Family Businesses Must Have A Succession Plan: Sethurathnam Ravi, Former Chairman, BSE

Sethurathnam Ravi, former Chairman, Bombay Stock Exchange, points out that there is a method to transition, with many factors determining the way forward for a smooth transition. These challenges include family structure, the skill sets of family members, aspirations of all concerned, ceding of control, family wealth, the nature of the business, and relationships among family members.

New Delhi (India), August 7: Succession planning in family businesses in India is imperative as many family businesses are centered around promoters and families. According to Sethurathnam Ravi, former Chairman, Bombay Stock Exchange, family disputes in Indian corporates are common, and a lack of clarity in transition has been the main reason for these problems. Businesses have been disrupted and destroyed as succession planning is either ambiguous or non-existent. Smooth transition of business is essential for continuity and prosperity.

Sethurathnam Ravi points out that there is a method to transition, with many factors determining the way forward for a smooth transition. These challenges include family structure, the skill sets of family members, aspirations of all concerned, ceding of control, family wealth, the nature of the business, and relationships among family members.

Successful transitions start early, when the successors are identified and groomed to carry on the mandate of the family. Identifying potential successors based on skill sets and aspirations is key. Domain knowledge with administrative capabilities adds value. Family size and the number of aspirants are important factors that determine the road forward for the family. Family charters and family councils with a well-written succession plan and family arrangement are a must. Arrangements can be in terms of business, estates, family wealth, distribution of wealth, and also business. In the case of listed companies, board structure and corporate governance have to be factored in to comply with SEBI guidelines.

Ravi emphasizes that conflicts are common and have to be mitigated and managed through strong family charters and arrangements. Mediation mechanisms need to be put in place as conflicts are very common. Mid-course corrections should be made after reviewing the family arrangements and their achievements. Some families bring in professional management as an interim measure in case successors are not ready to take over the mantle. Families can look at professional management without losing control, which has happened in many instances.

Ravi also highlights that many elements have to be factored in, like tax planning, gifting, transfer of assets, dealing with creditors, governance structure, and making structures that are futuristic. If we look back at the Indian corporate history of transition, there are a few good examples that can be emulated. The number of family disputes in public knowledge itself exhibits that family-run businesses are not farsighted and do not take steps to carry on the legacy. A dismal track record has made Indian families proactive in planning a smooth transition.

Promoters, according to Sethurathnam Ravi, have to start early planning so that the brand and business are in the right hands. Transitions are complex and thus families must handle them carefully and in a time-bound manner so that business is not disrupted. Various types of structures and realignments are possible based on situations, but the key is to initiate a plan that can take the test of time.