Oswal family imbroglio rakes up an old issue again…

The Business Standard in an article has covered the Oswal family story.  It states that after the untimely death of Abhey Oswal in Moscow, his wife Aruna Oswal took over the reins of the two family companies, Oswal Agro Mills and Oswal Greentech, as she was the nominee. This has been disputed by the eldest son, Pankaj who claims that he had been appointed as the family heir, in a family function where he was made to wear the traditional pagdi of the family. This has raised a difference of opinion between the mother and son.

While not going into the specifics of the case, let us examine one fact in this case, which brings forth an issue which is pretty common with business families. It is stated in another article on rediff.com where Pankaj states that his father did not leave behind a will.

This brings forth a subject which is very touchy but is also responsible for wrecking family relationships, that of not having a will. The article states that the “spin doctors, advisors and lawyers have been hired and consulted” and it appears that both sides are readying their respective sides for a battle.

Which brings us to the following facts, which family patriarchs have to consider, in the absence of wills.

Battles do not help families:  If these are long drawn, (and they usually are), they extract a great price from each one, in terms of mental bandwidth and financial losses.  The results may come out eventually, but this could be at a cost of wounded relationships. Any success if at all, could prove to be just a pyrrhic victory.

They don’t help businesses either: The businesses are also the victims of this fight as they are forced to hold and wait, until clarity is apparent. On the other hand, professionally run businesses may be forced into the battle, which may be purely a family matter, and this could soak up funds from the business. The management could be distracted from running the business and more involved in what is happening to the family dispute.

 

Relationships get affected: As most of the family and business is forced to take sides, sometimes with incomplete information thus affecting the social environment. Given the fact, that most families operate in very socially connected environments, this could become tricky.

We plan our lives but hold back, when it comes to planning our businesses and family relationships: Let us understand this, a family will actually gives clarity to the family members on the intentions of the patriarch (or matriarch) and helps resolve situations. Sure, there are disputes on the wills also, but this is in some cases, but most times, the wishes are taken and executed. This ensures that the family relationships are maintained.

 

JSW-JSPL deal is more than just about the family charter.

Todays Hindustan times talks about the JSW-JSPL deal getting stuck because of the terms of the family charter and valuation and the terms of the buyout.

While not specifically commenting on the deal in particular, there is a very interesting issue that this raises, that is, what if the family charter states something which may run into legal road blocks? Or even not permitted by law? Furthermore, how does one comply with an agreement to take care of each other and come to each others help, in case of need?

This becomes particularly acute, when the family or personal wealth is tied up in the companies, usually listed. Any help or funds transfer would be subject to various compliances and legal approvals.

The regulators, investors, or institutional shareholders, who form the largest group of shareholders today, may not agree that such assistance may be in the best interests of the company, even though it may be a moral obligation or a requirement under the family charter, for the promoter to do so.

This also raises the concept of fairness and trust, since these roadblocks could have the potential for blowing up into a much bigger mess, as the weaker side may think of these as excuses to avoid helping out.

The additional risk for governance since this could affect the long term reputation of the helping company, as it may risk its credibility in the financial markets. There is always the doubt, on the extent, duration of the assistance in the future and implications on the health and long term viability of the helping company, if this assistance were to continue in the future.

There is also the probability that the stronger company may have to divert its investment plans to help out and thus jeopardise the operations of the healthier company.

All these will have long term implications on both the family and the business. What can be done to prevent this?

While it is not possible to prevent or forecast all eventualities, families could consider some of the following to safeguard themselves:

Separate out business assets from family assets:

Most family wealth historically, has been in the form of shareholdings in the company and all expenses are borne by the company. There is very little in individual names except what was perhaps required for tax planning purposes. A financial separation of the wealth becomes extremely important as it creates a financial security for the individual family members outside the business.

Build a portfolio of assets in an individual capacity:

This leads to the next issue wherein the individuals have joint shares in various projects, properties, assets without much clarity of the exact shares of each member. It would be a good exercise to clarify amongst family members, as an annual spring cleaning exercise to revisit these so that the family has a fairly good idea of the assets and the individual shares.

Having a pool of liquid assets outside the family business:

I cannot over emphasise the importance of this point. There have been cases where all the assets are highly illiquid and may not be available, should a contingency arise. Any wealth advisor can plan this out for you depending on your lifestyle.

Consider a family pool of liquidity for funds:

Some families have started doing this, each one deploying a small sum which can be collectively used for the family in case needed. This reduces the need for each one to maintain a liquidity for each family division.

