Indian family real estate business Lodha Group will be split into two entities to ease succession planning into the second generation – a strategy that is common in India, according to a family business academic based in the country.
Lodha Group chairman and founder Mangal Prabhat Lodha plans to appoint his eldest son, Abhishek, 36, to the helm of the real estate business, while his younger son, Abhinandan, 33, will head a new financial services business.
The finance arm will focus on housing finance, asset reconstruction and wholesale lending, according to local news outlet The Economic Times.
The two businesses will be held in a holding company that will be 80% owned by Lodha, with the remaining stake owned by family members.
The family business, founded in 1980, last year had revenues of 7,800 rupee crores. It has land holdings over 6,000 acres in India and the UK.
Last year it launched Trump Towers Mumbai in collaboration with US property tycoon and presidential hopeful Donald Trump.
Indian School of Business’s Kavil Ramachandran, executive director of the Thomas Schmidheiny Centre for Family Enterprise, says “most” Indian family businesses follow this succession planning strategy, but adds that it can have disadvantages.
Ramachandran says these include: the potential development of “silo thinking”; difficulty pooling resources and building economies of scale; different capabilities of family members leading to differences in income across businesses; and potential for some businesses to grow, while others shrink.
Perhaps one of the most famous examples of this succession planning strategy is Reliance Industries, whereby a long-running feud between brothers Mukesh Ambani and Anil Ambani led to the separation of the second-generation empire’s business interests.
Mukesh now controls the original family business, with interests in petrochemicals, retail and telecommunications, while Anil heads Reliance Group, which focuses on communications, financial services and infrastructure.
Reliance Industries has annual revenues of $67 billion; Reliance Group’s revenues are $13 billion.
Ramachandran says it is difficult to predict how the succession plan will play out at Lodha Group, especially because the younger son will be establishing a new finance business that may or may not take off.
He adds: “It is also important to ensure that the holding company remains strong and decides the group strategy holistically. Unless they take very proactive steps to keep the group together with positive efforts to ensure high quality family level communication, they are likely to have the troubles of silos facing them.”
According to Ramachandran there are many advantages to splitting the family business in the transition to the next generation. These include: easy demarcation of roles and responsibilities; the opportunity for each individual to demonstrate their capabilities; and avoiding communication problems arising from collective decision making. “It all depends what you really want: good life; challenges; freedom; or an institution that lasts long.”
He says splitting a family’s empire can also be seen as the easiest option. “Many families do not know what else can be done to keep it all together while simultaneously addressing the challenges involved.”
Abhishek and Abhinandan joined Lodha Group in 2003. The succession plan is expected to be officially announced this month, The Economic Times reported.