In recent times, Indian conglomerates are increasingly seeking external guidance for younger family members who diverge from traditional enterprises, leading to fragmentation and restructuring. Legal and financial experts aid in succession planning amid intergenerational disparities. Transition challenges arise from evolving structures established in the 1950s. Succession trends involve senior promoters passing leadership to younger generations. Division risks in regulated sectors prompt active succession planning. Proactive family arrangements ensure seamless transitions, emphasizing communication and governance. Compliance requirements enhance transparency, fostering professionally managed entities and a blend of tradition with modernity.
In recent times, a notable trend has emerged among large Indian conglomerates: a rising number are turning to external experts to guide the younger generation within their families who are less inclined to sustain the businesses established by their predecessors.
The newer cohort often harbors ambitions divergent from the established family enterprises, preferring to carve out their own paths unrestricted by traditional family protocols and obligations.
As highlighted by a senior executive at a prominent conglomerate in a recent conversation with ET, "A business remains cohesive when overseen by a single-family unit. However, once it transforms into a network of cousins, fragmentation becomes inevitable."
Divergent mindsets, work approaches, aspirations, and visions within families are prompting conglomerates to splinter into smaller entities managed by distinct family factions, leading to demergers, spinoffs, or buyouts.
Consequently, there is a burgeoning requirement for legal experts, chartered accountants, and consultants to facilitate smooth restructuring and succession planning.
Transitioning from intricate to streamlined organizational structures poses a significant challenge, especially considering that many of these structures were established in the tumultuous 1950s and 1960s with intricate cross-holdings.
Rishabh Shroff, co-head and partner of the private client practice at law firm Cyril Amarchand Mangaldas, emphasizes the importance of family constitutions as guiding principles rather than definitive solutions. Family agreements can provide a framework for dispute resolution, but they are not foolproof against conflicts.
Shroff notes that while most families aim to avoid conflicts, unresolved intergenerational disparities often lead to separations, either amicably or through legal proceedings. He underscores that separations shouldn't always be viewed negatively.
The primary challenge for advisors and legal experts, according to Shroff, lies in maintaining impartiality and professionalism while representing the interests of each family member alongside the collective family well-being. Many families prefer a unified legal representation to aid in their separation rather than engaging individual attorneys.
Significantly, families are increasingly inclined towards streamlined structures that align with evolving tax and governance regulations.
The evolving landscape is witnessing a generational shift within Indian family businesses. Shroff highlights this transformation, noting that senior promoters in their 60s and 70s are passing the baton to their children in their mid-30s and 40s. The ability of the next generation to surpass their iconic predecessors remains to be seen.
Ketan Dalal, managing director of Katalyst Advisors, points out that the increasing involvement of family members in businesses often leads to divisions, particularly concerning risk management in regulated sectors like NBFCs and insurance companies.
Family business groups are actively engaging in succession planning to ensure operational continuity, mitigate conflicts over asset distribution in the future, foster trust among stakeholders, including shareholders and employees, and reduce operational uncertainties.
Recent instances, such as the amicable restructuring within the Godrej family and the smooth succession planning at the century-old TVS Group, underscore the importance of proactive and transparent family arrangements in ensuring a seamless transition to the next generation.
Navigating such transitions can be challenging, as highlighted by Ashvini Chopra, executive director of Family Office advisory at Avendus Wealth Management. He stresses the significance of investing time and effort in managing family communication and governance to maintain familial bonds amid changing aspirations and values.
Industry veterans note that Indian business houses have developed a unique conflict resolution mechanism, characterized by a willingness to offer advice on succession and other pertinent issues based on shared experiences.
Moreover, the increasing regulatory compliance requirements are prompting business promoters to disclose internal arrangements, enhancing transparency among family members and stakeholders.
While younger family members may not share the same enthusiasm for their family businesses, they often retain their stakes while refraining from direct involvement in day-to-day operations, ultimately resulting in a shift towards professionally managed entities.
Key to this transformation is the dynamic between family promoters and non-family professionals, founded on trust, respect, and empowerment. This shift signals an evolutionary phase for Indian conglomerates, guided by a blend of tradition and modernity.
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