PremiumMUMBAI : Succession planning at Reliance Industries Ltd (RIL), which is setting up a family council to ensure a smooth handover of India’s most valuable company to the next generation, will likely set the stage for similar structures in multigenerational family-run businesses in India, said legal experts.
Businesses would increasingly look at streamlining themselves, pruning subsidiaries and creating family constitutions to ensure business continuity and the involvement of successive generations, they said.
On Friday, Mint reported that Mukesh Ambani, the world’s fourth-richest man, is setting up a family council to implement a collective governance structure to manage the family’s sprawling business empire as part of the group’s succession-planning process. The council will provide equal representation to all family members, including the three Ambani children—Akash, Isha and Anant—who are expected to take over the reins of RIL.
“When the current leadership wants to assume a more non-executive role in the companies, they would get rid of debt, have leaner balance sheets, and make clear-cut demarcation of which business verticals would be the focus going forward and who takes them over," said Mita Dixit, co-founder and head of family business advisory at Equations Management.
“You can only have one managing director; so, for sprawling businesses, you create verticals and hand them over to the next generations based on their skill set and orientation. It makes sense not just for succession but also business sense," she added. Currently, over 70% of the top 500 companies in India are family-held. But only a handful, such as Dabur, Marico and Asian Paints, have seen their owners take the back seat and hand over the reins to professional management. While the proposed Ambani family council is the most prominent example in this regard to date, in the past, the century-old Godrej Group, with several branches of the owner-family, has set up family councils to coordinate and ease decisionmaking and build consensus.
A key objective of such councils has been to create leaner governance structures without overlaps within business groups, which is something RIL began working on nearly a decade ago when it decided to expand into consumer businesses—retail and telecom.
“Promoters realize that the best way to avoid conflict between future generations is to clearly demarcate the businesses between the relevant heirs, so they understand their estate planning with this objective in mind," said Hemang Parekh, partner, DSK Legal.
“Also, promoters combine their estate planning with their group restructuring exercise, as most large business groups are now looking to create lean structures to reduce the conflict and compliance burdens."
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