Keys to Family Business Success

12 essentials for striking the right balance in a family

business

1. Set some boundaries. It’s easy for family members involved in a business to

talk shop 24/7. But mixing business, personal and home life will eventually
produce a volatile brew. Limit business discussions outside of the office.
That’s not always possible, but at least save them for an appropriate time —
not at a family wedding or funeral, for example.
2. Establish clear and regular methods of communication. Problems and
differences of opinion are inevitable. Maybe you see them already. Consider
weekly meetings to assess progress, air any differences and resolve disputes.
3. Divide roles and responsibilities. While various family members may be
qualified for similar tasks, duties should be divvied up to avoid conflicts. Big
decisions can be made together, but a debate over each little move will bog
the family business down.
4. Treat it like a business. A common pitfall in a family business is placing too
much emphasis on “family” and not enough on “business.” The characteristics
of a healthy business may not always be compatible with family harmony, so
be ready to face those situations when they arise.
5. Recognize the advantages of family ownership. Family-owned businesses
offer unique benefits. One is access to human capital in the form of other
family members. This can be a key to survival, as family members can
provide low-cost or no-cost labour, or emergency loans. Firms run by trusted
family members can also avoid special accounting systems, policy manuals
and legal documents.
6. Treat family members fairly. While some experts advise against hiring
family members at all, that sacrifices one of the great benefits of a family
business. Countless small companies would never have survived without the
hard work and energy of dedicated family members. Qualified family members
can be a great asset to your business. But avoid favouritism. Pay scales,
promotions, work schedules, criticism and praise should be even handed
 between family and non-family employees. Don’t set standards higher or
lower for family members than for others.
7. Put business relationships in writing. It’s easy for family members to be
drawn into a business start-up without a plan for what they will get out of the
business relationship. To avoid hard feelings or miscommunication, put
something in writing that defines compensation, ownership shares, duties and
other matters.
8. Don’t provide “sympathy” jobs for family members. Avoid becoming the
employer of last resort for your kids, cousins or other family members.
Employment should be based on what skills or knowledge they can bring to
the business.
9. Draw clear management lines. Family members who often have a present
or presumed future ownership stake in the business have a tendency to
reprimand employees who don’t report to them. This leads to resentment by
employees.
10. Seek outside advice. The decision-making process for growing a family
business can sometimes be too closed. Fresh ideas and creative thinking can
get lost in the tangled web of family relationships. Seeking guidance from
outside advisors who are not affiliated with any family members can be a
good way to give the business a reality check.
11. Develop a succession plan. A family business without a formal succession
plan is asking for trouble. The plan should spell out the details of how and
when the torch will be passed to a younger generation. It needs to be a
financially sound plan for the business, as well as retiring family members.
Outside professional advice to draw up a plan is essential.
12. Require outside experience first. If your children will be joining the
business, make sure they get at least three to five years business experience
elsewhere first. Preferably in an unrelated industry. This will give them
valuable perspective on how the business world works outside of a family
setting.

Things for running a family operation:

1. Identify strengths. Determine exactly what knowledge and skills each person
can contribute to the business, then accept those strengths for what they are.
 If you’re terrible with numbers but your brother happens to love bookkeeping,
just be happy that you’ve got your bases covered.
2. Set clear expectations. Knowing everyone’s strengths will help define roles
in the organization. Who’s in charge of marketing? What about hiring? Are
you better suited to handle operations or close business deals? No matter
where the responsibilities fall, set expectations and establish boundaries for
each role. You don’t want someone playing in your sandbox when he’s got his
own.
3. Be flexible. In a perfect world, we’d each have one job to do. But being an
entrepreneur is another story. You need to be willing to offer help when
needed, even if it’s outside your comfort zone. You will make mistakes, but
staying flexible and being unafraid to try new things will make you more
resilient and ultimately benefit your business.
4. Use every excuse to keep learning. Five years from now, your job won’t
look like it does today. If it does, you probably didn’t take enough risks. To
manage the change inherent to start-ups, learn the next thing, the necessary
thing, the trendy thing and, of course, the harder thing.
5. Never take work home. I’m a strong believer that lunch is for work and
dinner is for family. When your family gathers for celebrations, make them
about family, not business. Other members of your family don’t necessarily
want to hear what happened at your last meeting, so don’t subject them to
business talk.
Essentials for Family Business to Thrive
 Give each other space: Establish a structure that allows for supervision and
cooperation without meddling or inadvertent power plays.
 Hold each other accountable: Establishing systems to hold each to certain
standards is key to the success of family businesses. “You need to set
expectations upfront”. Discussing concrete goals and responsibilities. That way, if
someone is not performing, the solution can be centred on exact business issues,
instead of emotional and personal disagreements.
 Leave work in the office: “We’re all committed to leaving work at work as best
we can”. Sometimes it is hard—almost impossible—to leave work in the office
when your co-workers are your family. However, the division is important. When
you’re with your family after hours, make a promise not to talk shop. In the end,
family ties need to be maintained just like business connections.
 And leave home at home: Never bring up personal arguments in the context of
business disagreements.
 Check for blind spots: “With families, there can be blind spots”. If everyone
running the company has similar attitudes, values and loyalties, potential
 problems may be missed. Make sure you have individuals in your company who
can offer valuable outside perspective.
 Open the lines of communication: Establish routines, such as weekly
meetings, to openly discuss problems and progress, preventing business issues
from becoming familial baggage.
 Be realistic about your job responsibilities: A hard truth for family patriarchs
and matriarchs is that not every child is going to be CEO material. “Understand
your strengths and weaknesses. “You can still own the company, but unless you
have the skills of a successful CEO, hire someone to do that for you.” Family
businesses can draw strength from recognizing that not every child should be
CEO. Critically examine each member's strengths and weaknesses and build
from there.
 Embrace the strengths of family: While family and business relationships can
be difficult to navigate, it is more than worth it for the families that find success in
the field. Families share values, trust each other and have each other’s backs in
a way few traditional businesses understand. “At the end of the day, when
everything is working the way that it should, there is nothing greater than the
sense of accomplishment in watching your family succeed”.

