Shirtsleeves To Shirtsleeves – The Power Of Communication In Succession Planning

When it comes to family-owned businesses, succession planning is a necessity to ensure the preservation of a family’s legacy. No founder and head of family that sets up a business does so purely as a source of livelihood- there is always the underlying desire to pass the baton to the next generation.

To the average Indian family, the family business is more than a money-maker, it is a means through which they identify with the community within which they live. The goal is never money, it is for the business to have a life of its own – and securing that legacy is what succession planning is all about.

From Mercedes Benz to BMW, and from Chanel to Hermes, some of the biggest players in the global market are family-owned. However, most family-owned businesses do not weather the storms of time. The adage, “Shirtsleeves to shirtsleeves in three generations,” describing the inability of grandchildren to manage familial wealth passed down to them from their grandparents and parents, captures the fate of most family-owned outfits, succinctly.

While the first generation sets up the family business, the following generations must act as flagbearers for the family legacy. However, as generations pass, and the circle of trust becomes wider, not every member of the family can play an active role in the functioning of the business. This is where succession planning comes into play, as a tool to demarcate individual roles and responsibilities, creating an atmosphere of accountability and collaboration.

The Indian market is dominated by family-owned and operated businesses. According to various estimates, more than 80% of the companies in India are family-owned. However, a surprising number of these businesses fail due to a lack of structure within their business model.

While the concept of succession planning is still considered relatively novel in the Indian market, homegrown examples of successful succession planning include some of the biggest players in the game. From Dabur to Godrej, the families that do it right all have the same things in common: A passion for growth, a shared set of values that trickle down into the overall company ethos, and, of course, a strong succession plan.

Striking a balance between the professional and the personal can take on many forms. From establishing a trust to secure a family’s estate or hiring a professional board to oversee daily functions, to crafting a charter of individual responsibilities, structuring role succession and detailing KPIs for stakeholder participation, detailed succession plans consider the macro and the micro simultaneously.

However, the most vital element of both maintaining interpersonal familial relationships and planning for the future is perhaps the one that is least discussed in this context – the power of communication. 

Family members must be able to communicate freely about their individual desires, needs, and visions for the future, to create an atmosphere of mutual understanding and fruitful collaboration. This can be especially difficult in a family setting, where heightened emotions and a sense of birthright can cloud decision-making. 

When families are structured like organizations, communication is the currency of fruitful cooperation. Prioritizing competence over association, transparency over secrecy and collaboration over individuality is key to business continuity, as well as maintaining healthy interpersonal relationships.

(The views in the authored piece is solely created for BW People publication by Ms. Pallavi Joshi Bakhru, Partner - Head of Privately Held Business & Private Client Services, Grant Thornton Bharat LLP)