The baton bearers of business legacy

Image: Vikas Khot

Haigreve Khaitan is senior partner at Khaitan & Co

Across the boardrooms of family-owned businesses in India, young leaders are playing a more proactive role in transforming some of the largest legacy enterprises that have come to define Indian entrepreneurship. They are the sons and daughters of some of India’s most celebrated entrepreneurs.

While some from this younger generation are taking the conglomerates into new and uncharted territories, others are redefining processes and operations to extract the most out of the businesses and making them future-ready.

Five experts, who have extensively dealt with business families and their progeny, often advising them on the way forward, share their perspective on India’s Gen-Next leaders.


‘Make them sweat to earn it’


By Haigreve Khaitan

The current crop of leaders from Indian business families is an extremely bright, talented, and hardworking set of people.

I don’t think corporate India and business families have ever seen a vast pool of such talent. It is a combination of entrepreneurship and professional qualification. In the first and second generations of these business families, individuals were more entrepreneurs than professionals. For the first time, in the third generation, we saw a mix, but again, more entrepreneurs than professionals. Today, one generation further, we are seeing entrepreneurs who have very strong professional capabilities.

On the other hand, there is also a small fraction, maybe 5 percent or so, of today’s generation that is also spoilt. In these instances, whereas the first to third generations worked hard to achieve what they have, the fourth generation doesn’t value the opportunity it has got on a platter and isn’t doing enough to capitalise and build on the existing platform.

For the current generation of business leaders to realise their true potential, succession planning within the family plays a key role. Clarity in the minds of family members regarding their expected rights and duties is important, because a lot of it is about perception. It is important for external stakeholders to perceive a member, or multiple members, of the current generation as owners. If they even feel that these members won’t be able to call the shots in the future, it hurts their chances of running the business smoothly in the future more than actual lack of ownership. While today’s generation has all the resources it needs, it is also insecure. A sense of security needs to be built, without giving it to them before it is due.

It will be those conglomerates and business houses that are not rigid in their views and are thinking ahead of time, which will do well. Business families that feel that they have made their fortunes in a particular industry and their progeny should stick to the same venture may not necessarily do well in the future. Increasingly, the current generation of business leaders in these families is retaining its ownership in their existing business, but is dedicating its time, focus and managerial capabilities in growing new-age businesses that interest them. These are businesses that the older generation may or may not have thought about.

The other key enabler that spurs the growth of a new generation is the freedom they enjoy within the family to voice their opinions. In this regard, Indian entrepreneurial families exhibit mixed patterns. There are still some families where the next generation isn’t allowed to voice its opinion. If the Gen-Next is well-educated and capable, but not allowed to voice its opinion, at some point it would break away from the family. But there is also an advantage to the control exercised by the older generation: The advantage of experience and having lived through ups and downs, which the previous generation brings to the table, is invaluable. In order to thrive, businesses and business families need to find the right combination of youth and experience. The older generation should give that flexibility and the younger generation should respect and regard it.

It is also important for the new generation of business leaders to learn the ropes of business by beginning somewhere in the bottom or the middle, and climbing up the ladder gradually. They shouldn’t be made managing directors of companies as soon as they graduate from college. Make them sweat to earn it. They shouldn’t be explicitly told that they will not get the top job in the organisation as that could demotivate them, but at the same time, the corner office shouldn’t be given to them without the training needed to occupy it.

Haigreve Khaitan is senior partner at Khaitan & Co
(As told to Aveek Datta)

Image: Mexy Xavier

Subbu Narayanswamy is director, McKinsey & Co

‘Don’t choke the new generation with mollycoddling’

By Subbu Narayanswamy

The new generation of leaders across Indian family businesses is a phenomenal bunch of professionals. We work with several such leaders who are contributing significantly towards creating value for the businesses they are a part of.

One of the ways in which these family businesses are creating value is by incubating new businesses within the group, which the earlier generations of the promoter family may not have been comfortable with. Very often, these ventures have to do with new disruptive technologies. These young business leaders are also reinventing processes and structures within the family-owned corporations. A lot of this modernisation deals with infusing new talent within the organisation, as well as using technology to maximise efficiency and minimise costs.

As these business leaders endeavour to carve out their own niche within the existing system, while continuing the legacy of the family business, they face some crucial opportunities and challenges.

There are three main opportunities that these entrepreneurs can take advantage of. First: An existing, well-established platform to build on. Unlike startups, which don’t have a foundation and have to start from scratch, Gen-Next often has access to the balance sheet of the parent organisation and can utilise the resources to innovate and drive value creation at a sizeable scale. Second: They can leverage the brand and legacy that their earlier generations have created as this provides a certain credibility and legitimacy to their initiatives. Third: To make a meaningful contribution to the society within which they live and work. Many of these new generation entrepreneurs are looking beyond making profits, and are passionate about philanthropy, undertaking initiatives to better the country and the environment.

