The importance of family charters and council
As family businesses grow from one generation to another, it is important to look at setting up family charters and councils to reduce and resolve conflicts around succession planning, professionalizing family businesses and diversifying the sources of wealth, next-gen entrepreneurs from leading Indian business families said at a panel discussion at Mint Wealth Creators Summit on 25 May.
“The family council is coming into India. I know of some of the large families which have already put a charter in place and on the western lines and I think it is important to have a charter or constitution,” said Amit Patni, founder, RAAY Global, and chairman, Nirvana Ventures Advisors. “As families are growing bigger, they are separating ownership and management and creating family offices. So this is one of the key things which Indian families should adopt, because it will help them in succession planning and avoiding conflicts as the business grows bigger.”
In building a council or a family charter, families must ensure that there is a shared vision and everyone is aligned to that vision. This can significantly ease succession issues in a family, experts said.
“There has to be an alignment of the family towards a vision with the guiding principles, values and clarity of role and responsibilities, which are broadly what the family council or charter comprises of; then we go from one generation to next smoothly,” said Murtaza Khorakiwala, managing director, Wockhardt Ltd.
For family members, it is also important to understand the values and relationships in the family to ensure a smooth- running and growing business. “If you understand the relationships, understand the family values, spending time with your family and wanting a close family is more important and you prioritize that, and you have a strong vision and values, then the business just does really well,” said Ananya Birla, founder, Svatantra Microfinance.
However, there is always a risk of emotions coming into play when one looks at creating a family charter or running a family council that will govern how the family business and wealth is managed in the future.
“I think it’s important to leave the emotions out when you’re running a family council. What we’ve noticed in our realignment, the four families are now individually bigger than one family at that time. Our family charter is what actually led to the amicable realignment of the family,” said Abhimanyu Munjal, joint managing director and chief executive officer at Hero FinCorp. (The four families are Brijmohan Lall Munjal family which controls Hero MotoCorp.; Om Prakash Munjal family which manages Hero Cycles; Satyanand Munjal family which controls Majestic Auto, Highway Cycle, Munjal Auto and Munjal Showa; and sons of the late Dayanand Munjal.)
As the family cedes space to professionals in running the business, it is important to hire the right set of executives who help retain the values of the family charter and respect the vision of the family.
“You can only clap with two hands. Professionalizing is important, but to get the right professionals, to be able attract that talent, to be able to retain that talent, to give that space and vice-versa for the professional to still keep the respect of the promoter, to keep the values...is important. You also find professionals who do not keep enough space for the promoter’s vision,” said Ameera Shah, promoter and managing director, Metropolis Healthcare.
Diversification of sources of wealth is a critical aspect that families need to focus on as businesses and families themselves grow. Compared to the West, Indian business families rely heavily on one source of wealth generation and diversification is something all families have to consider. “For Bill Gates, Microsoft stock’s contribution in his net worth is only 13%, the remaining $60-70 billion of his net worth is from Cascade, his family office. But for most Indian promoters, 99% of people will have all their money in their main businesses,” said Sasha Mirchandani, founder and managing director at Kae Capital.