More than 80 per cent of Indian businesses are family-owned, but only a fraction of them – less than a fifth – have bothered to institute a succession plan.

The predicament intensifies for Indian business dynasties that ascended to prominence before or around Independence and are now confronted with the daunting task of transferring control to the third generation. Their journey is fraught with challenges as they grapple with the complexities of generational transitions amidst a rapidly evolving market landscape.

Regrettably, many of these families find themselves fading into obscurity, casualties of their own inertia and inability to adapt to the shifting sands of time.

Caught between the tug-of-war of tradition and modernity, these families struggle to strike a balance. While the younger cohort champions innovation and digitalisation, the older guard clings steadfastly to entrenched practices, reluctant to relinquish the hallowed legacy of the family name.

The globalised economy presents both opportunities and challenges for these businesses. While it offers access to new markets and technologies, it also increases competition and requires adeptness in navigating complex international business landscapes.

Industries and consumer preferences are constantly evolving, requiring businesses to remain agile and adaptable. The ability to anticipate and respond to market trends and technological advancements is essential for long-term sustainability.

Establishing robust corporate governance practices is vital for maintaining transparency, accountability, and investor confidence. Failure to implement effective governance mechanisms can lead to reputational damage and regulatory scrutiny.

Ensuring a smooth transition of leadership from one generation to the next is a critical challenge. Poor succession planning can lead to conflicts, power struggles, and instability within the business. It requires careful grooming and preparation of successors, as well as clear communication and transparency among family members.

Internal family dynamics can pose significant challenges to the business's smooth operation. Personal rivalries, conflicting interests, and generational differences may hamper decision-making and create divisions within the family.

Despite these challenges, some Indian business families have successfully navigated generational transitions and positioned themselves for continued success. Indian family businesses have family tradition on one side of the coin, and modernity on the other.  This duality serves many well, and yet is the biggest stumbling block for most. Many assume that genes determine succession plan automatically.

The Indian business families ecosystem differs significantly from both the Western world and its Asian neighbours, with distinct cultural nuances shaping its dynamics. Unlike in the West, where corporate structures often prioritise shareholder value and professional management, Indian business families place a strong emphasis on personal ownership and familial ties.

In Asia, particularly in countries like China and Japan, the concept of family name and lineage holds significant importance, mirroring the sentiment prevalent in Indian society.

In these cultures, the family name is intricately tied to the business's identity, making every aspect of the enterprise deeply personal for the owner families. Decisions are often guided by maintaining the family's reputation and legacy, sometimes at the expense of short-term profits or professional management practices.

Succession planning often fails in Indian business families due to a combination of factors.

Firstly, there's a strong emphasis on family hierarchy and tradition, which can lead to conflicts over who should inherit leadership roles. Additionally, many families struggle with communication breakdowns and lack of transparency regarding business decisions, which hampers the smooth transition of power.

Cultural norms also play a role, with patriarchal structures sometimes inhibiting the recognition of talent outside the male lineage. Moreover, the reluctance to seek professional advice or involve external experts can limit the adoption of best practices in succession planning.

Finally, personal rivalries and power struggles among family members further complicate the process, making it challenging to reach consensus on a succession strategy that benefits the business's long-term interests

Godrej Lessons

Succession planning efforts require significant time and attention from business families. The size of the family and the intricacies of the business play crucial roles in determining the duration of the planning process, which typically ranges from one to four years for design and decision-making.

The 127-year-old Godrej group's meticulous planning and transparent approach to splitting their businesses across existing family lineage lines over the past four years sets a commendable precedent for other Indian business families.

This division is distinguished by its clarity and foresight, ensuring that successors comprehend their roles and responsibilities, thus minimising the risk of future conflicts. Central to it is the principle that clarity begets harmony.

By mutually agreeing to exit each other's companies and divesting their stakes, the Godrej family has established clear boundaries, allowing each successor to govern their respective entities without encroachment or ambiguity.

Notably, the autonomy granted to each branch further reinforces this clarity, with Adi and Nadir Godrej divesting their stakes in Godrej & Boyce, while Jamshyd Godrej and his family transfer interests in Godrej Consumer Products and Godrej Properties. This strategic move ensures that conflicting interests are mitigated and control remains unimpeded within each family lineage.

Moreover, the proactive approach to preempt potential sources of contention by reaching separate agreements governing ownership rights underscores their commitment to maintaining the integrity of the division. This serves as a valuable lesson for the wider business community grappling with succession battles and familial disputes.

That said, each succession planning endeavour is uniquely tailored to the specific family involved, taking into account the complexities of its challenges and the individual aspirations of potential successors. Therefore, there is no one-size-fits-all approach in succession planning; it cannot be copy-pasted from one family to another.

What Comes In The Way Succession Planning

It is an unfortunate reality that nepotism continues to prevail as a steadfast norm in many Indian businesses. Succession planning, a critical aspect of corporate governance, often takes a backseat to the interests of influential families and individuals.

