A Charter To Avoid Conflict

India’s family businesses have long been the bedrock of our economy, built on the values of hard work, prudence and commitment to long-term success. According to a recent PwC report, the number of family offices in India has skyrocketed from a mere 45 in 2018 to over 300 today. This exponential growth signifies: (a) the wealth generated in India and (b) a fundamental change in how families manage assets. It is a testament to their growing appetite for sophisticated wealth preservation, growth and diversification strategies.

The intersection of professional responsibilities and personal relationships in a family-run business is a challenge, thereby making a well-drafted family charter crucial. The family constitution, intended to document and formalise the transfer of wealth, vision, values and ethos across generations, quickly shifts from being a helpful guideline to an essential requirement.

External investors and advisers pay heed to the flexibility and effectiveness of the terms and rules while deciding to work with a family business. The practicality of the charter along with the value attached to the family business are preferred by investors.

Growing Governance

Family businesses have evolved with regard to governance, methods of management and distribution of responsibilities. India has witnessed amicable, structured and thought-through redistribution of assets or wealth in the past, indicating that these have been effectively managed with the guidance of advisers. When we dig deep into these splits, we find examples of how governance and family responsibilities have evolved.

In larger businesses, a comprehensive family charter establishes clear guidelines to secure and define long-term ownership. This charter not only fosters family unity but could also outline   procedures for future separation. It may also detail the process of valuing and distributing the business to any family member wishing to exit.

Setting An Example

The family charter of the GMR Group (one of the first to formally publicise a governance structure) became a case study for many business schools, including Harvard and IIM Bangalore, since it covered practices for business operation, succession and governance while emphasising family and business values—centred around harmony.

The charter includes details of responsibilities for each business vertical and rules of rotation among key family members. This gives each family member a chance to take a ringside view of all businesses and participate cohesively.

Similarly, in the Godrej family's case more recently, the distribution was undertaken systematically and strategically. In both cases, external advisory provided an outside-in perspective ensuring a fair outcome.

Therefore, a well-crafted charter and a proactive approach to succession planning send a powerful message to potential partners, investors and advisers.

The writer is managing director and India head, Rothschild & Co. Views are personal