CLIENT WATCH

India plc: Breaking into the Family Business

Family control of the boardroom is loosening as India plc opens up its doors to international expansion and overseas investors.  New research from the RSG 2010 India Report has found that only 11 of the top 25 companies in India have a family controlled board. This trend towards weakening family control is exposing an alternative route for overseas firms to break into India plc: succession planning.

 

As Indian companies embrace foreign listings and international capital markets, the family mark is being diluted.  The sale of Ranbaxy Laboratories by the Singh brothers to Daiichi Sankyo, the Japanese company, is the exception to the rule. But the overall fall in family representation on the boards of India’s top companies means there are new decision-makers for foreign law firms to try approaching.

 

In other cases, families are breaking up themselves. Federal & Rashmikant, a boutique Indian law firm specialising in litigation and real estate, said they are being kept busy by the break-up of corporate families such as the Bajaj sugar empire. But divided families don’t necessarily cede control of the family silverware. On the contrary, the two halves of the Reliance conglomerate split continue to feature in list of top 25 Indian companies, under the guiding hand of each Ambani brother.  

 

The feud between the Ambani brothers has turned the attentions of the current generation of corporate families towards succession planning. Foreign firms are beginning to wake up to the opportunities presented by the succession headaches of family-controlled businesses in India. At the beginning of 2010, Barclays Wealth India, part of the global wealth management arms of the UK bank - widely seen to be one of the winners of the global recession - announced it was setting up a ‘Family Business Forum’, the first initiative of its kind “to engage and reach out to the next generation entrepreneurs and therefore build a strong foundation for family business management and succession planning in India”. 

 

According to Barclays, “nearly eighty percent of family owned companies in India dominate the Indian economy. Indian business families now are more open to discussion on issues like business continuity, succession planning, corporate governance, how to handle sibling rivalry, how to draft a trust, etc. and are seeking advice from experts”. 

 

Business schools have already responded to market demand in this area. The Indian School of Business, ranked the top Indian business school by the Financial Times, has a research chair called ‘Family Business & Wealth Management’, which organised the first Asian Conference on Family Business in 2008 under the theme “Sustaining Growth in Family Business”. 

 

Nor will India have to wait long for a high profile test case in this area. Sir Ratan Tata, the chairman of the second-largest Indian conglomerate, which controls the world's sixth-largest steel maker, is a single man with no children who would struggle to find a close family member to fight with prior to his retirement in 2012.  

 

Much is being made of the immediate future of Tata group, since Sir Ratan has not identified his immediate successor, even saying that the next chairman and CEO of the Tata Group could come from outside the family - and potentially from outside India. However, the bark of this famous dog-loving billionaire is worse than his bite. Over 65% of the shareholding of the Tata group is tied up in family trusts of which Ratan Tata will continue to be either chairman or trustee of following his retirement, and the bachelor of Bombay has a half-brother waiting in the wings of a Tata subsidiary. As luck would have it, Noel Tata just happens to be the son-in-law of the Tata Groups single largest shareholder, Pallonji Mistry.