Media article

Challenges to succession planning in Indian family businesses

Pallavi Bakhru
Pallavi Bakhru
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Indian family businesses are a curious study of duality and age-old traditions playing out in a multitude of mixed perspectives – the idea of a tight-knit family and professional unit juxtaposed against culturally imposed hierarchies and taboos. These clashing perspectives and ideologies are demonstrated in the trend of succession planning in family businesses across the nation. While approximately 80% of Indian businesses are family-owned, statistics show that only 21% of family businesses in India have a succession plan in place.

While succession planning is admittedly a recent trend in the Indian professional landscape, its novelty does not justify the numbers. Rather, the case for succession in Indian family businesses is deeply intertwined with cultural and social limitations and expectations that can hinder defining a concrete succession plan.

Four issues with succession planning in India that family businesses need to address:

Patriarch and inherent power: In most Indian family business structures, the patriarch doubles as the founder and head of the business. Wearing multiple hats of the assumed authority in both professional and familial hierarchy, often these patriarchs are uncomfortable in handing the reins of their businesses over to younger generations and see it as a form of losing control and power.

Different subgroups of the family often exacerbate these cases by appealing and pandering to this figure, hoping to get a bigger share of the business. However, this trend results in succession ambiguity, only to be resolved upon the passing of the leader. This is a major failing of effective succession planning, and it often results in disputes amongst different stakeholders, who are dissatisfied with their cut and create roadblocks to the smooth functioning of the business.

Peace-keeping: In direct opposition to the idea of an all-powerful patriarchal figure, another major cultural hurdle to effective succession plans is the idea of peace-keeping amongst the different subgroups of a family. In these cases, the leader of the family and the business maintains secrecy surrounding business matters in order to dissuade family members from arguing over their share of the business. However, in a similar manner to internal power scuffles, the ambiguity is cleared upon the passing of the leader, and while the process is delayed, the resulting in-fighting and disillusionment amongst certain groups of the familial structure remain the same.

Age-old notions of respect: In the Indian society, the idea of open discourse surrounding the passing of an elder, as well as the subsequent division of family wealth, is considered a societal and cultural taboo, preventing people from even bringing it up. However, families and businesses that hope to survive the test of time must overcome these notions to form lasting professional and familial relationships. Respect must not be abandoned for the sake of survival, but the strict dimensions of what is and is not respectful must be re-examined for the collective good of all parties.

Monetary deterrents: The process of succession planning, especially with high-value assets, can be a costly undertaking. From the division of properties and assets to the subsequent stamp duties, many families choose to delay and even disregard the idea of succession planning because of the heavy monetary burden it entails, preferring instead to maintain the status quo.

Need of the hour

Transparency is, without a doubt, the most vital aspect of an effective succession plan. Ambiguity amongst stakeholders must be eradicated before the process of succession planning begins. This prevents ugly in-fighting that may further cause professional and familial instability and ensures that the values and ethics of the business are kept intact and secured against the tides of time.