Forbes India 15th Anniversary Special

GenNext: Good succession is a process, not an event

A lot of effort is needed to ensure that successful transitions are automatic and effortless. across the world, they are critical for family businesses

Published: Mar 10, 2016 06:08:23 AM IST
Updated: Mar 9, 2016 05:42:45 PM IST
GenNext: Good succession is a process, not an event
Image: Mexy Xavier
Kishore Biyani, group CEO, Future Group

It was an exceptionally hot summer, even for Chennai. However, the heat on the roads was nothing compared to the heat in the boardroom. I had been called to intermediate in what was essentially a fight between family members in a tug-of-war for the business. In short, the father had promised the son his business, choosing to give cash to the daughter. Now divorced, the daughter wasn’t settling for cash, but wanted to get in on the top floor. The son, however, wasn’t willing to share the hot seat. This is a common enough scene in many boardrooms around the world.

Just as the potential for a mighty tree is first resident in the seed, the promise of a future generation in a family business first lies in how that generation is inducted into the business.

One of the most popular hymns in our culture, urges, ‘Urvārukam iva bandhanāt mrtyor muksīyamāmrtāt’ (Please grant that I may be delivered from death to immortality, just as easily as the ripe cucumber detaches itself from the parent plant).

Successful transitions are just like that—automatic and effortless. However, a huge amount of work goes into making it effortless because good succession is a process and not an event.

Across the world, succession is a critical survival factor for family businesses. The Mulliez family in France successfully practises the Apprenticeship Model, transferring both the family assets and values to the younger generation. The family, whose business stable includes retail distribution groups Auchan, E Leclerc, Decathlon, Flunch and Leroy Merlin, all grown from the founder’s textile manufacturing business, Phildar, could count 780 direct descendants, 70 percent of whom belong to the family association, which controls the business interests.  Their family motto, “tous dans tout” (everyone in everything), reflects the core values of solidarity, family heritage and responsibility towards future generations.

In Japanese tradition, family culture is an important factor. However, unlike Chinese family culture, they are more likely to adopt clan succession rather than family succession. ‘Defensive succession’ is when the family tries to preserve control over the enterprise at all costs. The second type might be called ‘transformatory succession’ in which the company is transformed to maximise the wealth of the family even at the cost of reducing family control.

Our ancients are famous for the beautiful varnāśrama system of life. First, a man is a brahmachari, focusing only on knowledge, learning and practising his craft. Then he is a grihasta, focusing on building and nurturing a family. Then he is a vānaprastha, focusing on social responsibilities and taking on only an advisory role in the family. Finally, he is a sanyāsi, completely focussed on his spiritual development and detached from family and society. This system allows for a seamless transition, where the elders in vānaprastha slowly make way for the younger generation while still being available for guidance.

However, Indian tradition also treats work as worship, and entrepreneurs probably treat their work as their very life, their legacy. Therefore, it becomes difficult to let go, and at the right time.

Even in cases where the older generation is willing to let go, it isn’t often that the younger generation is willing and able. In my years of consulting for family businesses across the globe, I see four types of potential next-generation successors.

The first type is aligned legacy builder, where there is a capable successor who is aligned with the vision and values of the founder and takes forward the legacy of his predecessors. The second type is disruptive pathbreaker, where the successor is capable but wants to break away from the family business and do something of his own and create an unrelated self-identity. The third type is the consumer, where the successor is driven by the entitlement pride. The final type is the survivor, where the successor is both insipid and directionless.

Therefore, while deciding succession, it is necessary to take into consideration the potential nextgen archetype. 

GenNext: Good succession is a process, not an event
Image: Vikas Khot
DB Gupta, chairman, Lupin

Another key influencer in family business succession is how the next generation is groomed for the business. The senior generation coaches the next generation in two ways: One I call the ‘buffet model’ and the other the ‘thali model’.

As is probably obvious, in the first model, the scion is free to pick and choose which areas he wants to get exposure in. In the second model, there is a formal process of induction, where the founder takes the next generation through all the areas of the business.

More often than not, the younger generation has to adapt to the coaching style of the senior generation. One of the most respected first-generation founders let me in on how he groomed his sons: He first made them handle tasks, then functions, then projects, then an entire business and finally multiple businesses. He didn’t set out to do this consciously but it has worked wonders for the business and he now swears by the efficacy of this step-by-step method.

Given the rapidly increasing complexity of business in the 21st century, potential successors gain experience outside the family business to broaden their perspective. Some of the best-managed family businesses have elaborate career-development processes for family members that equal world-class talent-management and capability-building processes. Many companies also hire external professional senior management executives to take the business forward.