Succession Planning
Family businesses drive the world’s economy. Whether a country is labelled as
“developed” or “emerging” or “third world,” at the core of each country’s economy is
its family businesses.
The World Bank estimates that anywhere from 60 percent to 70 percent of the
world’s gross domestic product (GDP) is derived from family businesses.
India, boasting a population of 1.1 billion and often categorized by the media as a
“rapidly emerging country,” has long been a nation driven by family businesses. And
like other countries dominated by family businesses, India and its families are
constantly working to ensure successful transitions from one generation to the next.
In a room filled with a combination of senior-generation leaders, next-generation
potential leaders and non-family executives, the environment was conducive to lively
interaction around succession topics that are often left unaddressed. Candid and
direct, each group’s responses to the following questions can be instructive and
helpful as you work through your own family business succession .

What business and family leadership advice would you

give to the next generation?

 Pass on our values.  The next generation to carry on the guiding principles
that help each company navigate. As Jim Collins has written, “Instead of
changing core values, a great company will change its markets, seek out
different customers, in order to remain true to its core values.”
 Effectively balance the family business and the business of the
family. Don’t let the family business overtake your personal time with family
members. One senior leader said to grow and prosper the business but not at
the expense of the family. Some of the next-generation leaders are concerned
about leading both the family business and the family. However, it was
pointed out by a senior leader that the next generation can take over the
former without having to assume leadership of the latter.
 Other advice from the senior generation to the next generation included:
 Continue to honour and carry forward the family heritage.
 Provide regular get-togethers with family to help members bond with one
another.
 Gain a strong education and meaningful experiences that could benefit the
business and leadership development.
 Be sure to have a planning process in place with an appropriate structure.
 Create an entrepreneurial and innovative work environment.
 Always be on the lookout for change and be open to change
 Lead to serve the team.
 Develop or refine a family constitution.
 Protect the family assets.
 Provide transparency of the business to the family.
 Be open and honest, including with family members’ spouses.
 Listen to input, but make your own decisions.
 Work outside the family business and gain your own identity prior to
coming into the family business.
  Join the family business only if you believe you can make a difference.
 Be willing to make sacrifices.
 Remember that leading the family business can be enjoyable and
rewarding.

What do you feel are your greatest leadership challenges and

obstacles?

 Gaining acceptance and respect of employees. The younger generation

feels it is imperative not only to gain the official position of leadership, but to
earn the support of the people in the organization. The next generation
understands that a leader cannot effectively lead alone. As family members
taking over leadership roles, next-generation leaders feel the pressure of
proving to others that they have what it takes to be a leader—that the position
was not given to them just because they are family.
 Keeping sibling relationships strong. The family business can both
strengthen and weaken family relationships. The next generation understands
that it is very important to keep these relationships strong. Many have seen
the previous generation weaken or destroy sibling relationships. They do not
want this to happen in their generation.
 Other challenges and obstacles for the next generation include:
 Coming out from the shadow of the senior generation.
 Balancing the integration of the established culture with a new culture.
 Growing profitably.
 Recruiting and retaining good people.
 Ensuring that the senior generation continues to have a good life.
 Prioritizing and selecting the right opportunities for development.
 Maximizing value for the shareholders.
 Keeping the senior generation from always looking over the next
generation‘s shoulders.
 Changing mind-sets.
 Adding more family members to the business.
 Creating a common vision that both generations share.
 Building the evolving culture.
 Differentiating between leading the family business and leading the family.
  Leading the organization to the next level.
 Addressing family conflicts openly.
 Professionalizing the organization.

How can senior generations help?

 Let GO! This was a clear, emphatic message from the next generation to
the senior generation. Some of the senior leaders acknowledged that it is
enormously challenging on a psychological level to fully relinquish the reins to
new leadership. However, for the next generation to truly lead, including
making their own mistakes, they must feel fully empowered to make decisions
and execute plans.
 Mentor and transfer knowledge. “Please teach us” appears to be what the
next generation is requesting of the senior generation. There was a distinction
made between “tell us what to do” and “explain why and how something could
be done.” Mentor and guide instead of directing. Members of the next
generation have a huge appetite for knowledge, and they want to apply what
they learn and then learn from the experience. It takes a savvy senior leader
to act as a mentor to an adult instead of a father to a teenager, which most
feel like.
 More ways the senior generation can help:
 Help make the transition from “my” culture to a professional culture.
 Complete the family constitution.
 Have in place a strong organizational structure with leadership grooming
guidelines.
 Act as a strategic sounding board.
 Help family members become attuned to transition early on.
 Stay involved in family events.
 Provide timely and constructive criticism.
 Provide real, meaningful advice.
 Ensure the next generation is ready before handing over the reins.

Developing the Next Generation Leadership for

Family Business
In the family business context, passing on the baton to effective next-generation
leaders is crucial for the continuity of family legacy. For this transition to happen
effectively, it is important that family businesses develop their next generation
members in a systematic manner that prudently builds their capabilities and prepares
them to face future challenges. There are some essential building blocks of next
generation leadership development that family businesses may adopt.
 Start Early: Providing early exposure to business helps the next generation
members gain a closer understanding of business processes and the family’s
purpose and involvement in business. This may be a school project that a
young member undertakes in the business setup or something more
challenging like, solving a resource allocation problem for the business. These
initial experiences develop their thought process and they begin to identify the
business aspects that may Evoke interest in them (or put them off). This
exposure helps them in aligning their aspirations with the family’s vision for
future. It provides clarity and shapes their career choices. Thus, early
exposure triggers a process of self-selection of future business leaders.
 Equip with World-Class Education: Next generation members need to be
equipped with world-class education to excel in whatever they may choose to
do, i.e., family business or any other career. Strong educational background
helps them earn respect and acceptance from others within and outside the
family and business. It prepares the ground for taking on the leadership
challenges in future.
 Provide outside Work Experience: Another crucial aspect of next
generation leadership development is to provide youngsters the opportunity to
gain work experience in reputed firms outside the family business. This helps
them learn best practices in business management and further ads to their
exposure. Work experience gained outside the family business builds their
capabilities to work in teams and helps them master analytical problem
solving. When next generation members are equipped with these capabilities,
they can confidently take up leadership roles and effectively deal with
complex challenges of the family business.

