Professional Documents
Culture Documents
Transgenerational Succession
Transgenerational Succession
DOI 10.1007/s10490-013-9342-z
REVIEWS
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imperative in the case of business groups in view of their enormous economic power.
Business groups indeed dominate the economic space in most of the Asian economies. Their dominance has been both eulogized and criticized in academic literature.
On the one hand, business groups have been said to be behind the spectacular
economic performance of these economies. On the other hand, the moral hazards
associated with their complex ownership structure, opaqueness of their functioning,
and their vested interest in promoting and perpetuating family capitalism and crony
capitalism have been held responsible for the Asian crisis of the 1990s (Chatterjee &
Nankervis, 2007).
In such a scenario, should the issue of transgenerational succession in these groups
be regarded as a family matter or a matter having ramifications beyond family? The
implications of this question may be better understood with reference to a succession
episode involving the Reliance Group, Indias largest business house accounting for
nearly 23 % of the gross domestic product of the worlds sixth largest economy
(Indian Express, 2009). Dhirubhai Ambani, the founder of the Reliance Group, died
intestate, that is, without a will or testament of succession. Thus, he left behind a
business empire whose succession became a matter of dispute between his two sons,
Mukesh Ambani and Anil Ambani. Mukesh Ambani, the elder of the two, tried to
trivialize the issue as their familys internal matter. However, the analysts and
commentators chose to disagree. The issue was referred to as a psychological soap
opera of sibling rivalry indicative of the soft underbelly of familial capitalism and
the changing ethos of the Indian family system at one place (Das, 2004). The
honorable Supreme Court of India stated it as analogous to a war between nations
(Deccan Chronicle, 2009). Succession-related squabble at Reliance was reported as
having implications for Asias energy needs by the international press (Bangkok Post,
2009). This case adequately shows that the implications of the succession of business
ownership, leadership, and control are more far-reaching than belonging exclusively
to the private domain of the family.
771
governance and related credit issues for Indian family-controlled enterprises noted that
leadership transition/business succession to the next generation is a key credit- and
governance-related risk with most of the Indian business houses.
The rationale of the study also lies in the perceptible gap of research and understanding about (1) Indian business groups whose emergence and subsequent dominance of the economic space of the country is attributable to a set of unique
sociocultural, political, and economic circumstances, and (2) the dynamics of transgenerational succession of ownership, leadership, management, and control of these
groups.
In accordance with the rationale of the study, this article aims to show that a broad
framework is needed and illustrate how this framework can help understand transgenerational succession in Indian family groups. In the following section, we will
review key concepts and the succession literature in the context of Indian family
groups. Such review shall explain why an eclectic framework that goes beyond what
we called the psychoanalytic perspective is useful. The framework will be introduced
and then applied to explain the saga of succession in Indian business houses since
independence (1947). Lastly, we state the agenda for further research taking advantage of the eclectic framework.
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Attitudes depend on the type of incumbent: Monarch fails to plan; General retires but plots the return;
Ambassador delegates; Governor sets the exit date and openly pursues it; Inventor is eager to exit;
Transition Czar actively pursues succession planning.
Saxena (2005)
Poza (2004)
Psychology: willingness
to relinquish control
Successors may belong to family business in-group or out-group or they might just be the jugglers.
Style of business
Dialogue
Perceptions
Lansberg (1999)
Incumbentsuccessor relationship
Grote (2003)
Extent of involvement in
family business
Conservator or Expander. Four pairings possibletwo like pairings and two opposite pairings.
The similarities and differences between the perceptions of the incumbent and the successor (as regards
integrating family and business matters, the maintenance or changing the status quo, etc.) can have a lot
of bearing on the succession process.
They desire to be like the incumbent yet also to supersede him or her; they must imitate the incumbent
while seeking independence.
Stavrou (1999)
Role in succession
Willingness and preparedness of the incumbent to hand over the baton is critical to succession.
Psychological processes are at the core of the incumbent preparedness for business succession.
Demographics
Successor characteristics
Incumbent attitudes may lie anywhere between business will find its own successor to plan and train a
successor.
Grote (2003)
Psychology: importance
Demographics: age
Incumbent leaders of the family wield considerable control over the process of succession.
Main finding
Researchers
Role in succession
Incumbent characteristics
Qi (2009)
Qi (2009)
Change
Types of outcomes
Loss of productivity and social costs in the United States nearly $14 billion per year.
Three types of outcomes: survival and continuity; change in subjective satisfaction of the stakeholders; and
change in objective measures of sales, profitability, and share price movement.
Linear recruitment (i.e., announcing the heir apparent during the tenure of the incumbent) is a far effective
strategy.
Succession outcomes
Three types: relay succession, horse race, and succession from outside.
Strategy
Most family business owners are aware of the need for succession planning, yet they do not actively plan.
