Charting A Family Succession

American casino magnate Sheldon Adelson, who founded famous casino and resorts company Las Vegas Sands Corp., never retired from the top job until his death at the age of 86. "Why do I need succession planning? I am very alert, I am very vibrant. I have no intention to retire," Adelson had said when asked about his future plans. He and his Israeli wife Miriam had six potential heirs from their two marriages each. The control of family wealth in different trusts went to Miriam after Adelson's death last year and the board elevated the second-in-command and non-family member Robert Goldstein as chairman.

There were many probable flashpoints in the story of the Adelson family — when the patriarch was reluctant to leave the top job; separation of management/ownership control after his death; taking a call on the casino chain's future course of action as it was in deep financial troubles post Covid-19. However, for the family members and the management, Adelson had given leadership and ownership clarity, at least for running the chain for the next two-three decades, and it helped them sail through the transition without hiccups.

With multiple stakeholders from the next-generation waiting in line to take over, succession planning is becoming imminent for some of the most prominent groups in India Inc. The country's largest private sector company, Mukesh Ambani's Reliance Industries, has three heirs — Isha, Akash and Anant. Gautam Adani has two sons — Karan and Jeet, besides his four brothers and nephew Pranav Adani, who are involved in the business. Sunil Mittal has two sons — Kavin and Shravin, who run their own businesses — and two brothers. The Murugappas, the Burman family (Dabur), Hindujas, Bajaj, the Godrej clan and Hero MotoCorp (Pawan Munjal) have multiple stakeholders from the family. Who will succeed Ratan Tata at the top of Tata Trusts is another question altogether.

Kumar Mangalam Birla, Sajjan Jindal and Uday Kotak have on-boarded their only sons in their businesses.

The Battleground

Most Indian family businesses are/have been in troubled waters owing to the reluctance of patriarchs in providing clarity on succession. The approach has already led to courtroom battles in at least five major cases recently — M.P. Birla-Lodha, Hindujas, Murugappas, Kirloskars and Chhabrias (Finolex). In fact, only 11% of Indian businesses have conflict resolution mechanisms in place, according to a family business survey by PricewaterhouseCoopers (PwC) in 2021. Just 17% have some kind of testament/last will.

The issue is all about what families want from the business, says Janmejaya Sinha, chairman, Boston Consulting Group. "Is the business created for providing jobs to family members or building wealth? A wrong person at the top can destroy wealth." Succession should be discussed by patriarchs themselves, he adds.

Where There Is Clarity

The succession in Tata Group has been structured similar to Las Vegas Sands. Two clusters of trusts — Sir Dorabji Tata Trust and allied trusts and Sir Ratan Tata Trust and allied trusts — control ownership in group holding company Tata Sons Ltd. Ratan Tata currently heads the trusts as chairman. His brother Jimmy Tata and half-brother Noel Tata also have trusteeship of some, along with Ratan Tata's close confidants R.K. Krishna Kumar and Vijay Singh, among others. Noel Tata's mother Simone directly holds a stake in Tata Sons, in addition to Vera Farhad Choksey and her brother Jimmy Tata —descendent of the Saklatvala family of Bapuji and Virbaiji Tata, sister of Jamsetji N. Tata. The other members of the Tata family have no say in the business.

The operational charge of the group, however, is with N. Chandrasekaran. The trusts, through their representatives and the rest of the members on Tata Sons board, will decide the future Tata honchos. But who will control the trusts after Ratan Tata remains a question.

In addition to holding trusteeships, Noel Tata is the chairman of Tata International, Voltas, Tata Investment Corporation and the vice chairman of Titan Company Ltd. In March, he was appointed as vice chairman of Tata Steel Ltd.

Since he has turned 65, Noel is unlikely to gain management control in Tata operations, but can become a strong contender for the top job in Tata Trusts. His children — daughters Leah and Maya and son Neville — are already working with different group companies.

