Sona Comstar case: Why family firms need a governance triad

Mint

a day ago

When a corporate battle spills out into public view, it rarely stems from a single cause. The dispute at Sona BLW Precision Forgings (Sona Comstar)—one of India's leading auto component manufacturers—may appear, on the surface, to be about ownership rights. Yet, beneath the headlines, it is also a cautionary tale about the interlinked nature of three distinct but inseparable governance systems in family businesses: ownership, corporate and family governance.
Following the unfortunate death in June of its non-executive chairman Sunjay Kapur, Sona Comstar—partly owned by the promoter Kapur family—saw board changes that sparked an inheritance dispute. His mother, Rani Kapur, raised objections that the company rebutted before proceeding with its annual general meeting (AGM).
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On paper, this is a dispute over ownership governance—who holds legal title to shares and the mechanism for transferring control. But the tremors extend well beyond. The Sona Comstar conflict reflects a breakdown of such governance. If share-transfer terms, inheritance provisions or trust deeds are ambiguous—or contested—the vacuum left invites competing interpretations, often landing in court or the press.
Strong ownership governance in a family firm requires binding and well-communicated agreements, documented succession plans and legal instruments that leave no scope for ambiguity. Without this, corporate stability is left hostage to family disagreements.
Once a family business is publicly listed, the law recognizes all shareholders equally, whether they are related to the founder or not. The board of directors becomes the ultimate decision-making body; the promoter family is only one set of shareholders—albeit often the most influential. Corporate governance is about how the company is run in the interests of all shareholders, including board composition, decision-making processes and the insulation of management from personal disputes, thus ensuring that family politics doesn't stymie operations.
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In Sona Comstar's case, its board acted within its legal mandate by appointing a chairman, inducting a director and holding the AGM. Yet, the public nature of the dispute risks reputational damage and erosion of investor trust, regardless of formal compliance. Boards must therefore not only follow the law, but also actively communicate their rationale, maintain transparency and reinforce the fact that the company is not a 'family fiefdom,' but a corporate entity governed by rules, not relationships.
Family governance is the least formalized, yet often the most critical. It is about managing expectations, relationships and communication within the family, so disputes don't contaminate ownership or corporate governance. This includes: Family councils or assemblies, family charters and education and alignment.
Sona Comstar's situation underscores what happens when family governance is weak or absent: personal disagreements find their way into the media, allegations fly and corporate decisions become fodder for public debate. Family governance must ensure that grievances—about inheritance, recognition or roles—are resolved before they affect the company.
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A failure in one layer of governance often destabilizes others. In Sona Comstar's case, weak ownership governance (disputed entitlement) triggered a public challenge to board decisions. The dispute tested corporate governance, as the board had to assert its independence while managing perceptions. The absence of robust family governance meant no private forum existed to resolve the conflict, forcing it into the open.
Feuds at Finolex, Raymond and other Indian family firms show how intertwined these aspects of governance are. In each, ownership clarity, corporate professionalism and family harmony had to be addressed together. The lesson: one type of governance can't be fixed in isolation.
Promoter families often underestimate the preparation and discipline needed to keep ownership, corporate and family governance in harmony. Neglect of this can prove costly. It means working on three fronts.
First, clarity in ownership, with succession and inheritance plans unambiguous, legally sound and updated regularly; families must see transparency as a safeguard, not a threat.
Second, respect for corporate boundaries. Promoters can play a strategic role through the board, but must not bypass it, demand special privileges or let personal claims cloud business decisions. Boards must assert independence, protect management continuity and communicate proactively with all shareholders—especially amid tension.
Third, investing in family governance. This is the least regulated but often the most decisive. Regular family meetings, agreed processes for appointing family members, clear entry and exit criteria, and established conflict-resolution mechanisms can prevent disputes from escalating into corporate crises.
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The Sona Comstar episode is a reminder that in family businesses, ownership governance may be the spark, but family governance often determines whether a dispute explodes or is quietly defused. And in the end, it is corporate governance that must keep the ship steady. If the three governance systems are aligned and strong, succession can be smooth and shareholder value preserved. If not, the headlines may write themselves in a way the family wouldn't like.
These are the author's personal views.
The author is professor of economics and policy and executive director, Centre for Family Business & Entrepreneurship at Bhavan's SPJIMR.