But operating within a family business setup comes with its set of challenges as well. The first is to find the confidence from within to just be their own people and get over the awe in which they hold their parents. The other challenge is securing an enabling environment within the family business, not just on account of the parents, but the senior leadership at these organisations. This environment is needed for their novel business ideas and initiatives to thrive, wherein they can experiment with their own style of management and leadership, make mistakes and learn from them.  

Often, the senior bureaucracy in a family business is well-intentioned and looking out for the interests of the new family members entering the organisation. But, in doing so, they may prevent certain new and interesting ideas from developing. It is important to ensure that these senior professional managers don’t choke the inquisitive and entrepreneurial spirit of the new generation through excessive mollycoddling.

Gen-Next should be allowed to do things their way. Sometimes that is to build a team around them that is of a much younger demographic than what existed earlier. We took some of the young family business leaders who we work with to the office of a well-known startup in India and they were amazed to see business managers aged 26 or 27 taking crucial business decisions, and some of them are trying to implement such a model at their own workplaces.

It is also important to understand how the current generation of family business leaders compares with its international counterpart. One key difference is that, globally, these leaders are trained to be owners and not managers. Most of their training is centred on how to be a great director on the board of a company, build the best team possible, and not so much on actually running the business. But in India, there is enormous premium on training family business leaders to be good managers. Most of the new generation leaders I talk to want to work from 8 in the morning till 10 at night. They want to earn respect as business managers. It will be interesting to see how this group of individuals evolves as owners and not just managers of businesses.

Subbu Narayanswamy is director, McKinsey & Co
(As told to Aveek Datta)

Image: Alok Brahmbhatt

Bobby Parikh is chief mentor and partner, BMR & Associates LLP

‘They have grown up in a different economic environment’

By Bobby Parikh

The evolution of the current generation of leaders in Indian family businesses is playing out in two ways: One subset is looking at doing something laterally, which may or may not be connected to the existing lines of business within their group; equally, there are others assuming responsibility for existing parts of the business and progressively getting groomed to take on larger responsibilities within the overall family business.

What binds these two sections of youngsters is the fact that they have grown up in a different economic environment, and they see that the drivers of future growth aren’t necessarily the ones that historically created value.

Those Gen-Next leaders who come from more traditional and old-economy family businesses are looking at new avenues of growth that are connected with the legacy businesses, and yet, address an emerging area of opportunity. For instance, the son or daughter of a business leader who has established a large commodities business may find it more interesting to come up with solutions to transform the market in which that commodity is sold, rather than helm a project to add incremental capacity for the production of that commodity.  

The size and scale of the existing business isn’t necessarily a deciding factor in what the next generation may want to do. Indeed, they have the benefit of this scale and the capital at their disposal, which allows them to think big.

But if you look at trends from the perspective of potential economic opportunities that these entrepreneurs are looking to tap into, the landscape has changed significantly. Over the last few years, it has become increasingly evident that the super cycle of growth fuelled by China, which kept traditional businesses growing, may not remain as robust. Simultaneously, the current Gen-Next of business families has seen the disruption caused by technology, and how old-economy businesses are being upturned by the likes of Uber, Airbnb or OYO Rooms. So it is a heady period in which to grow up, and I cannot imagine people growing through this period and not being influenced by what is happening in the new economic order.

In the process, they may also end up causing a shift in the mindset of the older generation. The older generation has to partly adapt to this new way of thinking being brought into the organisation, and partly learn to let go. The challenge that is often faced by the older generation is the process of letting go and trusting the instincts of the younger generation. This is because the older generation has built a business with great effort and has been successful in what they have done. But the new generation speaks a business language that the older generation may not necessarily understand or relate to. This may, sometimes, lead to differences of opinion, especially if there is no prior evidence in the market of a new technology or business proposition having worked.

The dilemma that the older generation faces in this situation is whether or not to stake the resources of the organisation on their progeny’s instinct, which is contrary to their own.

One of the key elements of the enabling environment that the previous generation can provide for the current generation is proper succession planning, which can help avoid discords of the magnitude that some business families in India have seen. Succession plans—put in place when the going is good—should clearly define the role that future generations are expected to play in the business. Families tend to focus on this subject only when there are some visible signs of discord in relationships within the family; issues within a family surface only when the underlying strain has grown much deeper. But it may then be too late to implement a succession plan smoothly.

Bobby Parikh is chief mentor and partner, BMR & Associates LLP
(As told to Aveek Datta)

Image: Mohammed Shafiq

Rajiv Memani is chairman, India, Ernst and Young LLP

‘There is a much sharper focus on value creation’

By Rajiv Memani

I am very optimistic about the potential of the next generation of business leaders that is evolving in the country.

Most of them have received a very high quality of education, a lot of them from outside India. As a result, they have a very good world view. That is a distinct advantage in today’s day and age when business is becoming increasingly global and changing rapidly.

By and large, the Gen-Next leaders are very good team players. Their openness to working in teams without bothering too much with hierarchy is encouraging and an important ingredient in being successful.