Have an informal family meeting with internal family members periodically, once a quarter, if not monthly.

Communication builds up trust and strengthens the relationship between all the members. Regular communication would also reduce any conflict, if the relationships have been strong. You cannot build a relationship in a day, and this would help in times of stress and duress. This has the additional benefit of knowing the people and hence even if there is a delay due to legal compliances, the family is still together.

 Compliance in Spirit or the Letter of the family agreement.

There has been a lot of heartburn on this issue, that is, whether an agreement has to be followed strictly or to understand the intention behind the agreement and to honour that. Most family agreements have a fairly large amount of emotion behind having them, in the first place, and this needs to be considered while executing these. While legal compliances may make one approach difficult, if not impossible, if the family is together, they can work out another alternatives, which may not have been under consideration when the agreement was drawn up, but it meets the spirit of the agreement. Of course, this needs a lot of trust and confidence to be successful and the purposes of the family achieved.

The question is, how many families will have the foresight and patience to do this? The Jindals have shown that they can, but there are very few others…

FFI Certificate in Family Business and Wealth Advising

I am happy to announce that I have just received my FFI Certificate in Family Business and Wealth Advising by the Family Firm Institute, USA. The press release is here( CFBA.CFWA Press Release.). 

The certificates are presented to individuals who have achieved comprehensive professional knowledge and gained significant expertise that can be used as value to family business owners and family wealth clients.

“Through completion of the certificate programs, Rajiv Agarwal has gained a deeper understanding of the needs of family-owned enterprises and the many roles family business and non-family members play, “ said Judy Green, President of the Family Firm Institute. The Family Firm Institute (www.ffi.org), an international professional membership organization of over 1800 individuals and organizations across 88 countries, is dedicated to providing interdisciplinary education and networking opportunities for family business and family wealth advisors, consultants, educators and researchers.

It is particularly a proud moment as I become the first Indian to get this dual certificate. Thank you all, for your support and good wishes which helped me reach this milestone.

FFI-Certificate-Seals-Business-RGB GEN-CFWA-Seal-RGB

Succession at the House of Godrej – Best practices to be learnt

The house of Godrej was always one of india’s most respected families. True to its reputation, they have put in a succession plan which can be the example for the other business families to follow.

In a recent ET article, a few key points stand out:

Adi Godrej removing himself from the daily operations of the companies, choosing to let the next-gen manage the show. This is a show of confidence in the next-gen sending a clear message to the rest of the organisation of who is really in charge, and that the baton of power has moved on. Additionally, the fact that Adi Godrej did not interfere in the decisions but was available for the next-gen as an advisor, ensured that the hand holding, mentorship was available, whenever needed. This also proved to be an encouraging trend to build up the confidence of the next-gen without any possible costly mistakes.

Working along with professionals builds the team spirit and at the same time, encourages collaborative efforts to drive the business growth.

Further, the encouraging of newer ideas to change the businesses as they saw fit, helped to rejuvenate businesses and help these face the challenges in the new economy.

These are valuable lessons which most other families could do well to learn from!

 

Gaekwad vs Gaekwad – Lessons in Conflict Resolution – Value of Time.

ET has an article covering the Gaekwads of Baroda settling their long pending conflict. it is instructive to read about the foresight demonstrated by the cousins Samarjitsinh and Pratapsinh to settle a Rs. 20,000 crore battle.

Key learnings were: the family became at peace and looked forward to a brighter, more constructive future for all the family members. And that they first decided that the settlement had to be made at any cost, and then the compromises made, were easy to implement.

I think that this insight is key, for settling conflicts  in families. Often, I have seen cases originating from  issues which may not seem relevant over time, but are the root of conflict, (like ill treatment, unjust or depriving of rights, actions regarded as unfair, etc.)

While this may be held as precious by the family members who may have been subject to this, the subsequent generations may not see this with the same degree of emotion. This could be used as a stepping stone to resolve a family conflict. I remember working with two families at conflict, where the reason for the conflict was not clear but everyone vaguely remembered that it was something that their great grandfathers had been involved in !

But i think that the point that most families miss, in all this highly charged up emotional states, is the amount of time and energies that they spend in keeping the conflict alive. additionally, they seem to forget that this same energy and effort if channelled into something more productive, would yield results which would enhance the status of the family more than winning any brownie points in any conflict.

Furthermore, this also becomes a part of the family legacy which perpetuates down the generations, and this adds negativity to the family lore. Think about it.  Why add a negative thought to the family stories? ( eg. your granduncle deprived your grandfather from all the right wealth and hence we are not speaking to them since then…)

Thus, if we were to summarise the key points to think about….