 Induct Meritoriously: The entry criteria must be pre-communicated to all next

generation members and others in the family. This provides clarity and help
 set realistic expectations with respect to the next generation’s involvement in
business. A merit based, objective mechanism of inducting next generation
members ensures entry of top-quality human resource from the family. It
reduces family conflicts and creates a sense of responsibility and seriousness
towards the business among the next generation members. An objective
process of entry in business also helps the next generation members earn
respect and acceptance from others.

 Let them Climb up the Ladder: The next generation members must not be
directly appointed to the top-level leadership positions just based on familial
considerations. Instead, they must be asked to join at a level that is
appropriate for their qualifications and experience. Thereafter, the next
generation members must prove their mettle and climb up the corporate
ladder based on merit. By doing so, they become aware of several
organisational problems and bottlenecks, get exposed to different functions
and their interfaces, and build strong bonds with several stakeholders. Thus,
this approach helps the next generation members become more effective
team workers and leaders.

HOW TO PREPARE THE NEXT GENERATION TO

LEAD THE FAMILY BUSINESS
By building a systematic process, however, it is possible to both inspire the rising
generation to get involved in the business and prepare them to contribute to its
success. Below, we discuss five approaches to begin this process.

1 . T E L L T H E F A M I L Y A N D B U S I N E S S S T O R I E S : One of the most

effective tools for instilling a sense of pride in the next generation is storytelling. By
telling the story of the business creation, the founder’s vision, and the values
demonstrated in sustaining the business, families can form connective tissue
between generations and emphasize that the business has a heritage worth
preserving.

Families may even want to consider putting pen to paper and recording the family
business history. In addition to preserving the history for future generations, this
document can be a valuable source of information for analysing the business’
strengths and weaknesses across time and, potentially, identifying leadership factors
to help make succession planning decisions.

2 . E X P O S E T H E R I S I N G G E N E R A T I O N T O T H E B U S I N E S S : It is
difficult to feel engaged by something you know very little about. It is therefore critical
to create ongoing opportunities for the rising generation to learn about the business.
Touring facilities, shadowing executives, mentorship programs, summer jobs and
internship opportunities are all learning experiences that can help determine which
members of the rising generation are most interested in the business and may
choose to one day join the company. This can help create a pipeline of future
leaders and – even for those family members who ultimately decide not to enter the
business – facilitate a greater appreciation of the benefits and responsibilities that
come with being a business-owning family.

3. DEFINE ROLES AND EDUCATE FAMILY MEMBERS ABOUT

T H E I R R O L E S : Not every family member will serve in the family business, nor
should they. Yet each family member has a role to play. Harvard University
professors Renato Tagiuri and John Davis famously created the Three-Circle
Model of the Family Business system in the late ’70s.

A . F A M I L Y : Family members must determine and advance their shared

values and vision and be aware of how they are reflected in the family
business.

They should understand the importance of communication, know how

to positively resolve conflict and create a framework for decision-making –
or family governance.

TA K EA WA Y- Underlying much of the family role is an emphasis on

sound and collaborative decision-making: Effective decisions will have
to be made to successfully navigate both the family and the business
over generations.
B . B U S I N E S S : Business roles and responsibilities need to be clearly
defined, from management responsibilities to job
descriptions to employment policies. A wide array of questions – some
potentially difficult to discuss – must be asked and resolved. For instance,
 what kind of reporting does management provide to owners and family
members? Who will act as a liaison between management and the family?

TA K EA WA Y -In order to create a culture of trust, transparency is

critical.

C . O W N E R S : It is essential that owners are aware of their rights and

responsibilities. Responsibilities are likely to include attending
shareholder/owner meetings; reading financial statements; understanding
the challenges of business management; and familiarizing oneself with the
duties of management.

TA K EA WA Y - Aside from the above being best practice for good

stewardship of a business, it is also crucial for constructive family
relationships: If a family member’s only interest as an owner is
economic benefit, issues around compensation can create division
between those family members working in the business and those who
do not work in the business.

The bottom line is that role

clarity, transparency, communication and education are key ingredients for
transition success.
4. CREATE A FAMILY EMPLOYMENT POLICY: Not every family
member who has an interest in the family business is qualified to work in it. Nor does
every family business have the right employment opportunity for the skill set of every
family applicant. Early on, families need to determine if every family member is
entitled to a place in the family business or if the business will only hire family
members when it has a position that requires filling. Is this a family-first business, a
business-first business or something in-between?

Most families with whom we have worked do not make employment decisions solely
on the basis of the family name. Instead, they make it clear that the business will hire
based on its needs. Additionally, they often clarify family employment expectations
by creating a family employment policy, which can help make it clear that there are
objective criteria for applicants to meet. Creating a family employment policy can
also mitigate some of the intense emotions surrounding situations where family
members might have unrealistic assessments of their progeny’s competence.
5. TEACH FINANCIAL AND BUSINESS FUNDAMENTALS:
Understanding basic financial and business concepts is critical for business-owning
families’ decision-making. Family members need this knowledge to understand the
financial history of the business, its health, and potential for growth. Failure to
educate family members on such fundamentals can lead to misunderstandings about
dividend distributions, compensation, operating reserves, valuations and more. And,
a knowledgeable shareholder/owner is far less likely to disrupt a family business with
unrealistic expectations about the economic benefits associated with ownership.
Providing opportunities to learn experientially — even the old-fashioned lemonade
stand at an early age — can be a creative way to teach concepts such as cost of
goods sold, marketing, sales, revenue, and expenses and profit.

The next generation should take opportunities to attend educational programs, such
as seminars and camps on entrepreneurship and short-term university programs
tailored to family businesses. There are many such resources for families to create
an education program that spans age groups, from the very young to young adults. It
just takes intentionality and commitment.

Family Business Transitions: Rising to the

Challenge

FIRST CHALLENGE: THE NEXT GENERATION IS NOT INTERESTED OR

PREPARED TO LEAD THE BUSINESS
Wealth creators are a different breed, and starting and sustaining a business is not
for the faint of heart. Traits of successful entrepreneurs often include:
The rising generation might feel unable to replicate the success of the founder,
creating a sense of inadequacy that devolves into diminished self-confidence, risk
tolerance, resilience, passion and drive — the very traits needed to sustain the
business over time.