They are also tremendously influenced by innovation and technology in the way they are thinking about the future of their existing businesses or while creating new ones.

A lot of them prefer to create new businesses, which haven’t been around in India for too long, and they tend to be service- and technology-oriented ventures. There is a general negative bias towards starting something new in manufacturing. But there is a much sharper focus on value creation. These leaders are trying to figure out what creates value in India and what creates value globally.  

I find the relationships that leaders of this generation share with their parents and siblings to be far more open than what I had seen earlier. There are clearly drawn lines, whether in their professional lives or personal lives. But while they are very open to inputs and advice from seniors, they are also their own people.

The other positive sign in this generation is that there is no rush to reach the top. There is no desire to be the boss of the company at 28 or 29 years of age; they want to create their own impact by doing things differently.

The biggest challenges that this generation of business leaders need to watch out for are rapidly evolving technology, volatility in commodity prices and too much of leverage. Importantly, they are not great fans of leverage. They would much rather raise private equity funding at an early stage, which helps in de-risking new businesses. Though it was probably much more significant in the earlier generations, and is a traditional strength of Indian family businesses, the present generation also has a frugal and prudent approach to cost.  

This generation of business leaders, who are in their late 20s and early 30s, struggle to engage with governments and regulators, although they are very comfortable dealing with global business leaders and investors. This serves as a good risk mitigating factor as they generally prefer to stay away from businesses that have a massive regulatory influence.

Succession planning is also very important. A lot of Indian families have seen how the absence of succession planning can create challenges and destroy value in the business. Appointing the right people for the right role in an open and transparent manner is very critical, especially when there are siblings in the family. The faster a succession plan is implemented, the more time family members down the line have to establish themselves. Also, if a family member is not found to be an ideal manager and is probably better off playing the role of a shareholder, it is imperative to identify him or her early on.

Due to stronger roots that families in India tend to have, there is a stronger presence of family businesses in India than in any other part of the world. Consequently, the Gen-Next’s understanding and connect with the family business tends to be much stronger in India than abroad. If they can, family business leaders should also try and get some work experience outside the organisation they own. That can be a critical component for success.

Rajiv Memani is chairman, India, Ernst and Young LLP
(As told to Aveek Datta)

Richard Rekhy is CEO, KPMG in India

‘There’s no doubt that gen-next is changing the rules of the game’

By Richard Rekhy

When we talk about India’s Generation-Next, it is largely a mixed bag, similar to the rest of the world. While some of the Gen-Next choose to deviate from traditional family businesses and pursue new age businesses, others are taking over the reins of existing businesses and moving them to the next level.

There is no doubt that they are changing the rules of the game. If India’s Gen-Next was known to be eroding the value for their businesses, more than creating it, it would not be such an eminent focal point of attention and impact.

Perhaps, the most impressive factor about India’s business Gen-Next is that it makes innovation seem natural, and giving back [to society] the new normal. Another bright spot is the focus on branding. Gen-Next is enthusiastic about upgrading existing trading and manufacturing businesses into branded products.
Most of the large Indian groups have done well in planning succession, and implementing the transition. It is a strategic issue and they have done well to seek external independent support and guidance in dealing with their specific complexities.

So, in some cases, organisations have ensured that the Gen-Next reflects the same values they have, which stands out for me. Challenging and even breaking barriers; taking calculated risks; continually focusing on their people; making innovation the new normal—these are all critical factors and cornerstones to successes.

In certain cases, the promoters have been bold to bring in professional management teams as the family Gen-Next has some way to go before it is ready. The most important feature of these groups is that they had a plan to develop the next generation for leadership, decision-making and global exposure from very early stages so that they are ready to take over at the right time.

It would be conjecture to determine whether Gen-Next has already proven their worth. This is again a mixed bag. Understanding and calibration of risks, and making clear decisions on strategic business opportunities is a vital skill.

The second skill is managing the managers, being a leader and getting the best of teams. This will come from experience. What is important is to know if the family promoters and Gen-Next are aware of these skill requirements, and are taking steps to provide the right experience and exposure to the younger generation.

There are some very real challenges. In certain cases, we see a delay in succession planning. Inducting the next generation into the business early, and handing over the reins in a timely manner is critical. And the second one is insufficient mechanisms to support their development.

There are more complexities in case of multiple promoters, multiple businesses and multiple Next-Gens. Typically, availability of skilled managerial talent, ensuring operational efficiency, and access to capital and related concerns create governance issues, and affect the ease of doing business. These could become impediments in the growth and they need to be addressed quickly.  

Young business leaders need to understand global trends, and emerging risks and opportunities much better and at a detailed level. There are also lessons one has to learn from across our shores. One of the critical factors that promoters and heads of family business must keep in mind is this: Do not leave succession planning issues and transition till very late.

Richard Rekhy is CEO, KPMG in India
(As told to Salil Panchal)