Kishen Mehta gazes across the glass walls of his Nariman Point offices, as he mulls over the future of the business that he painstakingly built. Three decades ago Mr Mehta moved from his native Udaipur to Bombay. Now, past 65 years in age, he is keen to retire and hand the baton to a successor who would take his precious company into another league. He cannot decide which of his two sons should inherit his legacy. His wife’s persuasions notwithstanding, he is not even sure that either of them is really capable. Now that his company has gone public, he feels morally indebted to other shareholders and is compelled to detach paternal instincts from business obligations. He regrets the fact that over the years he paid no attention to the ‘what after Kishen’ issue.
Succession planning is a challenge in any business but in family owned ones, things occasionally get messy. The separation of ownership and management is hard to achieve in practice especially when those affected have been brought up to believe that they are inseparable. In a family business, the patriarch of the family is frequently also the head of the business. He therefore needs to balance the logical needs of business interests with more emotive family considerations. When it is hard to make a decision the over-powering temptation is to delay things, perhaps endlessly. Many family owned businesses, have done just that, with appalling consequences. A structured succession planning process is the only way to preserve the interest of the business and hopefully sanity within the family. Ideally this process should be outsourced, for instance, to a special committee of independent directors within the company’s board. This way the patriarch steps aside and cannot be accused of biases.
Many have argued that the system of handing a business from father to son is unfair as there may be others better qualified to take on the mantle more effectively. Whilst that may sometimes be true, the fact remains that ownership and control cannot fully be separated and clearly so in closely held companies or those where family holdings comprise a major portion of the share capital. In publically listed ones where ownership is widespread, independent directors or nominees of major shareholder groups, now more than before, speak their mind on succession issues. But the fact remains that a family member may be just as capable (and is frequently highly so) as a professional hired from outside. In the least his loyalties will always remain with the business and with its longer term interests. Selection committees should recognise this fact and lend it their due consideration.
For a while it had become foolishly fashionable to frown upon businesses that inducted family members in important positions within the business. On the contrary younger individuals from business families frequently have the best education and training in some of the world’s finest universities. Their exposure to the business commences at an early stage and as they mature they logically emerge as ideal candidates to assume leadership positions. There are several examples amongst Indian business families where successive generations have enlarged the business many times over when offered the opportunity to lead it. Be that as it may, the fact remains that the process of succession should be assigned to an independent committee and the planning process should begin early to ensure that the transition is smooth and effective. For Mr Mehta, retirement will have to wait for a few years until this is all over.