The Importance of Succession Planning in Family-Owned Businesses
Succession planning in family businesses in India is imperative, as many of these enterprises are closely tied to promoters and families. According to Sethurathnam Ravi, former Chairman of the Bombay Stock Exchange (BSE), family disputes are common in Indian corporates, and a lack of clarity in transition is a primary cause of these issues. Without proper succession planning, businesses can be disrupted or even destroyed, making smooth transitions essential for the continuity and prosperity of family-owned enterprises.
Challenges in Transition: A Perspective from S Ravi, BSE
Sethurathnam Ravi BSE emphasizes that a structured approach to transition is crucial, as several factors influence the path to a smooth succession. These challenges include the family structure, skill sets of family members, their aspirations, the ceding of control, family wealth, the nature of the business, and the relationships among family members. Understanding and addressing these complexities is key to ensuring a successful transition.
Early Identification and Grooming of Successors
According to S Ravi BSE, successful transitions begin early, with the identification and grooming of successors who are equipped to carry on the family’s mandate. The selection of potential successors should be based on their skill sets and aspirations, with a focus on domain knowledge and administrative capabilities. Factors such as family size and the number of aspirants also play a significant role in determining the future direction of the business.
The Role of Family Charters and Corporate Governance
Sethurathnam Ravi highlights the importance of establishing family charters and councils, which should include a well-drafted succession plan and family arrangement. These arrangements should cover business operations, estates, family wealth, and the distribution of assets. In the case of listed companies, the board structure and corporate governance must be aligned with SEBI guidelines to ensure compliance.
Conflict Management and Professional Management as Interim Measures
Conflicts are inevitable in family-run businesses, and Sethurathnam Ravi BSE stresses the need for robust family charters and mediation mechanisms to manage and mitigate these disputes. Mid-course corrections should be made after reviewing the family arrangements and their effectiveness. In instances where successors are not yet ready to take over, some families may opt to bring in professional management as an interim measure. This allows the business to continue operating smoothly while preserving family control.
Future-Proofing Family Businesses: The Way Forward
Sethurathnam Ravi also underscores the importance of considering various elements in succession planning, such as tax planning, gifting, asset transfer, creditor management, governance structure, and creating future-proof strategies. He notes that the track record of family disputes in Indian corporate history serves as a cautionary tale, emphasizing the need for proactive planning to ensure a smooth transition.
Promoters, according to Sethurathnam Ravi, must start early in their planning efforts to ensure that the brand and business remain in capable hands. Transitions are inherently complex, and families must handle them with care and within a time-bound framework to avoid business disruptions. Various structures and realignments can be tailored to specific situations, but the key is to initiate a plan that can withstand the test of time.
Comments