Succession Planning For Family Owned Business in India Paper by Pavitra Sharma - Master of Science candidate in Construction Management at Arizona State University, Tempe AZ

1. Succession Planning for Family Owned
Business in India
Pavitra Sharma
CON 598- Principles of Leadership and Management - Spring 2014
Date- May 1, 2014
Dr. Avi Wiezel

2. Table of Contents
Abstract........................................................................................................................................... 1
Introduction..................................................................................................................................... 1
Problems Identified......................................................................................................................... 3
Proposed Solution........................................................................................................................... 4
Conclusion ...................................................................................................................................... 7
Bibliography ................................................................................................................................... 8

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Pavitra Sharma
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Succession Planning for Family Owned
Business in India
Abstract
This paper charts the theories of succession planning in Indian family business. The paper
presents challenges and benefits to succession planning and provides strategies to maximize
benefits for business families.
Introduction
Succession Planning is a significant part of a business that requires a smooth transition of
ownership and management from one generation to other. Succession Planning consists of – i)
conceptualizing and documenting a succession plan and ii) grooming the next generation to take
up the assigned business role.
The Indian business environment largely consists of family owned companies, public sector
enterprises and professionally managed companies. Family run companies in India contribute to
55% of the GDP (Nerine Advisory Services India Private Limited, July 2012). Sustainability of
these businesses with effective planning is of utmost importance for the future generations as
well as the economy of India. These businesses face many challenges from various aspects such
as retaining talent, continuous innovation for competition, need for new technology, price
completion and succession planning (Pricewaterhouse Coopers Private Limited, 2013).
According to statistics, only 12-15% of family run businesses survive through to the third
generation and only 4-5% to the fourth (Nerine Advisory Services India Private Limited, July
2012).

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Succession planning amongst family owned business in India was an unheard notion in the past.
According to the Hindu Undivided Family Act, in case of death of the patriarch, the eldest son
assumes the position of the legal head of the business and the wealth is to be divided equally
amongst all the sons and unmarried daughters, if there is no written legal will of the patriarch.
Poor or no succession planning in the past has led to family feuds where the companies have
been devalued due to the division of wealth among the family members, demand of legal
ownership rights and division of assets. But the family owned businesses in India are determined
and striving hard for their growth and sustainability. The International Monetary Fund (IMF)
projects that India is one of the fastest growing economies in the world despite the slowdown in
the global economic growth. In a country where discussion of death was considered a bad omen,
succession planning is becoming a mantra for the success and sustainability of these businesses.
According to a recent research 55% of the Indian business owners agree that a succession plan
exists for their business (Ramachandran & Bhatnagar, 2012).
It is quintessential for every owner to start with the succession planning as early as possible. It is
a complex process that requires a lot of effort, time and patience. In India, it is a tradition that the
business will be taken forward by the eldest child but still there exists issues which are needed to
be addressed in order to plan succession efficiently.

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Problems Identified
There are certain drawbacks that the family businesses suffer from during succession planning.
These are as follows-
 Not preparing the business for succession- It is of utmost importance that the patriarch
should prepare the business for succession along with the successor. An unprepared
business would not lead to a smooth transition and the successor would be forced to make
uninformed decisions. This situation would greatly harm the future of the company.
 Not deciding a definite time for retirement- It is imperative for the predecessor to
define a definite time of retirement for a smooth succession to take place. Frequent and
transparent conversation should take place amongst the family members regarding the
issue.
 Not giving up control- It is always difficult for the predecessor to really give up control.
A controlling predecessor devalues the position of the new successor on board in the eyes
of the company employees and clients. The position of the predecessor should be to assist
the successor in the matters of dilemma and decision making process.
 No clear conversations about succession amongst the family members- The system of
extended family is quite common amongst owners of the family business. Everyone in
the family contributes to the well-being of the family and the family business.
Communication and transparency is what holds everyone together, without it there would
be family feuds which would further lead to disintegration of the family business.
 Sibling rivalry- This is a serious problem amongst siblings in India particularly due to
partial affection of parents towards one child over the other or sometimes due to their
gender. It is the responsibility of the patriarch to make sure such situation does not arise

