The patriarch or matriarch at most family-run businesses in India do not give up control even when they are well into their sixties, leading to ill-executed succession, according to a new study that analyzed 474 large and mid-sized companies.
In nearly half the cases where the head of a family-run business was aged 60 or more, a successor from the family had joined the company but didn’t have full control over its operations, found the study by headhunting firm Executive Access.
The family head not giving up control means successors are often past their prime age when they are eventually handed over the reins.
“Many of India’s family business heirs will be closer to retirement than to the start of their careers by the time they actually get to lead,” the study noted.
The study individually analyzed 474 leading listed and unlisted companies across sectors such as textiles, agricultural products, sugar, consumer goods, chemicals, metals and pharma. It excluded the country’s top conglomerates and large-cap companies, whose succession or a lack thereof routinely attracts public scrutiny.
A lack of interest from the was also a leading reason for poor succession planning at these companies, the study found. This echoes the sentiment famously expressed by , when he said that he was noticing many in the next generation were taking the easy way out by looking to manage family investments instead of running businesses.
What the numbers say
Of the 474 businesses analyzed over a period of one year, there were 294 where the patriarch was older than 60. Half of these companies had inducted a successor but the control wasn’t fully transferred to them, as discussed above.
At a quarter of these 294 companies, there was no identifiable successor from the promoter family. This excludes cases where someone from the next generation was a part of the company’s board in a non-executive capacity.
Most of these businesses did not even have a professional chief executive or managing director in place, bringing significant business continuity risk in case the patriarch is incapacitated, the study found.
Meanwhile, in the last quarter of the companies with patriarchs over 60, succession was completed with the reins handed over to the next generation. However, even in these cases, the patriarch remained on the board, often leading to unclear power structures within the company.
Title vs power
“In a lot of these families, the son is 45, he has been in the business for years, he is a whole-time director, the title is very fancy. But every big decision still goes to the father,” said Agamjeet Dang, the CEO of Executive Access.
“That is not succession. That is a designation,” he said.
The patriarch needs to repurpose himself and step away from day-to-day decisions and focus on governance, he said. “A patriarch in the chair can be a source of strength. A patriarch who still takes every decision from the chair becomes the bottleneck.”
Only 3% of the companies analyzed had a clean handover, the study found.
Srinath Sridharan, an advisor to Executive Access, cited an example of a company where the patriarch in his early 70s was the chairperson of the company’s board while his son succeeded him as the managing director. However, in practice, every decision still ran through the father, including something as granular as locking the prices of raw materials, he said.
“So would you say the succession is done? In his mind, the son is now the MD so succession is done,” Sridharan said.
In such cases, even when the patriarch ultimately moves on and their successor gains full control of the company, they are often , he said.
“They have very low confidence. Imagine at 42 you have to wait for your father’s permission for every decision,” he said.