Family businesses embrace governance, succession planning: Survey

NEW DELHI : Indian family businesses are increasingly formalizing governance standards and focusing on succession planning, and many are open to professional management, according to Deloitte India research.

Deloitte surveyed Indian companies, spanning industries from consumer products to banking to manufacturing, with annual revenues ranging from 500 kroner to 63,000 crowns.

“More than half of the survey respondents indicated that a formal family structure including a will, entry and exit provisions, and conflict resolution mechanisms is extremely important. Such a constitution helped promote open and transparent communication and conflict resolution. Another priority was holding regular family meetings to align with the culture, values, vision and direction of the family business. A regular cadence has helped build communication skills, increased transparency and ensured greater harmony among family members,” said Deloitte’s India Business Survey report.

Succession planning is an important priority for family businesses, research shows.

More than half of respondents revealed that their business is managed by a non-family person, even though ownership is in the family (including the next generation in the family), the survey found.

“This showed confidence in appointing an outsider as a leader and the realization that this is the need of the moment as the business expands. For some of them, the non-family leader acted as a ‘bridge leader’ who helped develop the business and prepare young family members for leadership roles,” the report said.

Truth be told, one fifth of respondents preferred to transfer both ownership and management to the next generation, while a very small proportion of respondents from family businesses agreed to transfer ownership to a non-family member.

As part of their succession planning efforts, many family businesses focus on leadership development programs for the next generation.

“More than two-thirds of respondents revealed that their organization has a formal leadership development program for the next generation. These programs helped families pass on their rich knowledge and heritage to the next generation and motivated them to learn about business. The older generation shared their experiences with the next generation to develop the skills to manage the family business,” the report said.

While some survey respondents did not have formal succession planning, they reported that they had exposed the next generation to various aspects of business leadership or that they had considered developing a program. The overall results of the survey, including non-family-owned companies, showed that sustainability is a long-term focus of most Indian companies.

“With the urgent need to achieve greater sustainability, many companies are putting environmental and sustainability (ESG) goals at the center of their strategies. Companies also do this to increase their influence in different areas and sectors. Respondents were interested in achieving ESG goals, not just for regulatory reasons,” the report said.

A large number of respondents believe that aligning with ESG principles would help them become competitive and prepare for the future, it added.

“Furthermore, given consumers’ growing awareness of environmental issues and their willingness to make a difference, respondents realized that sustainability efforts will influence purchasing decisions in the future. Furthermore, given the global momentum behind initiatives towards ESG tools, investing in them seemed an obvious choice,” added the Deloitte report.

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