambani Family of the Reliance Industries Limited (RIL). It is “the largest private sector enterprise in India, a Fortune 500 company, and one of the largest private sector conglomerates in the world” (Shah). In this business, the family relationships once held very much importance in determining the business position of a family member. According to Reliance Industries Limited, Backward vertical integration has been the cornerstone of the evolution and growth of Reliance.

Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration - in polyester, fibre intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production - to be fully integrated along the materials and energy value chain. Common governance issues that normally arise in Indian family businesses include decision-making being centralized; proxy sons holding control; owner becoming larger than the business; and a lack of strategies.

The Ambani family had power, wealth, and control. After the death of Dhirubhai Ambani, his sons Mukesh and Anil split up and the family business broke. The governance issue here was the fights and conflicts between the family members who ran the business. Neither the higher educational degrees nor the experience could save the family squabbles to occur. A dispute over the control of power was the main governance issue that resulted in the splitting of the business. The dispute began with conflicts over roles in July 2002 and continues till the current disagreement over the price of natural gas when the brothers started accusing each other drawing government ministers and other politicians into the battle.

Ambani versus Ambani rivalry has made the two brothers lose a big US$1 billion project in a competition to win the Mumbai Trans Harbor Link, and fame of course. Governance issues like this one bring bad name to the organization and are the main cause of splitting up or failure of a business that was running smoothly and earning large profits before the dispute. What we can learn from this particular case is that the family members especially those who are so close to each other like brothers, should make certain family pacts and policies before starting the alliance so that they know what are their limits and what needs to be done in case of a conflict.

The family members should most necessarily be able to keep their family relationships and the business relationships apart so that both do not coincide and result into a dispute that is aired by bad family relationships. It is very hard in family businesses for the partners to keep their otherwise relations apart from