Embrace democratic decision-making in family business succession, says Jatin Popat of WillJini Succession Services

Jatin Popat discusses the impact of family dynamics on succession planning, stressing the need for a democratic approach. He highlights the importance of acknowledging and addressing conflicts early on to prevent future problems.

Padmaja Choudhury
First Published21 Jun 2024, 12:26 PM IST
How To Handle Family Dynamics During Succession Planning
How To Handle Family Dynamics During Succession Planning

In an interview with Mint Genie, Jatin Popat, Founder & CEO, WillJini Succession Services talked about the different elements of family dynamics that might arise during succession planning.

What are the key elements to consider in family business succession planning?

Family business succession is very comprehensive because a lot is at stake. Both business and personal. If not done in the right manner, it can turn personal relationships sour which eventually affects the business as a whole and the overall personal wealth distribution process.

You might have heard of lakhs of legal cases in court/ media over personal wealth and/ or businesses. So something for which an entire generation took to establish and grow, starts corroding quite quickly in the next generation because of internal conflicts and mismanagement.

How do family dynamics typically influence succession planning?

In the past 100 years, family dynamics have considerably changed in India. One big proof of that is that the Indian Succession Act has been in place since 1925, but people are talking about wills, trusts, and estate planning today after 100 years. Why did this happen all of a sudden?

According to us, decision-making of wealth and business earlier was easy - decision makers were senior family members and their decisions were accepted by all without question. But now things have changed, as 'legal right' vs 'family value system' is the case.

Hence today a business succession plan should be a bottoms-up approach (democratic) rather than tops-down (authoritative).

Ignoring the intricacies of current dynamics between siblings, their spouses, grandchildren, etc - is just like sweeping things under the carpet. It will keep piling on, and slowly snowball into a problem that can no longer be solved.

Hence, acknowledging the dynamics - good or bad is the first step.

The second step is taking help from estate planning experts to design a win-win-win for all family members.

Also Read | How family offices are becoming essential for first-generation entrepreneurs

How should families approach succession planning when they have differently-abled dependents?

Many times certain family members (parents, kids or grandkids) need more support than others (due to personal, mental or physical challenges). It is important to acknowledge this and make a plan that would be inclusive, whilst being just and fair to others.

If one family member needs more financial support than the other, this feeling has to be propagated by not just words on paper (via will), but also by emotions and support (when alive). This teaches everyone in the family the right values so that in your absence, the values are held high - much higher over material greed.

In cases where the dependents are differently abled, for example: physically handicapped, with neurological disorders like Autism, Downs Syndrome, or ADHD - making just a will is not enough. That's because, in a will, you will give all the responsibility and wealth of your dependent to a guardian without any legal accountability over them.

Now this guardian may be your closest relative/ friend, but you must realise that the responsibility that you are shouldering on them is immense. It can get very overwhelming for most people. There are chances that they might feel like giving up midway through and there is nothing that can be legally done to prevent that. Not to mention, financial mismanagement of your assets can also go unchecked because the guardian gets all the wealth at once and your dependent may not be fully capable of understanding financial matters to notice any irregularities.

In such cases, we highly recommend that these families make a family trust with responsible guardians as trustees. Making a family trust ensures that a proper rulebook is made which the trustees have to follow by law (ideally more than one trustee for better management of huge responsibilities).

For example: how much money can be withdrawn monthly, how much to spend on education, roles and responsibilities of the trustee(s), and how can new trustee/s be appointed if any resignation/ death/ country-shifting by the appointed trustee.

This structure has been used in the West for decades. But awareness for it in India is rapidly increasing as people come to know about the benefits of a family trust.

Also Read | To be or not to be: How you can let go of the reins to the family business

How should families handle situations where their children are not interested in joining the family business?

This is a very common occurrence. More common than you can think! The majority of the families that come to us have this challenge wherein the next generation is not interested in the family business and wants to do something of their own or move abroad to pursue a different life.

One cannot control what another mind wants. As a family, elders must respect the decisions of their kids and not bind them by emotional or financial means.

There are two options. One of the best things to do in such cases is to look at exiting the business by selling a stake or a full acquisition by someone else.

We realise that family businesses are built on the blood and sweat of generations. And there is a lot of emotional attachment to its legacy. But it's important to isolate the practical part of life from the emotional. Selling the business to another player is very common and is used to comfortably exit a profitable running business. Our advice to the majority of these clients is to consider exiting the business by stake sale/ full sale so that they get the liquidity and fruits of their years of hard work. People buy and sell businesses all the time. It's not a big deal if you look at it practically.

The second option is to create a Business Succession Family Trust so that the flow of future income continues to the family and the business can be managed by professional trustees till the time youth/ younger family members are mature enough to manage and control the business. Till then the ownership of companies/ businesses can continue to be held by the private family trust.

Can you share best practices for fostering open and honest discussions about career aspirations within the family?

Every family is different. There is no doubt about it. For example, siblings brought up in the same house, and in the same environment are very different in terms of their strengths/ weaknesses/ dreams/ philosophy of life, etc. Hence, it is very important to include beneficiaries in the discussions and understand their expectations.

Just like in corporate where the HR asks employees "Where do you see yourself in 5 years or 10 years", family businesses need to involve the next generation and ask them what they enjoy doing most in the business / what they want to do in the next 10 years. Then, respect the dreams of these individuals contributing to the business and try to fulfil them as much as possible. This way, everyone wins.

Most often, these dreams are simple. So just talking openly about it, without being judgemental becomes key.

We Indians are not the most open when discussing money. Especially with family. But it is always wise to let others share their vision and respect them for having an individual opinion of their own. Otherwise, it ends up becoming a pent-up frustration - that only comes out when there is a major life/ death event in the family and then everything turns haywire.

Also Read | What should be done for smooth transition of family business?

What are some effective methods for resolving conflicts that may arise during the succession planning process?

So far we have seen almost no conflicts arising during the planning stage, especially when parents involve their kids in the discussion and understand what each one wants in life. However, decision-makers are the parents in the end and rightly so. Children have to respect their decisions. Many times, parents don't involve their children during these discussions and leave a dangerous sword hanging on the delicate thread - their life. The moment they are no more, the sword comes swinging down surprisingly fast and the family is involved in disputes and fights.

When there are inheritance related disputes i.e. when the owner of the estate has passed away and their family members are fighting over the succession, the best and most ideal way is a family settlement. And this can only be achieved amicably when every family member leaves aside their egos and hears each other out.

Ego or "so-called-injustice" is the biggest cause of succession-related disputes. Especially since siblings are involved, a lot of past rivalries and bad blood come out all at once and from there everything is a downward spiral. We have seen so many high-profile cases in India where a brother fights a brother even when lakhs of crores are available to each. It was the egos that extended the fights for several years, not the money.

Hence to handle such intricate relationships and circumstances, a professional setup can really help families by becoming a mediator and a neutral advisor to the entire family on the best course of action ahead.

Padmaja Choudhury is a freelance financial content writer. You can reach out to her at padmaja@padmajachoudhury.com

 

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First Published:21 Jun 2024, 12:26 PM IST
HomeMoneyPersonal FinanceEmbrace democratic decision-making in family business succession, says Jatin Popat of WillJini Succession Services

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