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SatyaBansal|Commonmythsaboutsuccessionplanning
Successionplanningneedstoberecognizedasimperativetosustainedgrowth
Likeinmostotherpartsoftheworld,familyownedbusinessesin
India,accordingtoaKPMGreport,accountfortwothirdsofthe
countrysgrossdomesticproduct(GDP)and90%ofthegross
industryoutput.Thatinitselfwouldgiveoneasenseofjusthow
criticalarolethesebusinessesplayintheeconomy.Yet,only13%of
familyownedbusinessessurvivetothethirdgeneration,andonly
4%tothefourthgeneration.
Whileitcanbearguedthatthegenerationaldeclineoffamily
businesseshasbeentheresultofarapidlychangingeconomic
landscapethatthesefamilieshavenotbeenfastenoughtoadaptto,
inmanycases,itultimatelyboilsdowntothereluctanceofmost
headsoffamiliestoconfronttheawkwardissueofsuccession
planning.
AfilephotoofRahulBajaj(centre)withsonsSanjiv(left)and
RajivoftheBajajGroup.FamilybusinessesinIndia,
accordingtoaKPMGreport,accountfortwothirdsofthe
countrysgrossdomesticproduct(GDP)and90%ofthe
grossindustryoutput.Photocourtesy:BajajArchives

Successionplanningneedstoberecognizedasimperativeto
sustainedgrowth.However,moreoftenthannot,familybusiness
ownersavoidhavingthisconversationsincetheybelievethatthey
stillhavetimetodealwiththeprocess.Butmostbusinessownersact
onlywhenacriticalevent,suchasdeathorillness,takesplaceby
whenthebenefitsofasmoothsuccessionplanningprocesscan
neverbehad.Almostalways,themannerinwhichfamilywealthis
thendevolvedtothenextgenerationishastyandviewedbythebeneficiariesasbeingunfair,inturnleadingtounpleasantnessandrivalry
amongfamilymembers.Thesearesomeofthecommonmythsseenwithsuccessionplanning:
Ownershipsuccessionissynonymouswithmanagementsuccession:ManyIndianbusinessfamiliesfailtorecognizethedifference
betweenownershipandmanagement.Itisusuallyunderstoodthatonthedemiseofthepatriarch,itbecomesthebirthrightofthesontotake
overthebusiness,withoutanalysinghiskeystrengthsorweaknesses.Thereisneedtounderstandtheimportanceofsegregationbetween
economicownershipandmanagement,whichwillallowthefamilytoleverageprofessionalorfamilyexpertisetogrowthebusinesswhile
allowingwiderfamilymembersandthenextgenerationtoenjoythefruitsofsuchgrowth.Inrecenttimes,manybusinessfamilieshaveused
toolssuchasfamilytrustsandfamilyconstitutionstoachievethisobjective.
Bschooleducationsubstituteforfamilyinduction:Withtheirbusinessesbecomingglobal,mostfamiliesstrivetogetthebesteducation
forthenextgenerationfromrenownedbusinessschools.Thereis,however,afailuretorecognizethatcarefulpreparationisrequiredboth
ontechnicalandfamilygovernanceaspectsforensuringseamlessmovementfromonegenerationtothenext.Thenextgenerationneeds
notonlytechnicalexpertise,butalsoanunderstandingofthevalueswithwhichfamilybusinesseshavebeensetupandrun.Thiswillallow
themtomakeinformeddecisionsaspotentialmanagersofthebusinessandasresponsiblefamilybusinessowners.
Familybusinessownerslackcommunicationskills:Often,therearecaseswheremembersofbusinessfamiliesdonotcommunicate
openlyenoughwitheachother.Whiletheydoshareanamicablerelationshiponthesurface,theystilldonotexpresstheirfeelingsand
emotionsstronglyenoughtohaveameaningfuldiscussiononthesubjectofsuccessionplanning.Therecouldbebarriersduetoageand
evendifferenteducationalbackgrounds.WehavecomeacrosscaseswhereGenNextmemberstellus:Canyouhelpmeexplaintomy
fatherorunclewhyweshouldhavethis?Butwhenweaskthemwhethertheyvespokentotheireldersaboutthis,theanswerattimesis,
Notyet.Again,mosttraditionalIndianfamiliesarereluctanttoopenlyspeakabouttheextentoftheirwealthwiththenextgeneration.Their
concernisthatdisclosingdetailsofhowwealthytheyarewillgivetheyoungergenerationafeelingofgrandeurorresultinafeelingof
affluenza.Someevenbelievethatthismayleadtothembeingtakenadvantageofbyunsavouryelements.Theytendtoavoidtalkingabout
theextentoftheirfamilywealthanddynamicsuntilitstoolate.Thisusuallyresultsinacompletelyblindsidedentryofthenextgeneration
intothebusiness.
Theequalisfairconundrum:Manyfamilybusinessownersfeelthatleavingtheirwealthequallydividedbetweentheirchildrenisafair
wayofdistributingwealth.Butisitthebestway?Letstakeasituationwhereinafamilybusinessownerhasthreechildren,ofwhichonlytwo
areinvolvedinthebusiness.Hedecidestodividetheassetsequallyamongallthree.Thetwoinvolvedinrunningthefamilybusinessmay
notfindthedivisionfair,resultinginafragmentedfamily.Considerationneedstobegiventowhetheradditionalbenefitoughttobegivento
workingmembersofthefamilyascomparedtononworkingmembers.Aspectsliketheseneedcarefulplanningandstructuring.
Successionplanningforfamilyownedbusinessescouldhavecomplextaxandlegalimplications.Assuch,theearlierafamilybusiness
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ownerstartsplanningonusingsubjectmatterexpertstohelpwiththeprocess,thebetterthechancesofsuccess.Itisalmostimpossiblefor
anyonetopredictthefuture,butaneffectivesuccessionplanforfamilybusinessesiscertaintoensureaunifiedfamily.
SatyaBansalischiefexecutive,wealthandinvestmentmanagementIndia,BarclaysWealth.

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