India's super-rich is planning to pass on the reins to the next generation by setting up management trust. Is it to avoid the succession battle or the trust route can better ring-fence their wealth?
Some of India’s biggest business conglomerates were started by families, such as the Tatas, Birlas, and Ambanis. And most of them have gone from strength to strength, thanks to the advantages traditionally enjoyed by the family-run businesses, such as greater stability. But they are also susceptible to succession warfare, which can rip apart a wealthy clan -- for example, consider how things played out between Mukesh Ambani and Anil Ambani.
This is where the importance of succession planning comes in.
Apart from the feud between the Ambani brothers, the Bajaj family dispute and the Chettinad family dispute are some other examples of how family businesses can end up spending considerable time and resources on such squabbles
But, do family-owned trusts actually stop succession disputes from occurring in the first place. And, just as importantly, do they lead to a clear management structure? Another important factor to be considered is the tax implications.
However, are smooth succession and avoiding feuds the only motives behind adopting this model of governance? The other reasons could be that some fear the re-introduction of an inheritance tax or wish to ring-fence their assets to navigate around bankruptcy laws.
According to the PwC Family Business Survey 2021, just one in every five Indian family businesses has a robust, documented, and communicated succession plan in place. The direction taken by the Ambanis and Shriram groups will inspire others in the country.
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