Changing colours of succession: India Inc is learning to deal with GenNext

The key issues to be ironed out in succession are an unambiguous allocation of properties among legal heirs and the timeline for vesting of these properties

The police complaint filed by Samir Modi against his mother, Bina Modi, for allegedly to casting  him off inheritance rights to the K K Modi fortune, highlights the perilous path family-run businesses must tread towards division of assets.
 

The high-stakes battle within the K K Modi family centres around the distribution of inheritance involving the listed tobacco firm, Godfrey Phillips, which sells the Marlboro brand of cigarettes, and shares in group companies operating retail, cosmetics, and direct selling businesses.
 

The family dispute came to the fore after the demise of patriarch K K Modi in November 2019.
 

While this story was still unfolding, news came that Godrej Consumer's executive chairperson, Nisaba Godrej, had resigned as independent director from the board of luggage and travel accessories maker VIP Industries, citing differences over leadership accountability and succession planning.
 

According to news reports, Radhika Piramal, VIP's London-based vice-chairperson and daughter of chairman Dilip Piramal, is not very keen to continue running the business. 
 

This bodes a busy time for the VIP board and promoters to negotiate. However, India Inc has also had its fair share of amicable settlements in recent times.
 

Settlements, succession
 

On April 30, the Godrej group announced a family settlement agreement (FSA) that split the 127-year- old group in two branches – Adi and Nadir Godrej get to keep the listed companies while the unlisted Godrej & Boyce Manufacturing Company with affiliates in multiple businesses will be with Jamshyd and Smita Godrej.
 

The FSA was aimed at managing diverse expectations and varied strategic directions desired by each family branch.
 

Listed entities in the group said in regulatory filings that the third and fourth generations of the family branches had diverse interests and varying perceptions about the strategic direction, growth, and governance of the various entities of the Godrej group. Fulfilling the aspirations of the next generation and distribution of ownership were among the primary driving factors for splitting the businesses.
 

“Families are structuring specific frameworks for managing the transition of leadership, typically executed in phases with early involvement of children in business operations. This practice aids in grooming the NextGen for specific roles and fosters acceptance among the professional management,” explains Falguni Shah, partner, Entrepreneurial and Private Business,  PwC India.
 

Recent settlements point to this trend.
 

Rise of GenNext
 

The new arrangement under the Godrej family settlement has led to the rise of Pirojsha Godrej and Nyrika Holkar as the next generation of leaders.
 

In 2022, the TVS group completed a settlement involving four branches of the family – T S Rajam, T S Krishna, T S Srinivasan, and T S Santhanam families. The settlement ensured that each family group got complete ownership of the businesses they managed. It also aimed to facilitate a smooth succession to the next generation.
 

The Venu Srinivasan family took the lead earlier this year by entering a new pact that included wife Mallika Srinivasan, daughter Lakshmi Venu, and son Sudarshan Venu. The arrangement included, among other clauses, non-compete agreements among themselves.
 

Though the arrangement within the larger family was finetuned, the succession road map in the Venu Srinivasan group was charted years back – Lakshmi and Sudarshan had been inducted into the family business as early as 2010 and 2011, respectively. 
 

Changing times
 

Often, succession planning was decided by family elders and left in informal paper notes. That is changing.
 

“It was not uncommon for the patriarch to write down his wishes around succession and business split in informal notes, which he shared with his trusted family members (often his wife) and bankers or lawyers in his inner circle – a process that has not always gone smoothly,” says a corporate India insider.
 

N G Khaitan, senior partner, Khaitan & Co, adds that there was a time when the group patriarch would decide on succession matters and it would be sacrosanct. “In case of a dispute, it would be settled by a family well-wisher.”
 

But distribution in such cases may not always have been equitable, leading to family feuds. Feuds also arise despite a separation pact if one side of the business tends to grow faster and do better than the other half, says J N Gupta, former executive director with the Securities and Exchange Board of India who is now managing director at Stakeholders Empowerment Services.
 

However, things have changed rapidly as India’s corporate sector has grown and businesses have scaled up.
 

“The legal and regulatory landscape has become complex, requiring professional advice at every step,” Khaitan explains.
 

As India Inc navigates these complexities, the role of legal and tax experts has become bigger.
 

Professionalisation of the succession planning process is not just recommendatory but a necessity, since it involves a complex interplay between social, commercial, regulatory and tax parameters, says Binoy Parikh, executive director, Katalyst Advisors.
 

“One of the largest family settlements that we have recently advised on is the TVS Family Arrangement, which involved eight family branches, a plethora of shareholders, many listed and unlisted companies, and ultimately it was achieved through a combination of various agreements including memorandum of family arrangement, non-compete, brand agreement, and a complex scheme of arrangement involving mergers and demergers, among others,” he adds.
 

Bespoke solutions
 

The key issues to be ironed out in succession are unambiguous allocation of properties among legal heirs and the timeline for vesting of these properties, says Sucharita Basu, managing partner, AQUILAW.
 

“The issues get complicated when there are ancestral properties involved as the same are governed according the customary laws.  It will always help to have a bespoke approach devised in line with the wish of the promoters of the family business but in consultative collaboration with other stakeholders,” she adds.
 

Falguni Shah of PwC India points out that families are also establishing robust family offices, led by experienced teams. “These entities not only oversee wealth management but also provide strategic guidance to the next generation in navigating family businesses and upholding governance standards.”
 

But perhaps among all the succession plans, the Chennai-based Shriram Group has one of the most unique ones, where current and future management leaders turned shareholders of the company. 
 

And then there are ‘unique’ models like Shriram. 
 

“Shriram Group is a little unique, with the ownership trust in place, where some of the very senior members of the group are beneficiaries. We don't have an understanding of how much the family is holding on to in the Shriram ownership trust,” says Ranganathan V, former EY official and an expert in family businesses in South India.
 

Umesh Revankar of Shriram Finance explains that there is a Shriram employees trust where people on board are a partner. “The trust has a stake in Shriram Capital Ltd, the holding company for all group businesses.” A bespoke approach indicates a desire to find a lasting solution despite odds that may be likened to the Anna Karenina principle. As the opening line in Leo Tolstoy’s Anna Karenina goes: Happy families are all alike; every unhappy family is unique in its own way.