To begin developing such a process, there are several initial steps we

recommend family business owners consider.
SECOND CHALLENGE: LEADERSHIP HAS NOT THOUGHTFULLY
PLANNED OR PREPARED FOR THE LEADERSHIP TRANSITION

Most family business owners would agree that succession planning is a top priority, there are often
multiple reasons that plans are not created:

Suggestion: A succession plan is a roadmap for identifying and selecting a

successor, mentoring, and allowing practice opportunities to lead. It is a process that
is multi-layered and requires input not just from the controlling generation but from
the other stakeholders in the business — family, shareholders/owners and board
members. Taking the time to delineate how the successor will be chosen is a
process that builds buy-in and better, healthier relationships. In the event that such a
process is not practical, then transparency as to why a particular individual is tapped
for leadership is critical for acceptance. Often, for example, siblings may at first be
disgruntled or envious of another sibling who is chosen to lead. But after receiving
further information and reflection about the reasons, they may be mollified or even
relieved that their sibling is willing to act in a leadership role.
A succession plan is a roadmap for identifying and selecting a successor,
mentoring, and allowing practice opportunities to lead.

How Family Business Owners Should Bring the Next

Generation into the Company
Planning the transition, so that your next generation can find their own path in the world and
then successfully boomerang back into roles in the family business, is critical to the future of
the family business you’ve worked so hard to build and perpetuate.

These five elements successfully guide the next generation back into the family business.
Here’s how to get it right:

Help the next generation find their right roles. Too often, owners focus on only
one role for their next generation: the future CEO. But that’s too narrow a view.
Multiple roles, beyond the CEO, are essential to effective ownership — roles that
cannot be outsourced. They include being on the board, running the family office,
running the “owner room’’, leading the family foundation.
Get the group dynamic right. It’s essential to manage how the next-generation
owners work together and communicate. As they enter the system, they will carry
baggage from childhood, be in different places in their careers, and likely have
different relationships with the family business. Set time aside for them to get to
know each other again in this new environment and get to know their roles as
owners — without you in the room. Have them discuss their interests and the
breadth of their life’s commitments (personal, nuclear family, broad family, career,
and role in family business).
Help them find their collective voice. As the next generation eventually become
owners, their board of directors will ask them what they as owners want from the
business: Growth? Dividends? A sale? Ask them to discuss their trade-off of five
potentially conflicting owner interests: maximizing long-term business value, short-
term dividends, philanthropic efforts, family employment, and family harmony.
Create a next-generation development program. Leading business families
develop programs to help the next generation become both good owners and
potential future leaders. These programs focus on five key objectives: business
ownership skills and competencies, family business principles and practices,
knowledge of the family business’s assets, understanding the family history
and values, and developing personal leadership competencies.
Give them room to operate. Top business families work in a mental model of four
distinct “rooms’’ — the owner room, the family room, the manager room, and the
board room. Make sure all owners understand the rules of each room and how to
recognize what room they are in at any given time. Then, over time, challenge them
to “furnish’’ each room with people and decision processes that will eventually work
best for their generation.
When you set up a proper strategy for integrating your adult children into the
business, you may be pleasantly surprised by how their experiences outside the
business have prepared them to thrive. The goal is not only to help the next
generation develop concrete leadership skills, but also to develop psychological
ownership of the business. You never know, the artist daughter might just surprise
you with her best work yet — as an owner.

Succession Planning in Family Business in

India
Think of successful corporate houses like Tata, Birla, Ambani, Bajaj, Adani,
Mahindra, Jindal etc. and you will find family businesses in abundance in India.
Globally, 35% of Fortune 500 companies are family owned businesses. Domestic
market reports have revealed that 15 out of the top 20 business groups in India are
family owned.
On the other hand, it is startling to note that 70% of the family businesses globally
are sold before the second generation gets a chance to take over. Only 10% of
family businesses are able to survive till the third generation. Majority of Indian family
businesses are not as mature as their western counterparts, but they still see
succession planning, private sector competition and talent retention as their main
challenges. Studies indicate that Indian family businesses focus a lot on resilience
and stability rather than the break out growth unlike the US.
When you compare the overall performance of a traditional family business with a
non-family business, they are more profitable, take less debts, as well as do smaller
mergers and acquisitions. While majority of family businesses in India are open to
the idea of innovation, only a fraction has actually partnered with outside
organizations for the purpose of innovation. Perhaps, this has made Indian family
businesses more self-reliant and long lasting than western counterparts.
Three most important things for succession in family business:

