When it’s all in the family

As the number of family-owned businesses change hands to a new generation, a different outlook towards business seems to be setting in.

Rajesh Narain Gupta, the managing partner of SNG & Partners, one of the leading law firms in India talked to the Business Line about how family businesses are adapting a more professional management-driven approach in their business practices and in areas such as writing of a will.

How big is the family business scenario in India?

I would say that probably 90 per cent of the business in India is controlled by families. Surprisingly, post-Independence, in spite of internal challenges and three big wars, it’s the family business that thrives. From mom and pop kirana stores to large conglomerates and at the SME level one finds family-run businesses. Most of the big corporate business houses such as Ambanis, Birlas, Munjals, Mahindra and many more and SMEs are controlled by families. The role of family and the family patriarch is quite important in India. The doctrine of ‘let go’ still is bit farfetched.

According to a global high net-worth individuals survey in the Capgemini RBC Asia Pacific Wealth Report 2013, higher proportions of such individuals India seek advice on family wealth rather than personal wealth. There is an increasing need of family wealth and succession planning especially when wealth exceeds $5 million.

Heads of family-run businesses hold on to their positions despite having options. Your comments?

You have to remember that most of the family businesses are still not very old businesses. A number of business activities led by families started post-Independence and gained momentum thereafter. Since families are concerned about their personal wealth creation and preservation, brand of their family names, self-governance and suffer from a ‘control freak’ syndrome the founder family members and/or the patriarch do not wish to let go or give up the control easily.

Although the decision-making ability in a family-run business is high, however, the professional management of business and to get the right talent to run the business is always a challenge in even large business and corporate houses. There are many business houses where the trend is changing especially where the young generation is educated well in India and overseas and the new generation realises the value which can be added by the right governance structure, right talent and right delegation. The new generation is also keen to have alliances and joint ventures in India and overseas. Many of the family businesses are already in the hands of the second generation which is far more open to delegate than the original founder. It is a global fact that when we start something new and are starved of cash there is a grab mentality and once we achieve something and fear of total loss is not there, the mentality changes and one becomes open to participation and delegation.

How much of a factor does exposure to different management practices play?

Today the youth who is educated, travelled and experienced can certainly add a greater value. Increasingly, there is a trend of a family council where the founder and senior members have an overview and participate in the final decision-making based on their experience while the younger generation is given the participation to run and to work on new business ideas.

Do these businesses pay enough attention to succession planning?

In the two years there is an increased awareness on estate and succession planning. Almost all the wealth management companies have added estate and succession planning as a product for their wealth customers as this provides a great cross-sell opportunity. Nuclear families have a need for succession planning and services around succession planning as people want to know how to prepare their will and whom to appoint the executor and with whom to keep the safe custody of will. There is a possibility of introduction of estate duty again and if this happens all concerned will have to do the succession planning in a proper way to ensure smooth succession which is economical as well. There is a noticeable increase in wealthy Indians and with wealth comes a serious requirement to plan the succession so that the wealth is preserved and not destroyed.

Is the way wills are written today different than in the past? If so, how?

Will writing has become crisp and to the point. Earlier, in my experience wills were long with lots of preamble, wishes, expectations stated in the will. These days the wills are short and to the point. This helps in reducing anomalies and inconsistencies. There have been legal precedents which give guidance on what is expected when the will is drawn so that it is legally enforceable.

For example, capturing a video of a person executing a will has been upheld by the Delhi High Court and there are increased instances of videography of wills to avoid any subsequent dispute on the authenticity of a will.

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