How to prepare for the right business heir

Any succession plan, whether in a family-owned business or in a professionally managed company, is fraught with emotional issues

I have a 30-year-old son and a daughter who is in her late 20s. I own a large business that I built. I’m nearing 60. And I’ve been thinking about how to transition the business to the next generation. I’ve groomed them both for more than five years. I’m now sure that my son isn’t cut out for running the business. Yet he assumes that he will inherit the reins. My daughter clearly has the chops. But this isn’t an easy decision for my wife and my son to accept. How do I break the news to them?

First of all, I marvel at your forward thinking and the rare, but right view on the succession issue. You gave both children a chance for five long years and figured out in whose hands the business would have the best future. The worthwhile thing to note here is the fact that any succession plan, whether in a family-owned business or in a professionally managed company, is not an easy game. It is fraught with emotional issues. But headlines first: you have time on your side! At 60, you have a good runway ahead to settle things. Let us now dwell on your path ahead.

You have a competent successor. My congratulations to you for not suffering the gender, and the seniority bias that most Indian patriarchs have difficulty shunning. The issue now is to manage the transition.

Begin with subtle signals. Take your daughter to key trade shows, let her be the hostess for the all-important customer dinner, ask her to negotiate the joint venture you are planning in Brazil, send her to the Advanced Management Program at Harvard.

If your son is smart, he will note the signs and raise the issue. Don’t dance around the matter. Be candid.

Make a set of fabulous offers to him—a new line of attractive business he wants to start and needs venture funding from you, be the head of the proposed joint venture and relocate to Brazil, become the vice-chairman of the board of your company, whatever. Ask him for ideas as well.

A word of caution: before you have that father-son talk, ask your daughter if she would like to take over the business. Don’t take her willingness for granted. If she says no, you have to make alternative choices. It is one thing to be great at the tasks assigned and quite another for her to take on what can be a lifelong responsibility and potential disenchantment with her dear ‘bhaiyya’.

Now that you have an incompetent son and an unwilling daughter, you need a plan B. This could well mean you explore the idea of separating ownership from management.

This process could begin with moving both children to your board with some oversight powers, attaching them to the notion of managing family wealth and detaching them from the day-to-day responsibility of running the business. If this is where the path leads, ask for advice from a good wealth management firm that has been there and done that.

In case your daughter says yes, you must now socialize the thought process with your wife even before you speak to your son. Take her on a pilgrimage, not a holiday; after the calming experience, share your thoughts about the future of the business that both of you have built with blood, sweat and tears. Instead of presenting the succession plan as a finality, put all the pros and cons in front of her. Ask her for decisional options and listen to her—there may be new ideas that could open up!

In case she freaks out, let it be. She may begin to cool down as days go by. Or, she may simply see the idea as short-changing her ‘ladla’ son, who is unjustifiably perceived as incompetent by the harsh father who was always that when it came to the ‘beta’—unreasonable expectations since he was a little boy. But just because of that possible reaction, for heaven’s sake, please don’t surprise her with your plan. Don’t say to her, “Nandini, maine kah diya na. Bas”. Try taking her along. Don’t rush things.

On a very serious note, in the event of a spousal dissent, you may like mediation by the long-standing family chartered accountant, the family’s spiritual guru or a wise elder.

In summary, the starting point is, send out subtle messages that there may be a change of guard and nothing should be taken for granted, obtain your daughter’s consent, socialize the transition with your wife and then, have the reasoned conversation with your son. But budget for emotional strife in the days to come. In such times, draw solace from the fact that the worthiest thrones often have tears and even bloodstains on them somewhere. So, don’t fret.

Now here is one thing you never told me: is your daughter married? If she is, please do a due diligence on your son-in-law. Ascertain the possibility of his shadow falling on your business in ways that may be detrimental. In Bengali, there is a saying: “Jom, jamai, bhagne, tin noy apne”. The lord of death, your
son-in-law and your sister’s son, know they are not truly your own and beware!

Read an unabridged version on www.foundingfuel.com

Subroto Bagchi is co-founder and chairman, Mindtree.

Source – http://www.livemint.com/Opinion/Bt59pFvXoCtR5oUBjtYAqK/How-to-prepare-for-the-right-business-heir.html

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