Family businesses have been the oldest and historically rooted form of business across cultures since medieval times. These enterprises were inherited by bloodlines; and addition through marriages were a strategic move to strengthen the business alliances. In the 1400s, the ‘Medici family of Italy’, rose from traders to Europe’s most powerful bankers, significantly impacting art, politics, and religion. Now in the modern era, family businesses continue to rule global economies as corporate structures. About 80% of global businesses are family-owned, accounting to 70% of GDP and 60% of employment.  

In India, major corporate groups like Godrej, TVS, Murugappa and Mahindra are long-standing family businesses. Despite making up 80% of businesses in India, merely 21% Indian family businesses have a formal succession plan to look at. This gap creates leadership voids and fragments wealth. 

Succession Planning: Securing Your Legacy for Generations

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  • Reportedly, family businesses outdo other structures but maintaining an equilibrium between family elements in a business can be enigmatic. Here are some of the advantages of a family-run business: 
  • The company culture is deeply rooted in family values. 
  • Opportunity to build a multi-generational legacy. 
  • Strong commitment and loyalty towards business success. 
  • Family members often make financial sacrifices (e.g., lower salaries, flexible cash flow decisions). 
  • Decision-making commonly follows an implied family hierarchy. 
  • Emotional investment fosters a strong sense of ownership among family members. 

Emotional and professional dynamics are two parallel yet non-intersecting paths; however, falling behind any could lead to a conflict. Involvement of several related minds could adversely impact decision-making and control over the business. Varying personalities, opinions and involvement of all family members impacts business decisions and operations. There may be active members more involved in business decisions and operations, while passive members may lack clear vision of the business operations. In India, the joint family system often mirrors itself in the company’s structure. Family hierarchy tends to influence authority in business operations. This can lead to unfair treatment among the family members.   

Common Causes of Family Business Conflicts

  • Over-reliance on family hierarchy leading to weak family governance. 
  • Unclear succession planning creating insecurities within family related to leadership and wealth distribution. 
  • Undefined roles, lack of performance-review systems, and unclear induction criteria. 
  • Overlooking merit and practicing favoritism. 
  • Unclear role-based benchmarks, leading to dissatisfaction and emotions of envy. 
  • Power struggles and conflicting personal ambitions. 
  • Resistance to change in routine functioning of business due to loyalty to senior members. 
  • Ineffective communication within the family. 
  • Autocratic decisions by senior members of the family, can make other family members feel undervalued. 
  • Respect based on seniority and boundary violations across generations. 
  • Mixing personal issues with business matters. 

How disputes impact Family business?

Disturbed family relationships can adversely impact family businesses. Family relationships do not shatter in a day; it accumulates over time due to unwanted emotional situations or trauma arising in family relationships.  

Indicators of Strained Family Relationships Impacting Business

  • Psychological damage coming from long-term emotional friction. 
  • Feelings of betrayal and broken trust amongst members. 
  • Reliance on third person conversation leading to miscommunication. 
  • Pretence of harmony masking underlying resentment. 

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  • Bias, prejudice and discrimination. 
  • Groupism among members and intended exclusion. 
  • Individual ventures causing conflict of interest.  
  • Fear, negative emotions and insecurity within the family.  

Emotional and psychological damages are beyond repairs; traditional family patterns are tough to change. 

Consequences of Family Disputes in Business

  • Damaged legacy, reputation and goodwill of the family. 

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  • Unstable and discontinued business.  
  • Unproductivity and missed opportunities of growth. 
  • Adverse financial position due to internal disputes and lack of legacy planning.  
  • Threat to careers of next generation members.  
  • Abrupt and prolonged family business succession.  

Conflict within family businesses is unavoidable due to complexity of human nature. Family businesses cannot be approached similarly as other typical corporates due to involvement of personal relationships. Family business conflicts and disputes are both very delicate and subjective in a family-owned business. Different family businesses need varied and customised dispute resolution mechanism.  