Lamont (2010);
Smyrinos et al. (1997)
Jain (2006)
If any family member cultivates exclusive relationship with firms suppliers or customers, it can complicate the
succession process.
Progress with succession tasks was more evident when the life cycle stages in the family, business, and
ownership subsystems were congruent.
Family adaptability, family cohesion, successor training, the familys commitment, and the quality of owner
manager and successor relationships exert mediating influence.
Main finding
Succession process
Importance
Business growth
Personalized or shared
Pieper (2007)
Researchers
Influence of family
relationships on
succession
Family ecosystem
Table 1 (continued)
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Eclectic framework
In the review of studies on succession in family firms, it has been seen that much of
the research relies on the psychoanalytic framework for explaining succession. The
psychoanalytic framework analyzes the characteristics of the main actors, that is, the
incumbent and the successor and their relationships with other family members and
with business stakeholders. Taking cue from institutional theory (Aoki, 2001;
DMello, 2002; Geertz, 1973; North, 1990; Polanyi, 1944; Redding, 2005; Whitley,
1992) and varieties of Asian capitalism perspective of Carney, Gedajlovic, and Yang
(2009), we construct an eclectic framework (Fig. 1) that extends the psychoanalytic
framework to account for the historical, sociocultural, economic, and political context
of succession in business groups.
The eclectic framework has several advantages over the psychoanalytic framework
for explaining the succession process generally and succession in family businesses
and family-controlled business groups. First, to the extent it facilitates the study of
succession-related behavior as well as its context, the eclectic framework has the
merit of linking the theory of transgenerational succession in family businesses with
the theory of evolution and transformation of business groups (Kedia, Mukherjee, &
Lahiri, 2006). Second, by contextualizing business succession, the framework permits construction and consideration of regulative, normative, and cognitive mechanisms that shape the identities and interests of a wider set of stakeholders (Filatotchev,
Gregory, & Chizu, 2012) and the multiple roles of the same stakeholder (Filatotchev
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et al., 2011) in the succession process. Third, recognizing that succession may be
better understood as a process rather than merely as an event, the eclectic framework
proposed here captures the entirety of the succession process. That is, it examines the
succession process right from the awareness of the need for succession planning by
the incumbent to his or her withdrawal in favor of the successor. Fourth, the eclectic
framework that incorporates an institutional perspective on succession has a definite
empirical value too. For example, Hofstede (2004, 2007) found that national institutions explain 50 % of the differences in managerial attitudes, beliefs, values, and
motives of the business leaders and shape their behavior.
In view of the theoretical and empirical relevance of the eclectic framework thus
established, a brief explanation of its contents would be in order. In the following
paragraphs, we shall focus on explaining the contextual factors and the influence
transmission mechanism.
Culture
The cultural variables included in the framework are community, family, Hofstedes
cultural dimensions, and Halls notion of context. The community and family
linkage-based business groups and succession from among the family members stand
out as an example of particularistic cultures (Granovetter, 1994; Hofstede, 1984a,
b, 2004, 2007; Luo & Chung, 2005; Strachan, 1976). Hall (1976) talked about
cultural contexts and showed how transactional integrity is maintained despite imperfect contracts in high-context cultures. Business groups typify this integrity and
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social capital (Encarnation, 1989; Leff, 1978). Unfortunately, however, relationshipbased economies of Asia have had to incur the pejorative description of crony
capitalism from the Western commentators. The point is that convenient labeling
of relationship-based/kinship-based economic transactions (Stewart, 2003) as nepotism and of family capitalism as cronyism misses out on the salient facets of the
culture of the Asian economies. Culture comprises much of the informal institutions,
and as Estrin and Prevezer (2011) suggested, the informal institutions may not always
be in conflict with the formal institutions governing business conduct and corporate
governance. Having said that, it is also important to be aware of the hazards
associated with the dominance of these concerns over the economic logic. Such a
critical perspective would facilitate the conceptualization and implementation of
governance mechanisms that leverage the strengths and deal with the limitations of
family firms and family-controlled business groups. The emphasis on the one-sizefits-all model of governance has been adequately and rightly questioned, and the
need for context/culture-sensitive approaches has been adequately emphasized in
recent research (Chen, Li, & Shapiro, 2011).
The roots of the cultural embeddedness of behavior may be traced to religion
(Weber 1930/2001). In the case of India, of particular importance are caste (Gadgil,
1959) and linguistic communities (Sharma, 1980; Timberg, 1978). It may be noted
that community-based networks provide credit, insurance, and business connections
to their members throughout the world (Fafchamps, 2001; Rauch & Vitor, 2002).
However, the role of culture is not limited to serving as an alternative mode of
allocation of resources, alternative to markets. Culture also impacts behavior via
sensemaking and socialization (Granovetter, 1985; Lubatkin, Lane, Collin, & Very,
2007; Weick, 1995). