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How do you ensure succession plan doesn’t turn into a feud?   Tamanna Inamdar speaks to Binoy Parikh and Gurcharan Das on 'The Big Story.' #NDTVProfitLive  _______________________________________________________   For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia Visit NDTV Profit for more news: https://www.ndtvprofit.com/ Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports Follow NDTV Profit here Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit LinkedIn: https://www.linkedin.com/company/ndtvprofit Instagram: https://www.instagram.com/ndtvprofit/ Facebook: https://www.facebook.com/NDTVProfit/ #ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE

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00:00cling it out in court over their father's will.

00:03But this is not the first time we're witnessing such family feuds,

00:06especially in corporate India. Lack of succession plans have plagued the big wigs of industry for

00:12long. And not just succession plans, dual wills, multiple versions, and of course,

00:20a lot of heirs in the frame. Take for instance, the KK Modi family, Lalit Modi of IPL fame and

00:26his brother Samir Modi are fighting their mother, Bina Modi, tooth and nail for the 11,000 crore

00:33rupee inheritance. Samir Modi has even accused his mother of orchestrating an assault on him.

00:40Bina Modi in turn, ousted Samir from the board. The Kirloskar family too is facing internal

00:46squabbles. The sons, Atul and Rahul Kirloskar have gone against their father Sanjay Kirloskar,

00:52attempting to take away control of the company from him. The Raymond family saga has played out

00:59in the public domain for quite some time. Gautam Singhania's father, Vijay Patsanghania,

01:04bitterly complained against his son after he handed over a 37% controlling stake to him

01:11in the company. As if this were not enough, Gautam's very bitter and ugly divorce with

01:17Nawaz Modi is playing out in the public domain. Not too long ago, brothers Mukesh and Anil Ambani

01:23had famously split the Reliance empire between them as well. Subsequently, of course, they've

01:29made peace and now have planned a succession for the next gen. Now, with battles brewing everywhere

01:36over succession and inheritance today, what we are trying to do on The Big Story is understand

01:43why we have this kind of acrimony time and again in some of the largest Indian corporate families.

01:51And let's be honest, this is not a problem only with large Indian corporate families.

01:56It happens a lot in business families. It happens a lot in Indian business families.

02:01So the question we're asking today really is, how do you ensure as a successful promoter that

02:07there is a succession plan in place that doesn't turn into a feud? How do you preserve legacy

02:14for the next generation? And what do you do if a family feud breaks out like it sometimes,

02:21and invariably does? To speak on this, I'm joined today by author and thought leader

02:26and the former CEO of Procter & Gamble India, Gursharan Das. With me also is Executive Director

02:31of Catalyst Advisors, Binoy Parekh, who has a lot of experience on advising large business families.

02:38Welcome to both of you and thank you so much for joining us on the show today. Absolute pleasure

02:42speaking with you. Mr. Das, let me begin with your commentary on the kind of feuds we've seen

02:49in the last couple of weeks or in the last few days, actually. There are two that I mentioned

02:54at the start of the show, and I'm not sure you want to go into specific details, but what is

02:58very similar between the feud in the Kalyani family and the Oberoi family is the existence

03:05of two wills, two versions of who gets what, to put it very simply. Is this a problem that we

03:11see very, very often? Well, you know, before I answer the reality question, let me ask us,

03:20let me take a pause and say, what should be the ideal that a business family should strive for?

03:27Well, in the first generation, the person makes money. The next generation has the money.

03:37They don't want more money, but they want power. So they become MPs, ministers, etc. and they leave

03:46the business to professionals and they are on the board of their inheritance. The third generation

03:54has money, has power. They don't want more money and power. So what do they want? Maybe they want

04:02art. The third generation becomes a writer, artist, violinist or whatever. And of course,

04:11stays on the board of the company, which is run by professionals. Okay, this is kind of the way

04:18I think how it should be an ideal way for a family. And in fact, this is a story of

04:25Wooden Brooks, which is a German novel of Thomas Mann, which won a Nobel Prize.

04:32Anyway, now to your reality. The reality is, of course, that business should not be interrupted

04:39at all in these family feuds. And therefore, the lesson is that the quickly turn the company

04:48over to professionals, unless you have an outstanding son or daughter. And then only

04:55there the son and daughter should earn the compensation for what they're doing through

05:02salary, through stock options, etc. But when it comes to wills, when it comes to the family,

05:13when it comes to the family business, I mean the inheritance, then it should be equal

05:23and it should be very transparent. It's like, you know, every mango seller loves

05:31and thinks all his mangoes are equally sweet. Okay. So that's, of course, part of it that,

05:41you know, family wills make it messy. But I want to come to the current sort of feuds that we have

05:48seen. And let me come to Binoy on it without speaking specifically about any one family or

05:53any one thing. But Binoy, the question of varying wills and varying versions. Now, this is where it

06:00gets tricky. And just let's come to the nuts and bolts of it. What happens when there are two

06:05versions of who gets what? And in the case of the Oberoi family, it's not even the same person.

06:10One section of the family is claiming the will left by the grandfather, that is P.R.S. Oberoi's

06:17father, saying that he's merely a trustee. And this happens very often in especially Hindu law,

06:23where the next generation, the grandchildren are the true inheritors and, you know,

06:28the parent is the trustee. On the other hand, you have one side of the family that is claiming

06:32P.R.S. Oberoi's will. Now, do you see this often? And how do you ensure that a will,

06:40if it's changed, there is agreement on all parties and what is the finality of it?

06:46Sure. So I think a couple of things over here and in most of the cases that we've seen,

06:51you know, the longevity of time, that is clearly a problem because, you know, all these things are

06:56written way back. The understanding in the family must have been oral and the understanding would

07:02have been between a couple of members where all the family members were not aligned. And therefore,

07:08the problem is really that, you know, as time passes, memory fades. And therefore, you would

07:14have various versions of the understanding that people will have different parts of the family.

07:21So the way we've really seen is that lots of these disputes, they arise mainly on account

07:28of the fact that today the families have become much more complex. And on top of it or side by

07:35side, maybe there is a complex wealth mix. And last part of the assets are represented by financial

07:42assets, which are shares in operating companies. And that's where the real battle lies. And so I

07:48think, you know, in order to have a seamless succession, really, you should have the buying

07:54of all the family members, write it down in a particular manner through a family arrangement,

08:00so that there is no two ways about it when it comes for execution. And not only the management,

08:07but the governance of these companies is seamless and the wealth, of course,

08:13is seamlessly passed to the next generation. Okay, so that is the case when there is a will.

08:20Sometimes there is no clear will. And that's when it gets very, very tricky. Now, there are also

08:26changes in law over time, which then start including now most recent changes in law also

08:32include female heirs. And they have now come to the fore. So, you know, let me come to you,

08:38Mr. Das, from the point of view of what should a business family do? When is it the right time to

08:44have the succession plan in place so as to avoid feuds? If it's too early, you might have a

08:50situation like you have in one case that we mentioned earlier, where the son has pushed

08:56out the father or that's what the father feels that maybe he handed over the reins too early.

09:02Well, you know, I mean, all human beings feel they're going to live forever. And so this is the

09:07problem that has just been pointed out by Benoit, that they just don't do succession planning.

09:17And the first rule of succession planning is to have a will, which is transparent,

09:26transparent with an executor. And actually, everybody's informed in advance of what the

09:35will contains. And the fair thing is to give everybody an equal share, including the women.

09:42And that's the right way. And if somebody feels, look, that this one son contributed to 80%

09:52of this empire, well, that son doesn't, it's not through the will that you pass on.

09:59It is through the company that that young person built up, that created 80% of the assets.

