Challenge of retaining professionals during Succession
Ram Iyengar

Retaining people in the family business or succession planning? Both the aspects have a common link in the Indian family owned businesses as,  the real threat to jobs or positions will usually occur only when  ther is a change in ownership structure within the family unit. Otherise the usual ills of attrition through  retrenchment, change in industry environment, market conditions etc., usually do not affect family owned businesses.

In cases after cases, including that of home grown pharmaceutical enterprise, Ranbaxy  where a professional rather than the family member succeeded after the patriarch  chairman parvinder singh, a strong succession planning in the ownership prevented any change in the rank and file within the company.

“There is no real difference in HR policies in a family owned firm vis a vis that of a professional one ”,  reassured Davinder Brar, when he took over the reins of leadership at Ranbaxy, a traditional family owned pharmaceutical group. 

R Chakravarty, a HR consultant  says most family businesses, even when they are professionalised do not meddle with the HR. It is also true conversely that  Indian firms are yet to attain the degree of professionalism that is prevalent elsewhere in the world and as such it makes no difference the firm is family owned or otherwise. 

But people like Anand Mahindra, the second generation inheritor of one of India’s largest family run business,  feels that “the objective will no longer be the ownership of a large proportion of equity, but the creation of wealth through market capitalisation. And corporate governance will continue to occuupy centre stage as it becomes apparent that value of market capitalisation is   linked to the level of transparency in  a company’s operations”. Transparency  is an anathema to the family ownership which is usually steeped in intrigue and secrecy. 

But as families get professionalised the converse becomes true as new generation inheritors shun the `family business tag’ and prefer to adopt policies that are professional.  When Baba Kalyani stepped into the shoes of Neelkant Kalyani at the Pune based family firm, the first thing he did was to make his company totally professional and bring in a HR consultant to rework the existing systems. Both in Apollo group and that of Venteshwara Hatcheries,  the next generation of women who took  over, preferred to seek professional help to reframe man management strategies.  In the case of TVS where once the pride was when the chairman of the company could recall the name of a shopfloor supervisor, it is now electronic payrolls, punching cards are the order. 

“it is highly unusual to see the entire management teams go  when the succession takes place, unlike there is a hostile takeover of management”, observes the IR consultant  who played a key role when the late Parvinder Singh a bitter succession battle with his father in the seventies. The consultant   sensed  some  disdain and uncertainty during the days of transition in the company which finds missing in the next changeover this time involving a professional.

In cases like Wipro were, Azim Premji, the patriarch and founder preferred not have any family member on the board, the  HR policies have followed the traditional professional route. Azim Premji does not interfere in any of the HR exercises, either directly or indirectly.  But when it comes the second rung of firms owned by families especially in the older economy industries such as textiles, engineering etc., it is evident that succession planning leads to great upheavals and attrition as the new generation entrepreneurs who step into their parents shoes prefer new HR teams  rather than reskill the existing ones. Examples abound in the Ahmedabad, Surat, Coimbatore and Kolkatta  where succession almost always resulted in largescale lay offs. 

There are however, no easy solutions to this except  by educating the  new generation inheritors on how to handle HR while they take over the  reins. In fact, some of the better known management institutes including SP Jain, Narssee Monjee, Fore School etc., teach these aspects clearly in their curriculum on family businesses. 

The HRM models  have a fair degree of commonality between succession planning models of modern corporations. 
                                          
                                           Sucession planning   vs   successful HRM

                                    Identify the right inheritor       Identify the right career path

                                     Groom the successor(s)       Plan for smooth career growth

                                      Mentoring by the senior       Mentoring through HR modules

                                  Clear cut succession plan       Clear cut career growth plan

                                        Timely  transition plan       Timely  promotion plan

                                      Commitment of inheritor       Commitment of employee

The consequences of not adhering to the basic inheritance plan are for all to see. There have been any number of cases where owners confident of their invincibility let their businesses die along with their untimely death  as the succession battle wrecks the corporation itself.   In much the same way lack of clear cut promotional policy, methods to appraise the employees, lack of motivation and absence of mentoring policies have  played havoc with the commitment of the human resource of the corporations.  As to HRM under succession,  except for the fact that the inheritor is to bring in the same amount of confidance of his predecessor there would really be no need to devise a new HR policy to manage succession. Any successful HRM policy (such as the above in the chart) should do the trick.

Ram Iyengar
Insuvai@rediffmail.com