Mukesh Ambani, who fought a bitter feud with his brother Anil, is keen to avoid a déjà vu in the next generation. The group leadership is in the hands of Mukesh and wife Nita. However, Mukesh doesn't want to see his empire split into different businesses. According to sources, Mukesh is working on ownership and management succession plans. He has already stepped down as chairman of Reliance Jio, and has handed over the reins to elder son Akash. "Akash and Isha have assumed leadership roles in Jio and Retail, respectively. They have been passionately involved in our consumer businesses since their inception. Anant has also joined our New Energy business with great zeal. In fact, he is spending most of his time in Jamnagar," Mukesh said at RIL's annual general meeting (AGM) on August 29. "All of them are being mentored on a daily basis by RIL's senior leaders, including myself and the board of directors," he added, while seeking the blessings of shareholders for Akash, Isha and Anant.

Similarly, Gautam Adani has groomed his son Karan since 2009 to take up the leadership role in ports business. Karan finally became the CEO of Adani Ports and SEZ in January 2016. Much younger Jeet joined the business only in 2019. He is learning the ropes, working with the group CFO's office. Nephew Pranav Adani is director, Adani Enterprises, and heads the biggest portfolio of Adani businesses comprising coal mining and integrated coal management, agri, city gas distribution and real estate businesses. As in the case of Ambani, Adani will also have to create a clearly defined succession structure since there are multiple stakeholders.

The Godrejs, who have been running the business for the last 120 years, are in amicable talks to split the empire and finalise succession. If the Godrej family gets split between Adi Godrej and cousin Jamshyd's factions, it will be a lesson for other billionaire families to follow. With the division of the Godrej empire, the succession will be clear for most of the assets that the family jointly owns, including the huge land parcels in Mumbai. The family ventured to divide the assets, with Adi's children — Tanya, Nisaba and Pirojsha —scouting for faster growth opportunities like other groups in India.

If the split materialises, Adi and his brother Nadir's businesses will be jointly controlled by their children. Since Jamshyd's son Navroze opted out of the business, his assets, along with sister Smita Crishna's will be largely managed by professionals and Smita's daughter Nyrika Holkar, who is now executive director of the flagship Godrej & Boyce.

The Bajaj Group inked a Family Settlement Agreement in 2018. At present, late Rahul Bajaj's sons — Rajiv and Sanjiv — control the management of two flagship businesses — auto and financial services, respectively. Rahul Bajaj's cousins — Shekhar, Madhur and Niraj — and their families are also joint stakeholders in businesses. His brother Shishir Bajaj had an acrimonious exit from the family in 2008. Shekhar Bajaj is the chairman of holding company Bajaj Holdings and Investment Ltd.

O.P. Jindal, Rahul Bajaj, the Burmans, Dalmias and G.M. Rao, on the other hand, banked on the 'Family Charter' for clarity on responsibilities and leadership. The charter offered entrepreneurial freedom to the next generation and transferred management control when businesses stabilised. The Jindals, meanwhile, disentangled a large portion of cross holdings for operational independence. To keep the larger family (especially non-executive members) happy, all were made party to wealth creation with shares in holding/operational firms.

According to K.T. Chandy, tax partner and co-leader, private tax, EY India, as family businesses grow, sub-families get involved. "With multiple involvements there is possibility of conflict," he adds.

"Bring in key stakeholders, including next gen and spouses, and have a governance framework for current and future needs of the family and business. Communicate the succession plan to the management and other external stakeholders such as public shareholders and investors. Finally, reviewing the succession framework periodically with changing times and dynamics is also important," says Rohit Berry, partner and head, family business channel, KPMG in India, who recommends early succession planning to avoid rifts in the family.

It is, therefore, critical for patriarchs to convert their intent into formal agreements or charters to avoid future disputes. An efficient ecosystem of family well-wishers and advisors can ensure there is strong governance in place in line with the family’s legacy for a smooth transition.