OrionSayi Investment Banking Mumbai India

Strong Founder and Succession

In Asian 1st generation enterprises, ownership changes are generally staggered,
starting some time before the founder's retirement or demise and in regular intervals.
There are different models of achieving this. Put the shares in a composite structure,
like a trust, which does not pass on ownership rights but only financial benefits
to the next generation. Or leave the shares free to be dealt with by legal heirs as
they want, which is increasingly the liberal view. Most owners choose a
mid-way solution where holding levels of next generation are defined,
providing for dissent/exit/right of refusal/formula for inter-se transfer
control on decisions by consensus or majority. These models depend on
size of the group of successors, their involvement in business management,
availability of independent management professional’s already in place or
well prepared to become CEOs.

Successful founders do not necessarily find successors. Looking

back at what they went through to build a business, they may look

for typical successors who do not exit. 4. Those founders who have

engaged the next generation as managers and have created an

effective board to oversee and promote meritocracy among

managers from family or independent, usually get the timing of change

and pattern of ownership right. They formulate vision and values,

jointly with the succeeding generation and independent management

talent. This helps in evolving shared purpose and goals with clarity on

ownership structure and management roles. Such ownership
structures adopt principles of equality and equity whereby inheritance

rights and reward for performance are balanced. These principles

reinforced or enhanced over time, become governing principles for the

family. This helps in decision making on growth risks and wealth

preservation, enables generational transitions to capture fundamental

values and motivations of the founders. It also permits changes to happen

periodically towards creation of durable business and sustainable value.

The timing for change of guard is an intuitive decision. It involves emotions and
financial consequences for the next generation. Each generation stays on, with the
obligation to perform for benefit of future generations. It is like borrowing time
from the succeeding generation. 'Let go' changes by elders appear as sudden
events. But such events are a culmination of thought processes, experiences,
perceptions saved in intelligent memory, actively interacting to arrive at a mindset or
‘Carpe Diem’ - seize the opportunity to make the change. A flash of insight, an inner
call to decide on the change, including "what to do" and 'how'. Right timing is measured
by effectiveness of the decision: overall acceptance, fulfillment of future leadership
needs, creation of a framework for sharing of performance obligation, participative
contribution and reward. It takes a lot of self awareness, understanding of environmental
changes in business and equanimity for a leader to effectively manage the role conflicts
of being founder, owner and head of management.

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