Family Businesses Must Think and Act Like the Boy Scouts
A couple of weeks ago, India’s first Chief of Defense Staff, Gen. Rawat, his wife Mrs. Madhulika Rawat and a dozen other army/air force officers and personnel died in a helicopter crash near Coonoor. The loss of any life is sad, but this tragedy was of much greater proportions because Gen. Rawat had only begun the critical task of rearchitecting India’s defense forces in ways that enable greater integration. In a few weeks, our government will assign someone else the responsibility for leading the transformative process that Gen. Rawat had begun; after all, institutions like nations, their armed forces and even corporates are larger than individuals.
But what this tragic incident has painfully reinforced for many of us is the unpredictability of life. And if it hasn’t, it should. There are striking parallels that can be drawn between the outcomes of this helicopter crash and what happens when the head of a family business suddenly dies or becomes incapable of running the company. Both are sudden and cause large voids that can be hard to fill because the next generation family members are young and inexperienced or perhaps not interested in the traditional business.
This is why succession plans must not only cover people in leadership roles but also entire businesses. Maybe a strategic sale should be triggered or perhaps several group companies that already share synergies should be merged and after a few years, the entity could go public. The specific strategy is not the point of this article; rather, the key point I wish to make is that family businesses in particular should be ready with this kind of thinking. Not just a slide deck with the future strategy and trigger events, but at a much more granular level so that implementation becomes easier for those who will become responsible for it.
By the way, the sudden death of founders and leaders is by no means the only uncertainty that family businesses need to be prepared for. Many family businesses have complex holding structures that involve the formation of trusts registered in India and elsewhere. But the world is witnessing a new wave of concerted actions that are aimed at shoring up tax revenues by plugging various loopholes and tax planning avenues that have existed for years. As a result, tax laws can change quite drastically in various jurisdictions. And as geopolitical realignments occur and new regional partnerships are forged, regulatory changes may impact more than just one country. Family businesses that either does not plan for such risks or are not agile enough to respond quickly might find themselves seriously disadvantaged.
Plans are ultimately plans, and any plan can go wrong. Who, for example, could have forecast the Covid pandemic or that it would stretch for 2+ years (and God knows how much longer)? But that does not mean that there is no merit in planning. What is vital is to plan for various scenarios and figure out a solution that works best under a majority of situations. This needs expert advice and more important, perspectives and business savvy. The role of business advisors needs to change; they must acquire and hone their ability to transcend silos or be a part of the right ecosystem so that they are able to orchestrate the best advice for their clients and thereafter, help them execute the strategies and plans.
If you’re still wondering about the reference to the Boy Scouts in the title, I just wanted to tell family businesses to “Be Prepared”.
PS: Being slow to adopt cutting edge technological capabilities and putting them to use to capture insights that help drive strategies is another form of risk – but one that applies to more than just family businesses.
Many family businesses have complex holding structures that involve the formation of trusts registered in India and elsewhere. But the world is witnessing a new wave of concerted actions that are aimed at shoring up tax revenues by plugging various loopholes and tax planning avenues that have existed for years