1. Identifying your next generation leader: Picking the next leader for your
business will require you to potentially look at several different people.
Consider what the position requirements are. For example, if you are looking
for the next-gen CEO of your company, look out for the presidential traits
needed in your family members. It’s always a good idea to let the family
successors have an exposure of professional life outside the comfort zone of
one’s own family business. Remember, you always need talented personnel
and it could be vital to look outside the family for succession in certain roles. It
might happen that the coming generation might not be interested in taking up
a role in the family business. So, plan for it ahead.
2. Creating a transition plan: Are you retiring today or a year from now? Now,
look at what transition plan you would need. You may want to think about how
you pass the baton to the next generation leaders. The transition plan is not
just for the successor but might also be for the change in the organization
structure. Perhaps from promoter driven model to a professionally managed
firm. The culture of meritocracy and performance needs to be institutionalized
to provide a ready playing field for the next generation of successor and
employees.
3. Implementing a family constitution: Most family businesses struggle to
have a written framework for succession plans and dispute resolution
mechanism. Family constitution is one such document that literally lays out
set of agreed rules and purpose for the business. It creates the right protocol
and practices for operating as a board and serves as a guiding document
during major decisions and family conflicts. Obviously, it is up to the coming
generation to revise the rules as per the family and business needs. This
document would be the best asset you would be passing on to the incoming
generation
“Family Constitution would be the best asset you would be passing on to the
incoming generation”
Succession Planning for Family Business: Patriarchs must transform from
leaders to mentors
If there is no proper succession planning for the family businesses, there are
chances of family disputes and sometimes it leads to collapse of entire business.
The succession planning and execution is one of the biggest challenges in family run
and managed firms. Most of the family businesses fails to remain family business
after first one or two generations because of lack of effective succession plans.
Family Owned business In India
Family held and run businesses are the oldest and most prevalent form of business
ownership anywhere in the world. Family businesses form the backbone of any
country’s prosperity and economy. In India, keeping business ownership within a
family is a deeply-rooted practice since ages. India enjoys a rich and glorious history
of family-owned businesses. Initially, family business in India started in the form of
trading and money lending involving the hustle and bustle of the bazaar. It was also
confined to certain communities, notably the Gujarati and Marwari’s especially in the
western and northern India. Today, family business almost contributes around 80
percent of national GDP annually. According to various estimates, more than 80% of
the companies in India are family owned.
In India, there are many highly successful family businesses which are operating for
more than 100 years and not only in India but all over the world. The list includes:
 Tata Group – Founded in 1868 by Jamsetji Tata
 TVS Group – Founded in 1911 by T V Sundaram Iyengar
 Aditya Birla Group – Founded in 1857 by Shiv Narayan Birla
 Kiroloskar Group – Founded in 1911 by Laxmanrao Kirloskar
 Godrej Group – Founded in 1897 by Ardeshir Godrej and Pirojsha Burjorji
Godrej
 Shapoorji Pallonji – Founded in 1865 by Pallonji Mistry
 Reliance Group – Founded in 1966 by Dhirubhai Ambani
Advantages of family run businesses
Family businesses are still thriving in today’s competitive economy. The following are
some of the advantages of family run business:
 Stability: Family business are ideal in nature as they are loyal to the
principles of the founder and top leadership, which results in overall stability
within the organization. Leaders usually stay in the position for many years,
until a life event such as illness, retirement, or death results in change.
  Commitment There is a greater sense of commitment and accountability by
all family members due to involvement of reputation stake of the entire family.
These level of commitment is almost impossible in non-family businesses. It is
natural that all family members demonstrate and share a level of commitment
to the firm since the core of any family business is a shared business vision
and identity.
 Leadership: In family run business, most of the time leadership is centred to
the senior most people in the family. So each family members show faith and
loyalty in the top leadership.
 Trust: Since all family members know each other and related by blood
relations, there is feeling of trust in each other.
 Flexibility: In family run business, all family members can take any role which
the business needs. You won’t hear, “Sorry, this is not my job” in a family
business. They can take several different tasks outside of their formal role in
order to ensure the success of the company.
 Decreased Cost: All family members contributing land, labour, capital and
entrepreneurship means there will less cost of running and managing
business. In hard times just like COVID-19, family members even can take a
pay cut or work without any pay.
Disadvantages of family owned business
Every coin has two sides. Same as with family businesses. In spite of its several
advantages, it has following disadvantages:
 Family Conflict: As and when new generations come into the family
business, conflict is bound to happen due to generation gap. There are many
cases of conflict in family business in India like famous case of Reliance when
two brothers Mukesh and Anil divided the India’s biggest corporate group in
2005.
 Unstructured Governance: There are no formal governance structure in
many small family run businesses because of the level of trust inherent at
family firms. Unfortunately, this can be gravely detrimental.
 Nepotism: Some family businesses are reluctant to let outsiders come and
seat in the top management and as a result good talent may find it
 uncomfortable to work in lower levels. This, obviously, has a far-reaching
effect on the success of the company.
Succession Planning is a key to success for family owned business
Succession planning is a strategy for passing on an ownership and management of
a company—to the next generation in case of family business or to an employee or
group of employees in case of non-family business. The main object of succession
planning is to ensure that businesses continue to run smoothly after a company’s
most important people move on to new opportunities, retire, or pass away.
Need of Succession Planning
Succession Planning in an ongoing process, which needs careful planning and
preparation for smooth transition of ownership, leadership and management of
the family business and family assets to the future successive generations. A strong
succession planning is required due to following reasons:
 to achieve the objects of businesses
 to ensure the continuity of business in long run
 to create a wealth for future generations’
 to avoid the conflicts in business
 to give stability to the business
 to hand over the business from one generation to another
Every family business must have a solid succession planning for smooth transition of
management and ownership of family business so that the fruits of the business can
be enjoyed by the upcoming generations of the family.
Family Code of Conduct. A code of conduct is essential for all family businesses,
regardless of their size. It is arguably the most important document in keeping the
peace among family members, since most conflicts tend to arise over the nature and
manner of interpersonal interactions, rather than a specific business topic.
In essence, the code of conduct is a set of rules that describes how members of the
family are expected to behave when they interact and talk with one another—and
with the public. The code must emphasize how family members should air any
issues and the mediation process to resolve them. It may also lay out expectations
concerning lifestyle and behavioural choices that family members can lead,
especially with respect to overt displays of wealth. Penalties for violations of the code
must also be detailed. A thoughtful code of conduct can be the difference between a
swift, private, and amicable resolution and a protracted and public legal battle.
Succeeding with Succession Planning in Family
Businesses
The Ten Key Principles
For many family-owned businesses, succession planning is the proverbial “elephant
in the room.” Despite recognizing the importance of selecting and preparing a
successor, the leaders of a family business often do not give succession planning
the attention it deserves.
The consequences of not focusing on succession despite its obvious importance can
be profound; a leadership void and the resulting discord can significantly undermine
the company’s performance. Indeed, poorly planned successions are among the
biggest value-destroying events for family-owned businesses.
These are the ten principles that improve the chances of succeeding with
succession.
 Start early. Succession planning should start as soon as possible despite this
uncertainty. Although things may change along the way, leaders can often
anticipate the potential scenarios for how the family will evolve. Issues to
consider when developing scenarios include the number of children in the
next generation and whether those individuals are interested in the family
business as a source of full- or part-time employment or purely as an
investment. Families should also consider how the scenarios would be
affected by marriages or the sudden demise of a family member or potential
successor. It is important to plan a succession process and outcome that will
work for the different foreseeable scenarios.
 Set expectations, philosophy, and values upfront. Although setting
expectations, philosophy, and values is central to many family-business
issues, we have found that doing so is essential when it comes to succession
planning and must be done up front, even if the specific mechanics of
succession come later.
 Understand individual and collective aspirations. Understanding family
members’ aspirations, individually and collectively, is critical to defining the
right succession process. Leaders of the succession process should meet
with family members and discuss their individual aspirations for involvement in
the business. For example, does an individual want to work for the business
or lead the business, or, alternatively, focus on the family’s philanthropic
 work? Or does an individual want to chart his or her own course outside of the
business? The family’s collective aspirations can emerge from the effort to
establish a philosophy and values. Does the family want its business to be the
largest company in the industry? Is maintaining the business as a family-
owned-and-operated company of paramount importance, or does the family
want to relinquish operational responsibility in the coming years?
Understanding these aspirations helps in managing expectations and defining
priorities in the succession process.
 Independently assess what’s right for the business. Although the best
interests of the business and the family may seem indistinguishable to some
family members, in reality the optimal decisions from the business’s
perspective may differ from what family members want for themselves. This
distinction makes it essential to consider what is right for the business
independent of family preferences when developing a succession plan. It is
therefore important to think about succession from a purely business
perspective before making any adjustments based on family preferences. This
allows leaders to be transparent and deliberate in the trade-offs they may
have to make to manage any competing priorities.
 Develop the successor’s capabilities broadly. A family business should
invest in developing the successor’s capabilities and grooming him or her for
leadership. The preparation should occur in phases starting at a young age—
even before the successor turns 18. Some of the best-managed family
businesses have elaborate career-development processes for family
members that are the equal of world-class talent-management and capability-
building processes.
 Define a clear and objective selection process. A company needs to define
a selection process to implement its succession model—whether selecting a
successor exclusively from the family or considering nonfamily executives as
well. The selection process should be based on articulated criteria and
delineate clear roles among family governance bodies and business leaders,
addressing who will lead the process, propose candidates, and make
decisions.
 Find creative ways to balance business needs and family
aspirations. Striking the right balance between the business’s needs and
 family members’ aspirations can be complex. Addressing this complexity often
calls for creative approaches—beyond the traditional CEO-and-chairperson
model. Stepping into an executive position is not the only way family members
can contribute to the business or help the family live its values. As an
alternative, family members can serve on the board of directors or take
leading roles in the family office or its philanthropic activities.
 Build credibility through a phased transition. Successors should build their
credibility and authority through well-defined phases of a transition into the
leadership role. They can start with a phase of shadowing senior executives
to learn about their routines, priorities, and ways of operating. Next, we
suggest acting more as a chief operating officer, managing the operations
closely but still deferring to the incumbent leaders on strategic decisions.
Ultimately, the successor can take over as the CEO and chairperson and
drive the family business forward.
It is important to emphasize that the family member who assumes leadership
of the business does not necessarily also become the head of the family, with
responsibility for vision setting, family governance and alignment, and wealth
management. The transition of family leadership can be a distinct process.
Each phase of the transition often takes between two and six months. The
transition should be defined by clear milestones and commensurate decision
rights. A sudden transition can be disruptive, which is especially harmful if the
intent is to maintain continuity in the family business’s direction and strategy.
 Ask departing leaders to leave but not disappear. Most leaders bring
something distinctive to a family business. Holding onto this distinctiveness in
a transition is essential but requires a delicate balance. Although departing
leaders should relinquish managerial responsibility for the business, they
should remain connected to one or two areas where they bring the truly
distinctive value that made the family business successful under their
guidance. However, the leaders should be involved in these activities through
a formal process, rather than at their own personal preference and discretion.
Departing leaders should stay available to guide the new leader if he or she
seeks their advice.
 Motivate the best employees and foster their support. Managing the
company’s most talented nonfamily executives is especially challenging
 during the succession process. The company needs to ensure that these
executives have opportunities to develop professionally and take on new
responsibilities and that morale remains high. Involving executives in the
succession process can help to foster their support for the new leader.

