Family businesses must discuss what they would rather not: How to institutionalize leadership

The difference was not intelligence or vision. It was structure. One instituted governance systems and raised leaders able to question decisions. The other’s businesses struggled under debt and concentrated authority; and when markets turned, that absence of institutionally delegated authority became a crisis. Yet, this is a conversation many Indian family businesses still avoid.

Family-owned firms generate over 75% of India’s GDP, among the highest anywhere, according to McKinsey & Company. Business families are preparing to transfer roughly $1.5 trillion in assets to the next generation. Yet, 36% have no succession plan and 52% cite resistance from the senior generation as the biggest barrier to a transition. The patriarch, in other words, is often the obstacle, not the market, economy or the next generation’s capability.

The one who cannot be questioned: Most Indian family businesses have a central authority figure. Often called the ‘lala,’ he is usually the founder or patriarch who built the enterprise from scratch, took risks that others avoided, and took the business ahead through difficult years. His authority is earned and deeply respected.

Over time, that respect can result in unquestioned authority. The business begins to follow the instincts and preferences of one individual. Instinct becomes policy. Preference becomes strategy. Discomfort with a new idea becomes the organization’s position on that idea.

In the boardroom of a large third-generation family business with revenues well over ₹1,000 crore, this dynamic became clear during a quarterly review. The promoter walked in, glanced at the sales dashboard and asked why the numbers had fallen that quarter. Silence followed. The chief executive officer looked at the head of sales. The head of sales looked at finance. Eventually, someone said the market was slow. The meeting ended within minutes.

Outside the room, however, the real issues were obvious: a failing distributor strategy, delayed product launches and a digital transformation that existed mostly in PowerPoint presentations. None of it surfaced in the meeting. Over time, organizations learn what can be said openly and what cannot. This is how authority erodes accountability—not through confrontation, but through silence.

The next generation’s own trap: Let’s be equally honest about the other side, because the next generation carries its own version of this failure.

Typically, the business patriarch’s son or daughter returns from a top university, perhaps with years at a consulting firm or a multinational company. They arrive fluent in frameworks, data and the language of disruption. They look at the old ways (such as handshake deals), the munim (accountant) who questions every expense, the decisions made on instinct rather than dashboards, and see inefficiency. Certain areas need to be fixed, they declare; legacies need to be disrupted.

What they don’t see is that those old ways often contain encoded wisdom. The munim who questions every expense does so because he watched the founder nearly lose everything. This caution is not dysfunction, but memory. The next generation that wants to transform everything before understanding anything mistakes performative leadership for the real thing. Family organizations can tell the difference.

The shift that matters: A transition from authority to accountability is not about installing a performance system or hiring a governance consultant. It is a two-way process, which makes it rare and difficult. The patriarch must place the business above personal identity. Being questioned is not the same as facing disrespect. Rahul Bajaj showed this when his son Rajiv wanted to move from making scooters to motorcycles; he disagreed but did not block the change. That restraint showed leadership.

The next generation, in turn, must earn psychological legitimacy, not simply inherit positional authority. A title can be transferred but trust cannot. Trust is built by being present, by learning the business from within and by demonstrating that you understand what was built before you attempt to rebuild it.

Succession is not an event. It is a years-long process of trust-building, role-clarifying and the setting aside of egos on both sides of the table.

What India cannot afford: Behind every family business are hundreds of livelihoods. Employees, vendors, suppliers and communities depend on it. When leadership transitions fail because a patriarch cannot let go or a successor moves too fast, the damage goes far beyond the family’s fortunes.

India is on the path to becoming a $10 trillion economy. Family businesses will either drive that growth or become cautionary tales. The Ambani succession story is not just about two brothers. It reflects a crucial choice for every business owner between building an institution that endures and building a business centred on a select few.

That choice is the difference between leaving behind a legacy and ending up as just another footnote.

The author is the author of ‘The Good Indian Employee’s Guide to Surviving a Lala Company’ and is chairperson, the School of Family Business at Masters’ Union.