10:08He should be compensated through salary, stock options of that company. But as far as the

10:15family is concerned, it should be fair. It's like the communist system when it comes to

10:21succession. Everybody, the mother loves all her children equally. And that's the simplest way,

10:30I would say. And the earlier you do it, the better. And this is an abdication of responsibility,

10:40I'm afraid, of the previous generation, when the next generation has to go into

10:46litigation and fighting and all that. You've just not done your job as a proper, decent human being.

10:56Now, that's an important point. I mean, that point from Gursharan Das, it's an

11:00abdication of responsibility of the previous generation. If there ends up being a few,

11:06that means you've not fulfilled your responsibility. But then, you know,

11:09that comes back to the question of how soon is too soon? What if the next generation does

11:15not give you your due? And we've seen that in some cases where, you know, the first generation or the

11:23parent generation, for lack of a better word, feels that they got pushed out too early.

11:29Binoy, that question for you? Yeah. So, you know, the best time of a succession

11:34plan is yesterday, is what I feel. But it cannot be like an all or none situation because one size

11:41doesn't fit all. So, today you may have a small family and you may not need a very, very cohesive

11:48succession plan. Maybe you can start off with a family charter where, you know, the understanding,

11:53the family ethos, the values will be captured in this family charter. It's basically like a letter

11:59of wishes where the main person in the family will write that, you know, how the companies,

12:05how the families should be governed. Maybe the next step is the succession of assets. The first

12:12and foremost step for that is a will. And, you know, a combination of succession of governance

12:18and succession of assets will be through probably a memorandum of understanding. Or if you want to go

12:25all the way, then you can have family trusts, which capture succession of management,

12:31succession of governance, decision-making within the active assets, because you don't want to

12:36mess the operating companies, as Mr. Das was mentioning earlier, and succession of assets,

12:42of course. And within this fold, you would have certain active members of the family,

12:46certain passive members of the family. And while the succession of assets would be equal or more

12:53so equitable, I would think that, you know, for example, passive family members, they should have

13:00security that their lifestyle will be maintained despite, you know, moving on to a formal succession

13:07plan. Okay. So now, so far, we've spoken from the point of, say, the patriarch or the matriarch,

13:14right? The gen one, so to speak, who should be making a will, should be doing it in time,

13:20should be having no ambiguity, how they should reward different members of the family and ensure

13:27there's no acrimony after them. Let's turn the table and think of it the other side, Pino, and

13:31I'll come to you on that. What if that has not been done for whatever reason? The person has

13:37passed away interstate, there is lack of clarity, there is more than one will, a dispute is brewing,

13:43then there is a challenge in court. And some of the details that come out when you see these big

13:49business family feuds are truly ugly, with a claim to the extent of saying that, you know,

13:54you have influenced the mother to write the will that you are claiming is yours, it gets fairly

14:00ugly. So now, Pino, what should someone do if they find themselves in this situation with their

14:06family members? So, see, I mean, from a Hindu law perspective, especially, it's very complex,

14:12because you not only have a set of personal assets, but you have something which is called

14:18as a Hindu undivided family. Now, this is a concept very peculiar to India. And the reason

14:26is that the genesis of HUF is basically that there was a nucleus and the wealth which was created

14:32from the first generation is then divided across all the co-pastors, which is basically the family

14:38members. And that's where it really gets messy that what is the distinction between personal

14:43assets and maybe HUF assets. Now, coming to your question that what should one do in this situation

14:50is, of course, you know, understand. See, the first and foremost thing before going to the

14:55court of law is always, it's always a good idea to sit with the family members, understand what

15:01are their objectives, what is their pain point, what do they want. And the first and foremost

15:07thing before any legal battle starts is to have an amicable settlement, because you don't want

15:12dirty linen to come out in the public. So, I think the first and foremost is to have an inter, say,

15:18amicable settlement, amicable discussions, etc., failing which you could have an advisor who can

15:25mediate and is trusted by all the family members and they'll listen to them. So, you can go for

15:30mediation. And if none of these routes work, of course, the only answer then would be a messy

15:37legal battle, which consumes your time, energy, and if somebody is young, then his or her youth.

