Family businesses putting in place safety nets to avoid future feuds
The public spat among members of the Vijaypat Singhania family has brought into sharp focus growing problems in Indian family businesses, and the tightly-knit groups are exploring new ways to avoid disputes triggered by the aspirations of Generation Next.business Updated: Apr 02, 2015 00:10 IST
The public spat among members of the Vijaypat Singhania family has brought into sharp focus growing problems in Indian family businesses, and the tightly-knit groups are exploring new ways to avoid disputes triggered by the aspirations of Generation Next.
Business families are now ensuring a more representative family charter — an agreement or constitution that marks out family vision, plan and responsibilities — that has enough room for younger members to be able to work on their own plans that are different from existing family trade. This is a marked departure from the earlier tradition where family elders decided on how the business would be handled and what the responsibility of each member of the family would be.
The trend is also reflective of the need to protect family businesses as only about 15% survive till after the third generation.
Indian companies recently saw two large groups, the Vijaypat Singhania and the Shroff families, involved in disputes centred around terms of a family settlement prepared earlier. The grandchildren of Vijaypat Singhania filed a suit against their grandfather, contesting a 1998 settlement that allegedly glossed over the rights of the younger members.
Similarly, Amarchand & Mangaldas, one of India’s largest law firms, is also in the middle of a dispute between promoter brothers — Shardul and Cyril Shroff — who disagreed on a will left behind by their mother Bharti Shroff where she had willed her share of the business to Shardul.
“Such occurrences typically start with small differences that gradually grow when ignored,” said Anil Sainani, a family business expert who has worked closely with various large families. “Differences are common. But one shouldn’t neglect them. Keeping communication channels open can help.”
He cited a large business group in Kolkata that has been trying for a settlement as the younger generation is not keen on continuing. But while sharp differences between the members fester, an exit is being held up by delays in getting approvals.
Family businesses are already exploring diverse options to avoid such events. The $15 billion OP Jindal Group is creating a Rs 1,500-crore family fund — a jointly promoted corpus with proportionate contribution — that will ensure continuity for the younger generation and also help in their new businesses. This is in addition to the comprehensive charter that late patriarch O P Jindal had drawn where all the brothers had independent businesses apart from a minority stake in each other’s companies to ensure that all remained connected.
India relies heavily on family businesses, which form a major part of the overall environment. A CII report said family businesses in India account for almost two-thirds of the GDP and employs almost half of the workforce.
“The days of the patriarch dictating the charter is getting less common,” says Sunil Shah, founder, Evergreen Family Business Advisors. “Now families are having a participative dialogue process that considers the aspirations of the younger generation. Family elders are now seeing different points of view and are ready to talk. Earlier a settlement was based on a fixed template. Nowadays there is room for change,” he added.
The Burmans of the Dabur Group and third-generation members of Ranbaxy’s Bhai Mohan Singh’s family have also entered the foods business, while Atulya Mittal of the Ispat group has also firmed up plans to build presence in the food and catering services.
“It is important to know whether the family has sought to maintain fairness in agreements,” says Prof Kavil Ramachandran, Thomas Schmidheiny chair professor of family business and wealth management at the Indian School of Business. “Families are now open to forming funds to ensure that disputes do not get blown into larger problems,” he added.