Home Away from Home
If a clutch of scions is keen to do its own thing, there is a
bunch of elders, too, that sees alternatives to the progeny as suitable
successors. The succession algorithm in India's family-owned businesses has
changed
Business successions can be come messy -both in
family-controlled busi nesses such as Raymond, where there are multiple court
battles being fought between generations of the Singhania family and in a more
professional setup such as Infosys, where professional CEO Vishal Sikka quit
late last week, unable to manage the constant criticism by company founders,
led by NR Narayana Murthy.
In business families, there's additional pressure to manage
professional expectations of family members who will also become substantial
shareholders some day. The saving grace in the Infosys saga is that the
children of the Infy founders mostly do not look at the company as their career
-they have too many other things to choose from.
Farhad Forbes, co-chairman of Pune-based engineering company
Forbes Marshall, who used to head India's Family Business Network set up under
the CII, feels liberalisation of the 80s-90s and lower taxes were key to change
in attitude, where families do not any longer see the need to have their
children run the business.
Forbes, who is now vice-chair of the global parent body Family
Business Network International, Switzerland, says, “Up to the 1980s, due to
high taxes, it was imperative for an Indian business owner to be employed in
the business and draw a salary and get other facilities as perks to be able to
make a living. That has changed after liberalisation and lower taxes made it
possible for business owners to generate enough wealth and also earn dividends
to support a decent lifestyle without drawing a salary.“
Today, a lot of family businesses are seeing this choice being
exercised.
OF
GREEN SHOOTS AND SUITABILITY
In mid-June, as Mumbai awaited full onset of the monsoon,
members of around 50 high networth business families got together at the iconic
Taj Mahal Palace & Towers hotel to witness presentations by four promising
startups seeking capital. While mostly in their 40s and 50s, there were some
older businessmen too. Some had sold their businesses and were sitting on a pile
of cash, others were young scions in their 30s attending along with their
spouses. Some families were represented by a CEO or a family-office manager.
The opportunities -one each in peer-topeer lending, artificial
intelligence, fintech and parking solutions -were lapped up and friends and
family pooled in to make up the cash pile required to buy decent-sized stakes.
Manmohan Tiwana, event organiser and founder of Wodehouse
Capital, feels many of the younger generation of business families would rather
not be involved in the empire but be an investor. “If they have to manage, it
would rather be a new idea starting from scratch that they can scale up
quickly.“ Wodehouse offers family office services, advises business families on
managing wealth, helps break up businesses and create succession plans. Tiwana
often sees family business owners exploring a larger set of options when
deciding on the next generation.
While choice is a luxury, inexperience is often the bane. With
rapid growth in the last decade and a half, Indian business families find their
companies have scaled up much before their next generation can mature.
Says John A Davis, professor at Harvard Business School and
founder of Cambridge Family Enterprise Group, “Typically, companies would grow
and change less in a generation, allowing the next to get adequate experience
moving up through the organisation and prepare for leadership.Today, with
companies growing and morphing so much in a short period of time, the
assumption is that the next generation can't gain skills necessary in such
large, complex and professionalised organisations.“
Then there is, of course, the question of what is best for the
business. Kavil Ramachandran, professor at Indian School of Business, says
India has two types of business families today -the institution building type
for which business decisions are not influenced only by family membership (Godrej, Murugappa, Wipro, Dabur); and the second type, for
which business is for the family and family employment is critical.
IT'S
BUSINESS, NOT PERSONAL
Forbes of Forbes Marshall lays it out clearly. “It is critical
for all family members that the business does well. So families have to put the
best available person in control -be it a professional or a family member.“
Forbes explains that sometimes, a family member with all the
early conditioning and exposure turns out to be the better choice to take over
as CEO.
Almost as if to prove that scions can manage businesses too,
Harvard's Davis has actually compiled a global list of those ready to take over
from their parents and make an impact.
There is a flip side too, as Ramachandran points out, about
families who see employment in the business as critical. “Such family
businesses tend to split up in every one or two generations. You will find the
next generation of such families occupying leadership positions at an early
age.“
In India, there are examples of all kinds -families grappling
with succession, almost bringing in a direct handover of CEO roles between
generations and also letting the next generation do their thing. Arihant Patni,
a second generation Patni, now heads the Patni family office, apart from
managing a couple of funds, after the core family-owned business was sold to
iGate in 2011.
SK Munjal, youngest son of Brij Mohan Munjal, who quit his joint
managing director position at Hero MotoCorp at age 56, now heads the family
office, apart from looking at acquisition opportunities and driving corporate
social responsibility.
Pharma company Lupin has seen founder Desh Bandhu Gupta's son
and daughter Nilesh and Vinita take over the reins after a professional
manager, Kamal Sharma, led the company for some time. Sharma is still
vice-chairman.
At Ceat, Anant Goenka took over as MD at the young age of 30,
after serving as deputy to Paras Chowdhury.
In May, Adi Godrej's daughter, Nisaba, 39, took over as
executive chairman of Godrej Consumer Products. It is never easy to explain
such transitions or keep it smooth. In an interview a day after the transition
was announced, Adi Godrej said, “As a family, we have decided not to comment
on this subject.“
Like Wodehouse, many others are finding this an opportunity to
advise traditional business families.Vishesh Chandiok, managing partner at
audit and advisory firm Grant Thornton India, says family business services is
a focus area for the entire firm. Chandiok points out that his father remains
chairman of the audit firm affiliated to GT in India and in that sense, he
himself is a product of a family business succession.
For a smaller company -less than `100 crore -Chandiok feels it
is imperative the owner remains CEO as there is need for entrepreneurial
zeal.Various models can exist for operations between `100 crore and `10,000
crore. For a larger group that has grown beyond `10,000 crore, the owner is
more like a mentor. “If you take the Ambanis, Anil or Mukesh, they are less
CEOs and more business mentors for people who are running the various businesses,“
Chandiok notes.
Planning
for the Scion: How to do it
Set aside `100 crore and mandate bankers to find two fast
growing businesses for the two next-gen members to take over as they come of
age
Induct children into the family business for five years for
experience and then hive off an arm for them to own and manage
Create a family office and let the children be occupied
full-time managing the family's investments
Size Matters
HOW
SIZE OF BUSINESS TENDS TO DETERMINE SUCCESSION
Sub Rs 1,000 crore companies
Still entrepreneurial and likely to introduce children into
business with a direct line of succession
Between Rs 1,000 crore & Rs 10,000 crore
Next-gen members more likely to be keen to move out or be on
boards
Above Rs 10,000 crore
Older generation tend to play the role of mentors and strategic
advisors even if they have executive roles
Suman Layak Aug 22 2017 : The Economic Times (Mumbai)
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