15:45In your experience, Binoy, and without taking names, what has been the toughest part of

15:51bringing families together to the table? See, what has happened is that if lots of years have

15:59passed, you know, it's always a battle of what was not said rather than what was said. So, the problem

16:05is that when, let's say, after decades, you come together on a table, a lot of these things which

16:12were not spoken of will not be spoken of in such detail when you are trying to settle. I mean,

16:19it always takes two to tango, right? So, whenever there's a family, if one party is not willing to

16:26bend, then the other party, no matter how he or she tries, it will always be difficult. And that's

16:33where the communication gap, that's where the lack of trust, I think, would be the key basis

16:39or key facets where we've seen that this lack of trust, gap in communication over years,

16:45etc. I mean, that's something that we've seen is the toughest when it comes to

16:50arriving at a common ground. Mr. Das, just, you know, any anecdotal experience that you can share

16:58from your stint and watching corporate India so closely, what seems to be the biggest issue

17:06when it comes to these family feuds that trigger and how do they find resolution because some of

17:11them are stuck in courts for decades? Yeah, well, you know, most of my concern has been to ensure

17:21that the companies don't suffer as a result of the fighting between siblings, etc. And so,

17:33that has been, to me, the most important thing is that, you know, it's a good idea to have a family

17:44office. Benoy mentioned the family advisor. Well, the family office with a good advisor really is

17:51a very good way to go about it. The critical thing is that it's best to keep family members

18:00out of the business. I'm again addressing the question of that the business should not suffer.

18:06In other words, in an institution of, in other words, capitalism should not get a bad name

18:13because families are fighting. And so, I haven't dealt so much in the area that Benoy has,

18:22where you get into this messy business in the family. But if you have a good family advisor,

18:29if you begin talking, have the family members attend meetings of the family office,

18:35then they also have a kind of joint shared stake in everything, in the decision making.

18:45And that's, I mean, I would think just talking and starting early in the process is a good idea.

18:57And as I said, the best principle is to divide equally. And if someone has made a bigger

19:03contribution to creating the business, let that person be compensated by the company,

19:09which he or she has built through stock options and salary. And my worry has been that too many

19:20family businesses have put nephews into their business who are incompetent. And the business

19:27professionals were not happy. In such a case, the business underperformed. So, I was really

19:35concerned about performance. And I was concerned that the business, the companies should not

19:44suffer. So, I'm not sure I'm the right person to give you advice when things get into a fight.

19:52Let me take that forward then, Mr. Das. How do you reinfence the business? I mean,

19:58you're saying that hire professionals to run it, but all families may not be able to,

20:03and maybe not at the top level. That's when the nephews come in.

20:08Yeah, exactly. So, I mean, that's the temptation that you try and put family members into,

20:16give them jobs in the company. And one should just resist that temptation because you're

20:24creating an enterprise which is going to go on for generations. And I think this is a very

20:31important lesson for business people to learn, to internalize. Too many families have failed

20:42because the next generations were not competent. And it should be a rule. I mean, the reality is,

20:53look, you've got one brother who's good, another brother who's bad, and you want to behave equally

21:01with them. And the reality is that there'll be a fight. So, just keep both of them out of the

21:06family. Encourage them to start their own enterprises and show their own sort of metal.

21:16That's really the right way to go. Keep family members out of the running institutions.

21:26Keep family members out of the family business.

21:30Yeah, exactly. That should be the rule.

21:33That is the antithesis of every Indian family business.

21:37In fact, the moment there is a business, you start looking for family members to bring them in.

21:42Yeah, so that, exactly, that's the original sin, if you will.

21:49Okay, Binoy, your take on this. How do you ring sense the business? And I mean,

21:55you might not, every business is not of the scale that you go find a professional CEO.

22:00So, yes, you're right. Absolutely right. See, India, in a way, operates differently.

22:06Because today, what happens is that the family members who are very active,

22:11they know the entire ecosystem of how the family business was built in the first place.

