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Juniors lack clarity on successor in family-run biz

The study probed 40 matched pairs of seniors and juniors within the same family-owned business on several issues

BS Reporter  |  Hyderabad 

Only 11 per cent of the younger generation in family-owned businesses have a proper idea on the crucial business successor, according to a study done by the (ISB).

The other contentious issue the study identified was lack of a clear policy on rewarding family members for their contributions. Only 37 per cent of junior members said there was clarity, pointing out to the gap in proper understanding on these key issues.

The study - Family Togetherness - probed 40 matched pairs of seniors and within the same family-owned business on several issues. It covered individuals aged above 50 and belonging to the first generation, whereas most were below 30 years and belonged to the second generation. The companies had an average networth of Rs 200 crore and above.

Even on issues ranging from starting a new venture, ownership, allocation of responsibilities, role of women members, wealth management, there is less commonness among both generations. The observation the study said may prove detrimental to the sustainability of family-run businesses in the long-term.

"Indian family businesses often do not realise the need for policies on contentious issues and take little interest in framing them. Sustainability of family businesses depend on understanding on policies and if they are not there, they need to sit together to frame them. Unless we address this, it will be a huge implication for family businesses," said Kavil Ramachandran, head, Thomas Schmidheiny Centre for Family Enterprise.

He said statistics showed a third of the family-owned businesses survive beyond the first generation once the founder leaves the helm and it is around 25 per cent for the second generation and 15 per cent for the following generation.

Ramachandran, however, said due to the changing business dynamics, family-owned businesses are realising the need for framing policies on issues of disagreement.

Meanwhile, dean Ajit Rangnekar said the centre, which had been upgraded from chair, would attract the best talent to research on board governance, wealth management, philanthropy, role of women in family businesses.

Other key observations of the study include lack of policy on voluntarily declaration of annual substantial income generated by family members and little interest shown by a majority of next generation in joining family business. The gennext prefer to work elsewhere as they are doubtful of inheriting the family property.

For a proper discourse on them, the is holding a two-day Fifth Asian Invitational Conference on Family Business from Feb 7, where the inaugural would have deliberations on 28 case studies related to family business including the five-generation-old Muragappa Group and Godrej Group.

First Published: Thu, February 05 2015. 20:42 IST