Guarding Legacies in Family business – the success mantra
By Sandeep Nerlekar
Global research shows that most business families cannot survive together for more than three generations. As per the Family business statistics only 3 out of 10 family businesses survive into second generation, only 1 out of 10 handed down to a third generation.
This year we witnessed many leading companies in India striving hard to get a worthy successors including large leading companies like TATA, Infosys & Raymond. All the three had to face issues and criticism in reference to their succession planning. Today, Globalization, multi-functional business environment, stricter government and board norms and rapid technological changes are leading towards quick entries and exits of CXO’s. This in many ways has once again bought forth the legacy issues which somehow remained unanswered in spite of various examples in the past. While all businesses go through the cycle of profit & losses, succession is an important and critical part of business planning. Although the most obvious, this still remains a challenge for many.
Challenges faced by Family Business
– Lack of clarity in terms of Estate devolution
– Complex Asset classes
– Multiple stake holders
– Values, Mission and Vision statements for family
– Insecurity towards ownership of assets
– No clear distinction between personal and business assets
– Asset Protection
– Exit options
– Next generation Patriarch holds the reigns
– Business continuity
– Business Leadership
– Business control
– Lack of Freedom
– Biases and lack of clarity of roles and responsibilities
– Personal Aspirations
– Lack of clarity in terms of Remuneration and Reward
– Lack of information downloaded to family members
On one hand, Estate planning consists of Wills, Family Trust and Asset protection. On the other, Family business planning consists of Family constitution, Family office and Family charter. In order to overcome the probable contingency of business failure due to internal family challenges one needs to consider a comprehensive plan i.e. The Family Business Succession Plan.
Objectives of Family Business Succession Plan
– To avoid problems or solve them before they occur
– To reduce future family tension
– To strengthen the family
– To clarify family’s positions and reduce misunderstandings
– To help the family sort out its values and what it stands for
– To Improve future decisions
– To create more enthusiasm for and knowledge of the business
– To increase the likelihood of long term business and family success, survival and prosperity.
Common Mistakes in Family-Based Succession Plans
– Not preparing yourself
– Not preparing your successor
– Not preparing the business
– Not really giving up control
– Hanging on too long
– Not securing your retirement money
– Not including your successors in the planning process
– Not doing a commercially sensible deal
Benefits of Family Business Succession Plan
An ideal business family is the one which understands that the survival of the business is important for the survival of the family. They do realise that if the business fails then the family’s future is also doomed. They put the business interest ahead of the family and their personal egos or aspirations. They are happy to let go the management if they feel that professionals can manage the business better.
If the family is wise enough to understand these challenges, they need to work on it. They need to have a combination of structures, processes and policies in place which can help them to coexist together and live in harmony and also have enough family wealth which can help them grow and maintain their lifestyle. This does not mean that they need to live in the same house. They can live apart but still coexist in the business. Business families need to understand that their lifestyle and basic living is dependent on the business, so if the business survives they will survive. Business can be owned by the family but not necessary they need to run it. Business continuity is more important than mere control. Therefore, the business families need to understand that Guarding Legacies in Family business is the success mantra and key to success.
The writer is CEO & MD of Terentia Consultants