22:16Now, you know, to have that professional management, suddenly, it could be a transition.

22:21It could be maybe over five years, seven years, 10 years, once you've reached that scale. But today,

22:27the incentive for a family to be a part of a family business is that they are creating value

22:33for the family and nobody else, unless it transforms into an institution, nobody else

22:40would really have that incentive or motivation. And, you know, across ecosystem, for example,

22:46be it your lenders, be it bankers, be it financiers, vendors, customers, etc.

22:51There's a lot of personal goodwill of the family backing the family business, which is there. So,

22:59I, for example, if I was a banker, I would get very, you know, anxious if a family member is

23:07totally out of action. And because I'd say that, okay, what's in it for the professional management

23:12to be for a family business, and I'm not talking about institutions, let's say like HDFC or

23:18something which is an institutionalized setup. But a family business, especially your

23:23medium-sized businesses, small businesses, there's a lot of personal credibility, a lot of personal

23:29goodwill attached to that. And therefore, you know, the presence of family members who run a family

23:36business, at least till the time you achieve a scale, I think it's very necessary in my view.

23:43Okay. So, the presence of the family members is important till it achieves scale,

23:47says Benoy. Gursharan Das says keep family out of the business. How do we resolve this, Mr. Das?

23:53Well, you know, this is where I disagree with Benoy. The fact of the matter is that

24:03when you create an institution, you are not creating it for your family. You are creating it

24:11for the overall society. And this is where you've got to stop and say,

24:18when you say this company is mine, that's where the problem occurs. You are a member

24:27of a society, of a nation or whatever. And it's an institution that you are creating.

24:36And it's going to be bigger than yourself. So, I would suggest a little bit of humility.

24:43And frankly, a banker or whoever judges a company not by the family member running it,

24:51but by the performance of the company. And surely, there are umpteen, if you have to choose

24:58for the best person, you think that person will come out of one family? There are

25:05thousands of young MBAs coming up with great aspirations, with great experience in companies,

25:12in startups, in large companies. Surely, if you go for a bigger universe, you have a much better

25:19chance of getting the best. And when also in the professional company, a professional manager

25:27is as responsible as a family member. You have to remember, a family member

25:34can be led astray by a lot of family considerations, rather than considerations

25:39of the institution. And I think we've got to change that mindset. Now, it's not easy,

25:45because you do feel after all, oh, it's my family's business. Well, my family's business means

25:52that I get on the board of the company and make sure that the best person in the country

25:58is available to run it. And I'm talking even, I'm not saying maybe for a startup family business,

26:04give it some time, give it a little bit of scale. But this should be the way that family businesses

26:12have to run. They have to run by the best person should be, think of it, the best persons should

26:19run the company. And to think that there are hundreds and thousands of best persons outside,

26:27who are often much better than one family member. Why must a family member think that it's

26:37I agree if it's a large company, but depends on the scale of the company.

26:42I mean, no, but it's a mindset, you know, it's a mindset.

26:46You're a custodian, you're a custodian of the wealth that you're creating.

26:51Yes, absolutely. And there are such fine, outstanding people who will have just as much

26:57loyalty, as much as ownership, if they're made to feel that the business will not go to a nephew,

27:05who's incompetent afterwards, who wants to work in such a company.

27:10It's nephew situation. But no, but, you know, I get I get your point. I get your point. It's

27:16complicated. I suppose it has to be very specific, but the basics need to be in place. And the number

27:22one of those basics, definitely is that have clarity, have clarity so that you don't have

27:29a situation where your next generation is fighting over your version of a will after you pass away.

27:37I guess that's the big lesson. And it's one that corporate India keeps learning again and again.

27:43We'll probably see more instances of this sooner rather than later. But for now,

27:47thank you so much, Gurshar Andhras and Binoy Parikh for joining us on The Big Story.

28:37Transcribed by https://otter.ai

29:37https://otter.ai

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