Structured Guidelines for Managing Family Business Disputes

  • Understand the root cause by analyzing interpersonal dynamics and behavioral changes. 
  • Encourage honest, calm, impartial communication; avoid blame, bias, or bringing up past grievances. 
  • Assess intent, determine if resistance is due to misunderstanding or harmful motives. 
  • Separate personal emotions from business decisions; maintain professionalism. 
  • Begin with smaller issues to build trust and encourage open, constructive dialogue in legacy planning. 
  • Brainstorm solutions, focus on mediation and collaborative solutions; aim for unity, not winners or losers. The goal of legacy planning to ensure a successful business continuity with healthy family dynamics.  

Best Practices for Family Governance in Family Businesses

  • Establish clear ground rules including finances for family and business affairs separately. 
  • Fair treatment to all family members, avoid being biased on gender, or seniority. 
  • Special attention should be given to family member with disabilities, medical challenges, or old age with less mobility and plan for a financially sound future. 
  • Rewards and wages shall be based on merit, not relationships or hierarchy. 
  • Formal board meetings with proper documentation and signed minutes should be conducted. 
  • Measures such as execution of comprehensive Shareholders’ Agreement taken to cover roles, family business dispute resolution, share transfer terms, and family governance clauses (including Drag along, Tag along, Standstill provisions). 
  • Key business decisions to be documented including perspectives of all relevant members. 
  • Personal expenditures should not be allowed from business funds. 
  • Personal assets shall be ring-fenced before over-taking guarantees in the family business, for protection in adverse situations. 
  • Establish a Written Family Constitution 

All members of the family should be indulged in drafting the family constitution to achieve the following objectives: 

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  • Ensuring long term family unity 
  • Addressing family and business governance 
  • Preventing internal family business conflicts from deciding the fate of business growth  
  • Long term sustainability of family business 

A family constitution is a dynamic, non-legal document that guides values, roles, and decision-making in a family business. It serves as the ‘soft infrastructure’ binding the family beyond legal ownership. Leading Indian families like GMR, Dabur, Emami, and Murugappa have successfully adopted it. Their experience exhibits that proactive governance ensures long-term business continuity across generations. 

Key Components of a Formal Family Constitution

  • Family’s core values, principles, and long-term goals (personal and business). 
  • Detailed family tree and structure of the family board. 

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  • Clear decision-making framework. 
  • Succession and legacy planning strategy with rationale. 
  • Internal governance bodies: Family Council, Family Office, and Advisory Board. 
  • Training and induction roadmap for next-generation involvement. 
  • Shareholding structure with defined control and ownership mechanisms. 
  • Clearly defined roles and responsibilities for all family members. 
  • Governance policies for both family and business. 
  • Guidelines for managing and allocating family finances. 
  • Induction/removal process for new members, including roles, shareholding, remuneration, and policies for divorce scenarios. 
  • Defined philanthropic goals and mechanisms for contribution. 

Role of Advisors/Professionals/Tax Experts/Wealth Managers in India

Every family business often has an “il consigliere” — a trusted advisor across generations. This individual plays a vital, respected role in guiding the family during sensitive times, influencing either unity or division. Their involvement in family or multi-family offices makes them a key confidant and strategic pillar. 

Key Guidelines for a Family Business Advisor (Consigliere)

  • Identify the Ultimate Beneficial Owner to understand control dynamics. 
  • Maintain neutrality; engage separately with all members to understand differing perspectives. 
  • Be cautious of ego-driven barriers to resolution; stay impartial to avoid misrepresentation. 
  • Oral directives should be avoided; all family decisions regarding business must be documented.  
  • Any kind of biasness shall be avoided based on gender, hierarchy, favouritism.   
  • Advisor should be fair and just in his approach towards the assignment.  
  • The advisor shall offer emotional and psychological support beyond professional advice to develop trust among the family. 

At the end of the day, even if business maybe divided, it is important for all the stake holders that the family bonds prevail in harmony for generations to come! 

Why Choose InCorp Global?

At InCorp, our seasoned consultants take the time to understand your family’s unique dynamics and business goals. We design customized family business succession plans that align with your vision, ensuring a seamless transition of wealth and leadership. As your trusted partner, InCorp provides end-to-end guidance, from strategic legacy planning to meticulous execution, safeguarding your legacy for future generations. For any inquiries or support, contact us at info@incorpadvisory.in or call (+91) 77380 66622. 

Authored by:
Samir Sanghvi | Family Office