Historically speaking, in India, the patriarch used to hand over the family business and pass on his legacy only to his first son. Daughters were nowhere in the picture. But with changing times, it isn’t just sons who are being groomed. India Inc has woken up to women heads of business, and many family businesses today are being successfully passed on to next generation female scions, choosing meritocracy over hierarchy.

Entrepreneurs like Mukesh Ambani, Ajay Piramal, Kishore Biyani, DB Gupta, Venu Srinivasan and many others are leading the way in this regard by giving equal responsibilities and opportunities to their daughters as well as sons.

Many family businesses have a structured succession planning in place. The Murugappa Group has seamlessly and successfully built a business empire that is well into the fourth generation. The family has limited the working age of its family members to 60 years. Another example of a successful family business that has transitioned well into the fourth generation is the Godrej Group. The family strongly believes in the trusteeship role of each member in perpetuating the family and the business.  

Another challenge is what I call the Golden Spoon Syndrome. When heirs who have lived in luxury all their life inherit businesses built by entrepreneurs, they have a low adversity quotient—how much adversity one has faced in life—and therefore their capability to deal with complexity is much reduced, or rather, untested. The need of the hour is to sustain the spirit of hardy entrepreneurship while adapting the business to the changing times.

Which brings us to the next challenge—that of changing times.

It is yesterday’s news that the world is shrinking. Everyone is readjusting every year, if not every day. In a hyper-connected world, there is no event that can purely exist on its own without impacting and being impacted by something else in the global village.

It is a great advantage that the present crop of business heirs is more digitally savvy than their predecessors. However, the challenge is from a new front. Today’s new competition isn’t from an established family business of a few decades. It is from the garage startup of college dropouts. An Indian company that started less than a decade ago is valued today at around $15 billion.

Facebook, LinkedIn, Alibaba started by first-generation entrepreneurs are valued at over $300 billion. Technology isn’t just a tool but an alternative reality today. There is immense pressure on traditional businesses to catch up, if not stay ahead of the game. No one can predict the next new technology that can make giants obsolete. Nokia comes to mind.  

GenNext: Good succession is a process, not an event
Image: Dinesh krishnan
Ajay Piramal, chairman, Piramal Group

One of the most complex relationships in a family is the father-son relationship. In business, it is that of incumbent and successor. In a family business, these two complex relationships are enmeshed, creating a challenging web of issues to sort through and navigate.

The Upanishads say, ātmāvai putranāmāsi, “my son is the reflection of my very self”. Many fathers expect that the son should “be me” and find it incomprehensible when that is not the case. They forget the other injunction, prāpte tu sodaśe varse putram mitravadaacharet..., “treat your son like a friend when he turns 16.”  

The search for identity and independence is a personal journey that each one has to make for oneself. There are four stages in which this journey occurs.
The first stage is complete dependence, that of a baby. The second is counter-dependence, that of an adolescent. The third stage is independence, that of an adult. The fourth and the most mature stage is inter-dependence, that of a mature adult.

Most people struggle with the second stage or the third stage. There are nextgen members over 40 who still interact with their fathers in the counter-dependent mode. There are heirs who seek independence in a rush and chart new directions in haste. However, the most productive stage for family businesses is the fourth one, inter-dependence. When one is both capable and wise, when one is secure in oneself, one seeks to blend the energy of youth with the wisdom of age carefully, and with great impact for the business.

Succession planning process is a big-ticket item that can make or mar a family’s continuity. A few steps are recommended to ensure a smooth transition from one generation to the next.

  • Develop a written succession plan
  • Involve family and colleagues in the thinking process
  • Take advantage of outside help
  • Establish a training process
  • Plan for retirement
  • Make retirement timely and unequivocal
  • Discuss plans with the next generation

Some family businesses follow the bottoms-up approach to succession planning, where the next generation arrives at a consensus to select the successor; the patriarch is not involved at all. Some other family businesses adopt the co-succession model, where two or more family members chair the business.

In order to be successful, the current generation would do well to leverage interdependence and use the experience of the past to leapfrog into the future. The young scions need to be emotionally connected, stay invested, think in the long term and use technology as a propeller.

Finally, well-begun is only half-done. Good succession planning and transition is half the work done towards a great next generation leadership. Working backwards to undo the knots later on is not only backward in more ways than one but also complex, involving many egos and long, patient engagement. Like in our summer boardroom battle.

Tatwamasi Dixit is an advisor and coach specialising in family businesses; he is the co-author of the book Indian Family Business Mantras, along with Peter Leach. He founded FABRIC (Family Business Research International Centre), offering family business advisory services and coaching to family business entrepreneurs and next generation leaders.

(Disclaimer: Mukesh Ambani is the chairman of Reliance Industries, owner of Network 18, which publishes Forbes India)

(This story appears in the 18 March, 2016 issue of Forbes India. To visit our Archives, click here.)