When family businesses reach the 3rd and 4th generations the complexity of managing the diverse businesses and assets while keeping the flock together and meeting their expectations and aspirations becomes too much. Relationships, family traditions, and emotions invariably cloud business decisions. Half the time and energy of the family members gets consumed in managing the relationships and getting approval for decisions – and only half the time is available to run the business.

Another angle to be considered – Is there one person whose authority as head of the family is accepted by everyone? Or is the business run by cousins who are joint decision-makers of the group – with a lot of cross-holdings? Sometimes interpersonal relationships are strained and this makes communication and decision-making even more difficult. At this stage the size, structure, number of family members across generations and complexity become unmanageable. Often the needs and visions of different wings of the family are different. This complexity is normal and common in the 3rd and 4th generations.

At this stage of the lifecycle of the family business, the best way forward is to split amicably. This process takes typically 1 to 1.5 years to complete and has 5 steps – starting from understanding the needs of different branches of the family, building clarity and consensus on the way forward, getting every stakeholder aligned to an in-principle agreement to valuations to the elimination of cross holdings and finally arriving at a family settlement. This has to be tax and legally compliant. Important to take the help of outside professionals to oversee this process and avoid emotional bias.

The final result of this exercise is that every wing of the family has its own business or assets or cash – based on a fair redistribution. There are no cross-holdings and decision making is simpler and faster. Succession becomes simpler and also the path for those wanting to exit the family business becomes easier.

Like the famous Godrej Family Settlement done by mediators to arrive at a happy ending where both wings of the family – one led by Adi Godrej and the other by Jamshyd Godrej – are now managing their own companies independently after successfully completing an amicable split of a vast empire.