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Passing on the business baton

Millionaireasia India, Aug 4, 2017

This article is attributed to Prateek Pant, Head of Products & Solutions at Sanctum Wealth Management

Succession planning among corporates in India is a passionate debate today, thanks to several interrelated developments in recent times.

The recent regulatory compulsion by the Securities and Exchange Board of India (Regulation 17(4)) requires Indian corporates to formally discuss succession plans at the board level. Thus, bringing about transparency and creating an actionable plan, which will eventually boost investor sentiment.

Among family owned businesses, though many heirs have had reasonable transitions, there do exist a few legendary surnames who had their share of tentative moments. While being part of a successful family business is hugely advantageous for its financial prowess and management exposure, the change management can be equally demanding. An iconic founder (and a parent) can refuse to change the ways of doing business or to undertake a diversification. Heirs, on the other hand, may shudder at the idea of succeeding incredibly successful parents.

However, surveys by management consultancies continue to highlight succession planning across Indian corporates as a weak point or low priority, even as few incidents of succession planning going astray validate the fact that the entire process needs to be better planned and implemented well. There are no cast-iron ways in succession planning or how seniors could induct their next generation into the business once they come of age. Some common practices in which prominent families have initiated Gen-X into the business are highlighted below:

Global education: a key ingredient

More often than not, most of the Gen-X gets a pertinent schooling at a top international university. This period of hygiene- equipping is also considered an opportunity for them to become familiar with world-wide trends and developments in their respective sectors, as well as management models in general. Global education (essentially an MBA degree) comes as a precursor to a mandatory 3-5 year experience outside the group. Parth Jindal, Managing Director of JSW Cement and Nisaba Godrej, Executive Chairman of Godrej Consumer Products were both graduates of the prestigious Harvard Business School.

In fact, for many global schools, family business management has emerged as an important discipline since next generation family members may need specialized skills to take over the reins and create a more professional work environment.

Importance of `Outside’ experience

CEO of Hero FinCorp, Abhimanyu Munjal’s stint at international banks has indeed left a deep impression on his thinking and management style. Many CEOs who have spent at least 3-5 years outside the group acknowledge that `outside work experience’ has given them tremendous exposure, a well- rounded perspective and the much-needed confidence. However, if not relevant, a six months stint in an `outside enterprise’ would pass off without much benefit, whereas a mere six months in one’s own organisation could make all the difference.

Bharat Forge’s Baba Kalyani had the option to build a career in the U.S. – like many of his friends who never returned. He, however, was firm on building the family business and was inducted as a general manager, where he leveraged learnings from his global education to improve the productivity and output at Bharat Forge.

Early mentoring works wonders

For some, the family business provides a highly competitive learning space, shaping their thinking and actions. When Uday Kotak joined the family’s commodities business after his foreign education, many of his family members were already there. “It was a classic case of capitalism at work and socialism at home,” he quoted about the mentoring he received.

The TVS Group’s young, climb up the ladder gaining professionally from a very junior level. Lakshmi Venu, daughter of TVS Motor chairman and managing director Venu Srinivasan, joined the firm as a management trainee and now serves as the Joint Managing Director of Sundaram-Clayton Limited (SCL).

Indeed, an early start under the family or non-family mentorship has undisputed merits including a clear growth map.

Induction: Different strokes for different courses

Inducting the next generation is a key process for its futuristic significance but there are no set ways to do it; it could be as unique as the ways of the family business itself. The induction of Dr. Pratap Reddy’s daughters into Apollo was more of a baptism by fire as they were initiated far too early to translate their father’s dreams into reality. Each one assumed a key responsibility in the functioning of the large hospital, or to give presentations to investors as Senior Reddy strived to connect the missing links. In the process, the family members not only built their careers but their businesses as well.

The “Greenfield”approach

If the Reddy sisters sailed on the set course, many in the Gen-X have gone on to create a niche for themselves in emerging areas. Even though there are advantages of a legacy, identity and pride associated with the family business, several heirs have charted a path of their own. Some have even taken a more challenging route to incubate new businesses. For instance, Uday Kotak’s early mentoring fostered his entrepreneurship skills that made him grow his business successfully into one of the largest private banks in the country.

Such an alternate approach gives the young and aspiring from established families an excellent opportunity of true blue entrepreneurship and an ability to absorb business complexities without posing any risk to family flagships.