Despite the radical changes both the local and global markets have gone through over the last decades, family companies still dominate the global economy: Not only are 80 percent of companies worldwide family-owned, they are also to a large extent still managed by members of the founding family.
Not surprisingly, India is no exception. Like family businesses in any other country, Indian family-owned firms also need to contend with the issue of succession planning and the separation of management from ownership. In addition to the challenges of corporate governance, they also need to keep pace with the changes resulting from rapid globalization and the availability of foreign capital in the country.
Whether they are active globally or not, one of the major issues family companies have to contend with is the interaction between three groups of stakeholders: family managers, professional managers and family shareholders. For most Indian family companies – especially when the second and third generation of family owners have taken over the reins – the key challenge on the governance side is to set up a structure that separates family interests from business interests
and the creation of an environment of transparency and meritocracy that allows the company to attract and retain the best executive talent, with a structured process to guide and supervise the executive management in the best interest of its shareholders.
The fast-changing business backdrop has also made succession planning – traditionally a difficult issue for family businesses – more crucial than ever. Most Indian family firms still have no formal succession planning. Owner-managers may have run a company successfully for many years, but if the firm is to stay successful, they need to define their objectives for five or ten years from now and select their successors accordingly.
The liberalization of the Indian economy has unleashed globally competitive forces that are likely to reshape the business landscape. Those Indian family run and managed enterprises that have been extremely successful in the past will do well to recognize the importance of market forces and proactively implement action plans to ensure the future survival and growth of their organizations.
We at S.R.Dinodia & Co. understand this crucial need of traditional family owned businesses for succession planning.
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