  1. Is continuing the conflict worth the effort, time and resources ?
  2. What is the key issue? are we addressing that or is it something more personal to an individual?
  3. Is this something which would be relevant for the future generations?

 

 

Analjit Singh steps down at Max India

In another article in the Times of India, 62 year old Max India Chairman Analjit Singh has stepped down from the Chairmanship of his companies, making way for professionals to run his companies.

An admirable step if you consider that scores of companies are today still being run by almost octogenarian patriarchs. This is a leading issue in family businesses where the next-generation get frustrated waiting for the previous generation to hand over and let go.

In fact this could be a very good example of how to handle succession, where the senior generations could make way for the next-gen or professionals  to take over and run the companies while the seniors plan the next steps in either floating a new venture, mentoring someone, looking after the charitable interests of the family or even pursue a long desired passion! What is important however is, that this new activity keep them fully occupied.

In any  case, this is a good example worth emulating for the many family businesses all over the world.

Vadilal’s Icecream cold reality

A recent article in the Economic Times on 29th Dec, 2015  mentions about the owner family the Gandhis, filing cases seeking settling of some family and business issues.

Both sides have made claims and counter claims against each other, alleging diversion of funds to some other companies.

The article makes for some interesting reading, but is a prime example of successful families feuding, which oftentimes is first harbinger of troubled times. The business is the first to get adversely affected and the cash flows, which had led to the success of the family gets affected.

Increasingly, there is a need for families to have a structure in place and to work out these issues well before hand, before things are decided in courts.

This is the underlying logic for family structures which are an important topic in family business planning, covered in the SPJIMR course outline.

Readers of this blog may be interested in a one day workshop to be held later this year in SPJIMR which will seek to address this issue and what families can do to avoid such scenarios. contact me if you are interested in being put on the mailing list to be informed for this program.

 

Planning in Families

A recent article in Times of India on Sarabhais, the family behind Arvind Mills makes for interesting reading.  It states that Sanjay Lalbhai’s efforts to structure his family for the long term. He has also stated that the Lalbhai’s are currently in their 17th generation!

What is interesting is the realization in the family, to plan for the next generation, and to put in place a structure for the future. The fact that recent generations are increasingly choosing not to join the family business, it puts a great deal of stress on the existing families to plan accordingly.
An interesting survey by E&Y and University of St. Gallen, (link) have shown that less than 10% of the next-gen are looking to join their family businesses, immediately after their education! And over 60% would want to work outside for about 5 years, before they consider the family businesses! This has huge implications for the succession process and perhaps the Lalbhai’s have shown foresight in providing for this contingency.

In contrast is the experience with the Piramals, where Ajay Piramal’s son Anand, has preferred to join the family business. (link to article).  What is noteworthy, is the mentors that are guiding Anand during his induction. These include Nitin Nohria, the Dean of Harvard Business School, Deepak Parekh, undoubtedly the foremost expert in housing and finance. What are the learnings from this?

Choose the right mentors: having experts in the domain that one is operating in, gives you an insight which would be invaluable. External knowledge helps to overcome the bias that may occur while operating in successful family businesses. And more importantly, to listen to them!

Focus: Despite the fact, that the competition is spread all over India, the Piramals have chosen to focus on the Mumbai market, which brings us to the next learning,

Choose to compete on your own turf, and not where the competitors are: this gives you the advantage of redefining the rules, instead of just blindly following what the competition is doing.

And most important, Humility: to recognize that there is lot to be learnt and one can gain a lot from external help.

The other article of interest is one on the Baba Kalyani family where the niece has sued for a one-ninth share of the family wealth. (link). The article has drawn a similarity with another reputed family where the patriarch was similarly sued by a sibling.

These incidents emphasize the basic need in business families, to ensure that there is clarity of communication and expectations are set right. Very often, elders may choose to avoid asking the tough questions, with the expectation that these issues may not arise, and if they do, they would be solved amongst the siblings. there is always the danger of public perception that if a matter is made public, there may be much more than what meets the eye, like the proverbial iceberg, where over 90% is hidden and is below the surface.

The need for proper family structures usually done under the guidance of a family consultant does help to resolve issues in an impartial manner and ensures the survival of the family which otherwise could become subject to various disagreements. If we consider strictly the family longevity, then we can see that this has probably being put in place, with the Piramals and Sarabhais, and which challenge many business families are facing today, including the Kalyanis, Singhanias. Where there is clarity of thought and purpose, the family gains eventually.