Succession planning in family owned businesses: Insights and ideas from the concept of “Vānaprastha”

Abstract

Most of the family-business entrepreneurs delay the process of succession planning because they are unwilling to accept their retirement, inability to continue the business or death . In previous studies of family-owned businesses, it can be observed that there is a huge reluctance from the founder or entrepreneurs to enter the succession planning. There have been various instances throughout the modern business history when the succession plans of family-owned businesses have failed. According to one of the reports by the Barclays Wealth and Economist Intelligence Unit, one of the key weaknesses of the Indian Companies is succession planning . The magnitude of succession planning can clearly be seen due to a large number of family-owned businesses in India. According to a report by Credit Suisse, India ranks third in the list of family-owned businesses which are listed . China and the USA are at the top of this list. Further, the report also says that most of the family-owned businesses in India (approx. 60%) are in their third generation . A successful succession plan can help an orderly transfer of management and avoid the risk of liquidation of the business. Empirical studies have shown that only 30% of the family-owned businesses (FOB) survive through second generation and 12% the third6 . Hence a proper succession planning holds an important stand in a family-owned business in India