PROTECTING THE FAMILY RICHES

Relatives falling out is bad for business. Family constitutions, settlement agreements and family trusts can smoothen wrinkles. But will they be enough to gain investor trust and ensure the survival of family enterprises in the long run?

- Ayaan Kartik

Nothing draws a crowd like a family feud. There is a visceral thrill in seeing the claws out, knives sharpened and sly insinuations leaked to the public. From Mahabharata to the modern day Ambani or Hinduja feuds the division of paternal wealth has seldom been peaceful.

But then not all sibling squabbles end up in bad blood. The Godrej Group is a recent example. In April this year, the 127-year-old conglomerate made headlines by formally announcing the amicable division of their businesses between the families of brothers Adi and Nadir Godrej, and their cousins Jamshyd Godrej and Smita Godrej. Through meticulous negotiation and a family settlement agreement, the two branches of the group resolved ownership issues that had lingered for over six years.

The fate of the corporate sector, and the Indian economy, is closely linked to the development of family-owned enterprises in the country. A Confederation of Indian Industry (CII) estimate pegs the contribution of such businesses at 60%-70% of gross domestic product (GDP) in developed and developing economies.

According to other estimates, family businesses account for 70% of India's publicly traded companies. There is always a concern about the impact of disputes as the family and business grow. Only 13% of family businesses survive till the third generation and only 4% go beyond the third generation, according to CII.

As India Inc continues to thrive amidst booming capital markets and a growing economy, the imperative of future-proofing companies becomes ever more pressing. Past instances have shown that prolonged disputes within family enterprises can impede growth, making proactive planning all the more essential.