Family Inc Turning Towards Trust Model as Fear of Feuds, Succession Drama Rises

Feuds over family empires are consistent in the history of India Inc. Over the last two months, the concerns over fragile ties in Family Inc resurfaced as reports of rift in the Oberoi and Kalyani families emerged.  

Due to the increasing fear of feuds over succession and division of wealth, small and big family businesses are eyeing the trust model of protecting wealth. This comes amid the smooth transition at Tata Trusts where Noel Tata took reins this month. Within 36 hours of the demise of Ratan Tata, the historic trust which has large shareholding in Tata Sons appointed its new chairman.  

The Economic Times reported that Noel Tata’s reign has begun on a good note with the chairman of Tata Sons N Chandrasekaran, indicating a peaceful transition.  

Divi Dutta, partner in the private client practice group at Khaitan & Co, says that several family businesses are looking to implement the trust model to ensure a peaceful transition. “The interest in implementing the trust model has increased recently which is why we are seeing a lot of momentum,” she notes. 

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However, as the famous line in Leo Tolstoy’s novel Anna Karenina goes, “All happy families are alike; every unhappy family is unhappy in its own way.” Dutta explains that unique family dynamics mean that there are interesting tweaks to each succession plan. 

Trusting the Trust Model 

As Indian companies vie for investment in domestic and international markets, it is becoming clear that putting in place a plan to avoid feuds would help Family Inc. Companies who have put in place a clear framework report that it helped in conversations with investors.  

Ashish Bharat Ram, Managing Director at SRF Limited, told Outlook Business in an interaction earlier, “Everybody is clear there is a governance structure here which is the best-in-class. There is clarity on how we want to manage the business and the role of the family.” 

However, the structure of the plan varies from a will to a trust model. Dutta says that the preference is for the latter now. She says, “Trusts help in ringfencing assets from external threat. Moreover, it protects the interests of the next generation by promoting collective decision-making.” 

In the trust model, a settlor creates the trust and transfers their assets. According to the terms, beneficiaries are nominated, and the assets are managed by the trustees on behalf of beneficiaries.  

Due to instances of challenges to wills, like in the case of Birlas and Oberois, several leaders are instead relying upon the trust model. However, to protect their empires from future battles, family heads are going a step beyond. 

Adding the Family Element 

Despite the existence of a trust, it is not guaranteed that the family will be protected from any battle over its riches. The KK Modi family is one example. Moreover, the model gets complicated when more than one branch exists in the family which is why family leaders are trying to adapt. 

A Delhi-based family business, which is said to be planning succession, is inculcating clear roles and responsibilities for each member of the family who is part of the business. Another family that is close to putting trust in place is ensuring that vital decisions are made unanimously.  

Experts say the idea is to try and keep families together. Many are considering putting such guidelines on paper through family constitutions. Dutta says that branching out of families over time means that more work needs to be done to keep them together.  

She explains, “Leaders are aware of the fact that generations after them might not be as close as they were with their families. To operate the business together without hassle, they feel it’s important to put their values on paper for future generations.” 

With the number of initial public offerings on the rise and investors more cautious about value destruction, the momentum in planning for the future by Family Inc is expected to increase in the coming time.