Nagpur News : “As per Mckinsey & Company report on Corporate Governance, three out of four companies in India (including listed ones) are family owned and a large number of them suffer due to family discords. Only less than 13% of the family businesses survive until the 3rd generation.” Said corporate advisor CA Mahendra Kamath delivering his talk on Business Protection & Liability Hedging plan recently at Finance Forum of Vidarbha Industries Association at Udyog Bhawan.
He was elaborating on proper succession planning by any organization. He informed that Clause 49 of the SEBI listing agreement underlines the responsibilities of CEO of the Company to mitigate the risk pertaining to the corporate governance. CEO/CFO is accountable to spell out provisions made in this regard to safeguard the interest of the company.
He explained the Critical Risks faced by the Company when suddenly the key promoters go out of the Company on account of an act of God. As per Business Standard, Sep.13th, In absence of a clearly defined succession plan, the working of any company is affected adversely. The FALL is always sharper than the RISE. The immediate impact is on the members of their family. Often the members of the family have no idea as to what kinds of securities (personal guarantees, collateral securities etc.) have been rendered by the promoters. Besides the interest of all stake holders in the company viz. share holders, creditors ,employees, customers is jeopardized as they all have taken a call on the MEN behind the project and not the project per say. He told that the repercussions could be far reaching and proved his point by many recent live examples from Indian business world.
He told the gathering of businessmen and students that all our life we have worried for not losing what we have achieved out of sheer hard work and a series of huge personal sacrifices. This sense of insecurity is a very common phenomenon with all first generation successful entrepreneurs. All they want is when they pass away they should not leave behind any liability for their successors and thereby protect the interest of all stake holders in the company. He urged the audience to hedge their liability properly.
He said that a prudent risk mitigation device would ensure that only ASSETS & not the LIABILITIES would be passed on to the successors. Besides, it would cover the risks of Impact on the growth plans of the company, on the profit earning capacity of the company and on the contractual liability servicing capacity of the company.
As a solution he explained that the entire Liability of the Company including the stake of venture capitalist could be covered under this plan. In the event of unfortunate exit of key promoter/s on account of an act of God, Company would receive a huge amount of cash good enough to settle all liabilities and thereby making Company Debt FREE. This will bring about a large amount of operational benefits to the company. He said that the cost involved would be nominal besidesentirely eligible for tax benefits. Being a contingent asset with a substantial value will enhance the intrinsic value of the company as also its credit risk rating.
Concluding his very informative talk he said that one hedge the values of his/her car, business stocks, Plant & Machineries, export remittances in foreign currency, then why not Liabilities and Succession Risk?Convener of the VIA Finance Forum Dr. Kanchan Naidu introduced the speaker also conducted the programme. She elaborated the importance of the subject in the present scenario. Hon. Secretary of VIA Akash Agrawal welcomed the guest. The session concluded with lively question answer session.