Study shows most Indian family businesses don't have succession plans

New Delhi: Family businesses in the country have seen rapid growth in recent years but only less than a third of such enterprises have succession plans in place, according to global HR consultancy Hay Group.

Also, managing succession in a family business involving family members is more complex, Hay Group India’s Director & Building Effective Organisations Practice Leader Mitali Bose told PTI.

[caption id=“attachment_606199” align=“alignleft” width=“380”]  managing succession in a family business involving family members is more complex. Flickr.com/ Allen Sima[/caption]

Noting that family businesses in the country have grown rapidly in the last few years, she, however, said only less than “a third of family businesses (in the country) have succession plans place”. Global research by the group found that only 19 per cent of family owned businesses have a plan in place when one generation retires and similar trends also play out in India.

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“… the number of times and occasions when the next generation/a sibling has taken over the business in the wake of crisis brought on by the sudden passing of the managing family member/patriarch stands testimony to the fact that this continues to remain a much neglected area of planning and foresight,” it said.

Typically, a family owned business evolves from controlling owner stage to the sibling partnerships level and finally to the cousin consortium stage. “The first generation builds, the second expands and the third destroys. This is a universally acknowledged phenomenon; that few family-owned businesses survive beyond the third generation,” Hay Group said.

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Citing its research, Hay Group said more than 72 percent of family owned businesses do not survive beyond the third generation. Moreover, research found that only 55 percent of family businesses survive after ten years of existence while the same comes down to 27 percent after 20 years.

According to Hay Group, managing succession in an family owned business involving family members is more complex. This is on account of many factors such as aspirations of the incumbent family member, their place and role in the family, ownership implications, and capability/personality fit.

“Almost 80 percent ‘retired’ family members continue to have involvement in business matters,” it said. Considering the fact that customers have more choices in the market place for products or services, innovation would be a critical thing for family businesses going forward, Bose said.

“There is need for more innovation and more alignment at various levels within an organisation. Also, family businesses should have a lot of resilience,” Bose said.

PTI