Despite claims of professionalism, many organisations prioritise blood ties and personal relationships over meritocracy, undermining the very principles they should uphold. This systemic nepotism stifles innovation and growth while marginalising deserving talent.

The reluctance to pass on leadership positions and make way for new leaders is a deeply ingrained problem within Indian leaders and boards. Driven by a sense of entitlement and a fear of losing control, incumbents hold tightly to their positions, often at the expense of the company's long-term interests.

The lack of proper succession planning breeds stagnation, denying fresh perspectives and diverse skill sets to shape the organisation’s future. This vicious cycle perpetuates mediocrity and hampers innovation and adaptability.

Despite possessing native intelligence, global insights, traditional wisdom, and receiving wise counsel, corporate India lags behind in proactive succession planning. Even regulatory requirements fail to spur adequate action in this regard.

Perhaps heightened investor awareness and engagement could apply pressure on Indian corporates to prioritise succession planning. If institutional investors and shareholders actively interrogate existing succession strategies during annual general meetings and demand accountability from boards, the topic might get the attention it deserves.

In the high-stakes arena of succession planning, where competency assessments, endless negotiations, and familial patience hold sway, one would expect common sense to guide a fair and logical transition of power. However, reality often paints a different picture.

Emotions, fuelled by longstanding family dynamics and personal agendas, frequently disrupt the process, relegating common sense to the sidelines. Sadly, emotions tend to emerge victorious, leaving rationality and equity as casualties of familial strife.

Third Generation And Lessons

Businesses where the third generation has frittered away fortunes due to poor succession planning serve as cautionary tales, highlighting several key lessons:

Lack of Preparation: Inadequate preparation and training of successors can lead to mismanagement and poor decision-making. Successors need to be groomed from an early stage to understand the details of the business and its operations.

Failure to Adapt: Businesses that fail to adapt to changing market dynamics and consumer preferences risk becoming obsolete. Successors must possess the agility and foresight to innovate and pivot when necessary.

Entitlement and Complacency: Third-generation heirs may fall into a trap of entitlement and complacency, assuming that wealth and success are guaranteed. This mindset can lead to neglecting the business's core values and strategic direction.

Lack of Governance: Weak corporate governance structures can result in conflicts of interest and mismanagement of resources. Clear policies and procedures should be established to ensure accountability and transparency.

Ignoring External Expertise: Disregarding the advice of external experts and consultants can limit the business's ability to adapt and thrive. Successors should be open to seeking guidance and leveraging external expertise to navigate challenges effectively.

Ignoring Market Trends: Businesses that fail to stay abreast of market trends and emerging technologies risk falling behind competitors. Successors must prioritise market research and innovation to remain competitive in the ever-evolving business landscape.

Overextension and Diversification: Pursuing overly ambitious expansion strategies or diversifying into unrelated industries can stretch resources thin and dilute focus. Successors should carefully evaluate growth opportunities and maintain a strategic focus on core competencies.

Contrasting Outcomes 

Indeed, the contrasting outcomes between the successful reorganisation of the Godrej Group and the tumultuous situations faced by the Kalyanis and Singhanias, amongst other reputed and large Indian business families, offer valuable lessons for family-owned businesses.

From the Godrej Group's restructuring, one can learn the importance of transparency, meticulous planning, and clear delineation of responsibilities. Conversely, the ongoing feuds within the Kalyani and Singhania families underscore the destructive consequences of internal discord and unresolved disputes.

In the case of the Kalyani family, decades of sibling rivalry and infighting have resulted in a potentially fractured business empire, jeopardising shareholder trust.

Similarly, in the Singhania’s' case, differences in stake ownership between generations, father and son in this case, coupled with bitter personal conflicts and a failed marriage with a public spat, have created a toxic environment that undermines the interests of minority shareholders and erodes investor confidence.

But with every such challenge, business families strive to overcome these issues and go ahead, with some success.

While at these recent examples, it would be imprudent to speculate on names of Indian business families that would sail smoothly into their next generation.

Ultimately, the experiences of these families serve as cautionary tales, reminding us of the fragility of family-owned enterprises and the need for proactive measures to safeguard their sustainability and success.

Often the “self destruction” button is pressed within the family with their undue expectation or poor communication. They simply forget that unless their business is relevant to their consumers, they fail to exist.

Families that prioritise succession planning and approach it with earnestness tend to succeed into the next generation. When successive generations within a family business grasp both their responsibilities and entitlements, it cultivates clarity and coherence in their roles. This clarity not only empowers individuals to chart their own paths and futures within the business but also upholds the warmth and legacy of the family unit.

Succession planning demands diligence and sensitivity, with a focus on the long-term interests of the business and its stakeholders above personal agendas. The true measure of a succession planning's success lies in its endurance over time. Everything else is mere history, devoid of value or glory.

(Srinath Sridharan is a Mumbai-based policy researcher and corporate advisor. Views expressed are personal)