Indian Family Businesses: Few clear on succession, why others need to worry?

This article was first published in the Financial Express on November 07, 2024; Co-author: Shailendra Agarwal; https://www.financialexpress.com/opinion/indian-family-businesses-few-clear-on-succession-why-others-need-to-worry/3658620/

Succession is one of the most important issue facing family businesses, yet only about 21% of the 106 family business leaders surveyed agreed to having a robust, documented and communicated succession plan, in India (PwC India Family Business Survey 2019). Other global surveys tell a similar story highlighting a serious oversight that could lead to business failure, family disputes, and the erosion of wealth that has taken generations to build.

Family businesses form the backbone of India’s economy, but many struggle with the complexities of succession. Take the Singhania family of JK Group as a case in point. Once one of India’s most illustrious business families, the Singhanias faced protracted legal and family disputes when succession planning took a backseat. Disagreements among family members over leadership of the iconic Raymond brand left the company embroiled in controversy, impacting both business operations and family relationships. This example highlights the importance of clear, proactive succession planning to avoid potential instability and disputes.

While succession planning is widely discussed, many family enterprises fail to act in time. Delays or ambiguities in leadership transitions can destabilize both the family legacy and business stability. In this article, we explore why proactive succession planning is critical, along with strategies for navigating the emotional and family dynamics that often accompany generational transitions.

A Legacy in Limbo

Succession in family businesses is about more than passing on a title; it’s about preserving a legacy. Without a formal, proactive plan, businesses risk destabilization, internal conflict, and financial loss. Consider the example of Beri Constructions (names disguised). Founded by Jayesh Beri's grandfather, the company was left vulnerable when his uncle, refusing to step down, blocked Jayesh’s advancement. Frustrated, Jayesh left to start his own venture, leaving Beri Constructions rudderless. Eventually, it was sold under duress at a fraction of its worth. A lack of succession planning had cost the family dearly.

In contrast, Shah Motors, a billion-rupee enterprise, took a different route. The founding brothers initiated succession planning early, training and mentoring the next generation. By aligning family goals with business needs, they created a smooth leadership transition that preserved both family unity and business prosperity.

The Emotional Roadblocks

The complexity of succession planning often lies more in emotions than in economics. Founders may struggle to step aside, fearing a loss of control and identity, while successors feel frustrated or entitled. The key lies in managing these dynamics openly and with empathy. Founders who proactively mentor successors and gradually hand over responsibility foster a healthier transition. This approach not only strengthens business resilience but also keeps family bonds intact.

Strategies for Effective Succession

For family businesses to thrive through generational change, succession planning must be intentional and structured. Here are five proven strategies:

·       Start Early: Succession planning should begin years before the transition, giving successors time to build experience and competence.

·       Prioritize Merit Over Entitlement: Choose successors based on capability, not family hierarchy. Future leaders should have the skills and vision necessary for business continuity.

·       Clarify Roles: Defining family and non-family members' roles within the business minimizes confusion and conflict.

·       Mentorship, Not Micromanagement: Founders should act as mentors, not controllers, allowing successors to lead effectively while providing guidance.

·       Plan for Contingencies: Succession plans should include contingencies for unforeseen events, ensuring stability in crises.

Redefining Roles for Smooth Transition

One overlooked aspect of succession is the incumbent’s transition. Rather than clinging to day-to-day leadership, founders should gradually step back, redefining their role to ensure continuity. This gradual handover not only stabilizes the business but also helps the outgoing leader adjust emotionally.

The Choice is Yours

Succession in family businesses is inevitable. It can be a smooth handover or a chaotic scramble—depending on how prepared you are. As with Shah Motors, a thoughtful succession plan can protect your legacy and keep your business resilient. Without it, the family’s hard-earned wealth and reputation risk fading into obscurity.

Failing to plan for succession is like handing over the keys to someone unprepared: the journey might continue for a while, but it’s bound to derail eventually. The choice is clear: prepare now or pay later.