ASSESSING THE STATUS OF SUCCESSION PLANNING TODAY

As an initial “health check” to assess the current status of their succession planning,
family businesses should consider a number of issues:
 Has the family clearly articulated its values and the principles that will guide its
decisions and succession process?
 Has the current leader committed to a fixed retirement date?
 Has the family evaluated the pipeline of leadership talent within its younger
generation? Has it looked at potential leaders who come from within the
business but not within the family?
 Has the company defined a succession model and determined the timing for
selecting a successor so that he or she has a sufficient opportunity to prepare
for the leadership role and build credibility before the current leader retires?
 Does the family understand how it will accommodate the aspirations of family
members not selected for leadership roles, in order to maintain harmony and
avoid discord during the transition to new leadership?

SUCCESSION PLANNING AND THE FAMILY BUSINESS:

“Your name is my name, my name is yours, and everything is ours, equally”

A family business is one which is owned and closely held by members of the same
family with certain shared assets, shared ethos and ambitions that make it unique.  It
is defined by its core business values which are marked by a strong culture, risk-
taking ability, fast decision making and long term perspectives.  Typically started by
a ‘patriarch’ the business is passed on from generation to generation.  This may start
small but many have ended up growing to be multimillion-dollar multi-national
conglomerates. 

Interestingly companies such as Samsung, Ford Motors, Tata Sons, and Reliance
are all examples of family businesses that have grown manifold since their inception
and stood the tests of time. However, historically it has been found that most family
businesses have not lasted beyond the 3rd generation.  It is apparent that not every
generation will share the same ambitions and values.  Therefore, with each
generation, there is bound to be differences in opinion on management and vision
which trigger disputes and issues eventually leading to the demise of family
businesses.  Therefore, Succession Planning is vital for every multi-generational
family business.

The Hinduja Family scuffle

The need for succession planning for family businesses is aptly highlighted by the
ongoing famous Hinduja family dispute.  The Hinduja brothers known for their family
unity are at the forefront of a property battle that rests on a letter written in 2014.  On
June 23, 2020, a UK court ruled in favour of Srichand Hinduja and his daughter
Vinoo on the issue of control of Hinduja Bank, much against the wishes of former’s
three younger brothers.  On 2nd July 2014, the four brothers signed a letter which
said assets held by one brother belong to all and each brother will appoint the others
as their executors.  Srichand and Vinoo went to the court stating that the letter
should have no legal effect and cannot be used as a will or power of attorney.  Now
that the Court has held the letter to have no legal effect it means that the Hinduja
Family assets and businesses can be divided amongst the brothers, much against
the greater wishes and ancestral values of the family. While the legal battle will
continue, will it be ‘business as usual’ for all foreseeable time to come?