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in the first place and if there is such a situation budding amongst the siblings, these
conflicts should be resolved as soon as possible.
 Not choosing the right candidate for succession- The owner must identify its successor
during succession planning. He must consider other potential members of the family as
well in addition to his own child. The key here is to find a candidate who is well
educated, committed and motivated to take over the business. At times, the owner faces a
situation where his own child is not willing to take over and has different plans for the
future. In such situations, the owner must consider other candidates and not force upon
his decision on the child.
 Not preparing a successor- Mentoring a successor is an important aspect of succession
planning. The sustainability of the family business depends upon how well the successor
understands his family business and what his goals are. The decisions of an unprepared
candidate will be catastrophic for the business.
Proposed Solution-
Succession planning includes three important stages i.e. planning, mentoring and finally the
succession. According to research, it takes about nine to ten years for the succession process to
conclude. Every stage in the process is crucial for the future of the business. Moreover, it takes
immense patience, composure and planning for a smooth transition to take place.
1. Planning for succession:
 Evaluating the business- In order to commence the planning process, it is imperative
for the owner to get the business evaluated by an external agency. With the help of
this evaluation the owner will recognize the current standing of the company in the
market as well as foresee the future according to the upcoming trends. If the owner

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realizes that the company’s future is not sustainable then he must strongly consider
selling out the company and use that money for the growth of the family.
 Preparing yourself for succession- Once the company is evaluated and the future of
the company looks good, the owners should start preparing themselves for the
succession process. They should start working on their retirement plan for the
unforeseen circumstances of the future. Also they should get a legal will and
testament prepared to avoid any feuds amongst the family members. While
considering their health and age, they must decide their official date to retire.
 Preparing the family for succession- The idea of succession planning should be
clearly communicated to all the family members because emotions run strongly
within the family especially when there is money and power involved. The
communication within the family should be open and transparent about the topic.
According to the prevalent system in India, the decision of the head of the family is
considered as final. This ideology must be changed and opinions of family members
should be acknowledged.
 Preparing the business for succession- It is one the most important responsibility of
the owner to prepare the business for transition as there would be a change in the
leadership, altogether a big change for the company. The idea of succession planning
should be clearly communicated to all the stakeholders and their opinions should also
be taken into account regarding the issue. External expert agencies should be
consulted for efficient planning.

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 Identifying potential candidates- In India, it is prominent that the eldest son will be
announced as the successor. But what if the child is not willing to take up the
company. Therefore, the owner must identify the professional interests of the child
and also look for other potential candidates for succession.
2. Mentoring for succession:
 Delegate- Once the potential candidate is identified (assuming the owner’s child
is the candidate), the owner must start the professional grooming of the candidate
by including him/ her into important meetings, decision making and a formal
introduction to all the clients of the company. The candidate should be introduced
to each and every aspect of the company. Some day to day tasks of the owner
must be delegated to the candidate to provide a hands-on experience. This
exercise would familiarize the candidate with values and culture of the company
and would instill in a vision to run the company in the coming future.
 Give up the big office- During the later stages, the owner must give up the big
office allowing the successor to take it. This would motivate the successor to take
responsibility and commit to the company. Also, the stakeholders of the company
would recognize this change in leadership and respect the new boss.
 Gradually giving up control- After giving up the big office it’s time to give up
control completely and let the successor do its job. Before retiring, the owner may
assist for few days but not force the decisions upon the new successor as this
would demotivate him/her and he/ she will find it difficult to make any crucial
decisions for the company.

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3. Succession: In this stage the owner must completely retire from the company. The owner
may be occasionally present in the company when called for to give opinions while making
important decisions for the company. Otherwise, the owner must let go of the company and have
faith in the successor and his decisions.
Conclusion-
The family owned businesses of India being an important and integrated part of the economy
have immense potential in the coming future. India being a developing nation and the increase in
foreign direct investment would provide these businesses with growth like never before. The
need of the hour is to have more strategic and efficient planning system for the sustainability of
these companies as there would be increase in competition and adoption of new technology.
Succession planning would provide these companies with a prospect to grow in the future and
take advantage of the growing economy of India.

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Bibliography
Nerine Advisory Services India Private Limited. (July 2012). The changing Indian landscape for succession
planning.
Pricewaterhouse Coopers Private Limited. (2013). Family firm- The India Perspective.
Ramachandran, K., & Bhatnagar, N. (2012). Challenges Faced by Family Businesses in India.
Thompson, P. (n.d.). Succession Planning and the Family Business.