The Tata story

The Tata group is a global enterprise, headquartered in India.  Mr Ratan Tata retired
in 2012 only to return in 2016.  That the leadership mantra of Mr Cyrus Mistry, to
whom the baton was passed on, turned out to be vastly different from Mr Ratan
Tata’s.  Primarily, Mr Mistry was selected as his family is one of the largest
shareholders in the TATA group and was well known to the TATA group and family. 
But Mr Mistry had never handled a large diversified group of companies spread
across several countries and geographies.  No doubt, it is very important for such
businesses to be sure that every successive leader shares the common vision and is
armed with the experience required for the job.

Raymond's saga:
In 2002, Dr Singhania gifted his share of holding in the Raymond group to his
youngest son Gautam.  This has been disputed and led to a humiliating legal battle
between father and son. This is another classic case of the folly of not executing a
proper and well-structured estate and succession plan.
THE ADVANTAGES OF SUCCESSION PLANNING:  
 Preserve value in the assets;
 Develop a structure for the transition of wealth from generation to generation;
 Ensure continuity of business;
 Ensure tax efficiency;
 Avoid family disputes; and
 Avoid the risk of estate duty.
THE MAIN FEATURES OF SUCCESSION PLANNING ARE:
 Separating ownership issues from management issues;

 Create separate forums for family and business;

 Institutionalize good corporate governance mechanisms;
 Accountability & reporting to the Holding Company and shareholders;
 Confidence and communication with shareholders;
 Establish a family constitution to address key ownership and management
issues;
 Create clear lines between family and business;
 Create shareholders protocols;
 Devise a conflict resolution mechanism; and
 Commit to fairness.
QUESTIONS TO ADDRESS BEFORE EMBARKING UPON SUCCESSION
PLANNING:
 Is the current business model sustainable for future generation?

 Is professionalizing management required?

 Does the next-gen want to continue the family business?
 Are businesses goals in keeping with current trends?
 What is the best structure to adopt for optimum tax planning?
  How to plan for growth?
 How to raise further capital?
 How to divest current capital?
 How to minimize conflict and disputes?
KEY ASPECTS INVOLVED IN SUCCESSION PLANNING:
The relevance of family constitution, & mission statement.
A family constitution is a formal document that sets out the rights, roles,
responsibilities, rules and structures applying to all stakeholders in the family and
provides plans and structures to deal with situations which arise in the course of
operations in the family business.  Though this document can be put in place at any
time during the life of the family business, it is advisable to do so at the earliest to
provide clear direction and reason for their mission.
A well-strategized and well-written family constitution, though not completely
enforceable on the successive generations, has a tremendous moral binding that
courts cannot ignore.  It sets out the ethos of the business and provides for:
 mechanisms to encourage the next generation to participate in the business
 restrictions on the allotment or transfer of shares, often setting a minimum age
at which the next generation can become shareholders/stakeholders
 who may be involved in the business and what happens in the case of family
breakdown
 most importantly, mechanisms for dealing with disruptions and disputes
arising from death, divorce, debts, deal disagreements etc.
The process of finalizing a family constitution can help identify and iron out potential
difficulties and areas of conflict.  The family constitution should be reviewed
periodically to ensure it reflects the views of current members.
It has been found that a Trust is the best vehicle for succession planning. 
When finalizing a trust structure one has to be mindful of tax and duty implications.
For instance, gifts within the family and trusts can help families save considerable
stamp duty.  Also, with the imminent scare of estate duty – efficiently planning the
divesting of assets during the lifetime of a trustee can save on this aspect.

The Traditionalist View

The most important aspect of succession planning is choosing the best mechanism
for distribution of assets & roles among future generations.  Somehow, traditionally
the concept of succession to assets is linked to Wills.   A Will is effective after the
death of the testator, i.e. the person making the Will.  This means that a Will as a
final, binding document comes into effect after the death of the testator giving the
persons involved no chance to express their desires or wishes.  This, more often
than not, leads to major disputes between the heirs/successors. 

A Will is a required document when it comes to a person’s personal wealth, but is

hardly the option for preserving value and distribution of assets for operational family
businesses. Take for instance there are 3 brothers who are running a family
business.  On the death of one brother if his heirs inherit his share in the family
business and do not share the same business ideas as his father’s two surviving
brothers it may lead to a crack in the family business.  Greater the asset pool,
greater is the risk of disputes and, therefore, greater the need for succession
planning.
As mentioned above, a Will takes effect only after the demise of the testator.  This
does not happen automatically.  The Will would have a named executor who will
administer the estate of the deceased as per the wishes in the Will.  The first step for
the executor after announcing the existence of a Will, generally, is to approach the
Court for a grant of Probate.  If the Will is uncontested the Court will be pleased to
grant a Probate which in effect is an order that gives effect to the Will.   If on the
other hand the Will is contested by any of the heirs, the probate petition gets
converted into a long, acrimonious legal dispute. From the above, it is seen that
succession planning can be a complex but essential process.  It is also crucial for
business continuity. There are certain traits that a succession planning expert must
have, such as:
impartiality & trustworthiness;
tremendous patience & expertise;
mediation skills to get the family on the same page (manage expectations);
ability to think out of the box and help vision formation;
understanding the family culture;
clarity of purpose;
maintaining checks and balances
being objective driven etc.
TRUSTS, ITS TYPES AND BENEFITS:
For the efficient planning of succession from a legal and tax standpoint, trusts are
seen to be one of the most viable options. It has been found that the best form of
family wealth management is through the mechanism of trust.  A trust is a simple
legal document that is governed by the provisions of the Indian Trusts Act, 1882. 
The person making the trust is known as the ‘Settlor’, there are named ‘Trustees’
who manage the trust in accordance with stipulations of the trust document and
finally, there are ‘Beneficiaries’ who benefit from the assets in trust according to the
wishes of the ‘Settlor’.

- There are 2 main types of trusts:

 Revocable Trusts – which as the name suggests, can be modified at any
time by the Settlor. Revocable trusts also referred to as revocable living trusts,
allow Settlor to maintain control of the assets during his/her lifetime.
Benefits of a revocable trust:
Such trust can be dissolved at any time.  A revocable trust offers flexibility since the
transfer of assets and the guidelines specified are not permanent.  With a revocable
trust, the settlor has the option to name him/herself as a trustee or co-trustee and
choose someone to act as a successor trustee when he/she dies or is otherwise unable
to manage the trust. Revocable trusts aren’t subject to probate.  That means the
incomes from the assets held in the trust are distributed to beneficiaries without
having to go through the probate court.  This allows for greater privacy than a will. 
And it can be more difficult for creditors to claim assets held in a revocable trust in
order to satisfy any outstanding debts that the settlor may have left behind.

 Irrevocable Trusts: Such trusts cannot be modified, once made.  

Benefits of an irrevocable trust:

This means less flexibility, but offers certain benefits such as protection of
assets from claims of creditors, beneficiaries.  Also, an irrevocable trust can
remove certain assets from the estate, saving them from the estate and gift
tax.  That may be appealing if the settlor has a large estate and needs a way
to minimize tax liability on those assets. 
Special Categories of Trusts: Within those two broad categories, there are a
number of speciality trusts you can incorporate into your succession plan.
MARITAL TRUSTS: A marital trust can be established by one spouse for the benefit
of the other.  When a spouse passes away, assets in the trust, along with any
income the assets generate, are passed on to the surviving spouse.  A marital trust
would allow the surviving spouse to avoid paying estate taxes on those assets during
one's lifetime.  The surviving spouse’s heirs, however, would be responsible for
paying estate tax on any trust assets that are eventually passed on to them, unless a
further trust is created by the surviving spouse.  This is especially important in India
where prenuptial agreements are illegal, except in the state of Goa.

CHARITABLE TRUSTS GENERATION SKIPPING TRUSTS: A charitable trust

allows for setting aside certain assets for a specific charity or charities, and the rest
of the assets going to beneficiaries as specified. A charitable remainder trust allows
you to receive income from your assets for a set period of time, with any remaining
assets or income going to a charity that you designate.
GENERATION SKIPPING TRUSTS: If you’d rather transfer assets to your
grandchildren than your children, you can choose a generation-skipping trust. This
type of trust lets you pass assets to your grandchildren, allowing your children to
avoid paying estate taxes on those assets in the process. At the same time, you still
have the option to allow your children access to any income that the assets
generate.
LIFE INSURANCE TRUST: A life insurance trust is an irrevocable trust that you
designate specifically to hold life insurance proceeds.  You designate the trust as the
beneficiary of your life insurance policy; when you die, the policy proceeds are paid
into the trust.  The trustee then manages the proceeds on behalf of your
beneficiaries.  The advantage of an irrevocable life insurance trust is that it allows
you to avoid estate taxes on life insurance pay-outs.
SPECIAL NEEDS TRUST: A special needs trust is designed to financially provide
for a special-needs dependent – a child, sibling or parent – without compromising
their ability to receive government benefits based on their disability.  The money in
the trust allows them to pay for medical care or day-to-day needs while also
remaining eligible for the state disability schemes.
SPENDTHRIFT TRUST: A spendthrift trust may give you peace of mind if you’re
concerned about your heirs frittering away their inheritance.  This type of trust allows
you to specify when and how principal trust assets can be accessed by the trust
beneficiaries, which prevents them from being squandered.  For instance, you may
restrict beneficiaries to only benefiting from the income or interest earned by trust
assets, but not the principal amount of the assets themselves.
TESTAMENTARY TRUST: A testamentary trust, or will trust, is established through
a last will and testament.  The trust becomes irrevocable upon the death of the
testator.  The main function of a testamentary trust is to ensure that beneficiaries can
only access trust assets at a predetermined event.

SHAREHOLDER’S TRUSTS: This is a very important trust for family businesses,

where the trust becomes the shareholder and the family members simply benefit as
beneficiaries of the trust.  This ensures the longevity of the family ownership control
over the family businesses.  Since trust is a very flexible instrument it can be drafted
in a way where the family constitution of a family is consistently upheld. In the
context of family businesses, it is the shareholder’s trust that comes to the fore.   By
making the family trust the shareholders of the business you are able to safeguard
the company from individualistic motives.  This is the most common form of a trust
which manages all the aspects of planning for the future, from goal setting to tax
planning and divesting.

DISCUSSION
Undoubtedly, it is now or never situation.  Your call to action is to get in touch with an
experienced succession planning expert to help you achieve the following:
 Set specific, long-term goals for ownerships: Planning for succession
should begin straight off.  Complexity in family businesses arises from the
duality of side-by-side existing systems – family and business. The more
closely aligned your goals, the more seamless the transition – which will help
both on a business level, and a personal one.
 Identify your next-generation leader: One should be on the lookout for a
family member who has a professional trait and groom via exposure of
professional life outside. Should the coming generation appear to be not
 interested in taking up the role then look outside the family for a suitable
candidate.
 Establish a set of managerial competencies: Draw up a list of the skills that
you believe are essential in your role as a company owner, and that are must-
haves for any successor.  This checklist can then be used to assess any
potential successor, as well as help your current team understand what you're
bringing to the company.
 Evaluate the management team: Consider hiring a firm to evaluate top-level
managers to assess and plan your management team and its future.
 Identify the successors and lure them in: Once you have evaluated your
management team and assessed their skills and performance, it’s time to start
speaking with your top people about their careers and also to ensure that
talent lower down the company has a path to commit to.
 Work out a transition plan: Set the time period for your retirement and also
the path of handing over to the next leader – when the transition starts to end
on your retirement target date. Would the plan involve a change in the
organization structure? To have a written framework for a succession plan as
well as a dispute resolution ecosystem.
 Family constitution implementation: To have a written framework for a
succession plan as well as a dispute resolution ecosystem.

CONCLUSION
If to plan is to succeed to fail, to plan is to plan to fail.  In
such a scenario it bodes well to start succession planning
now. It is never too late to start.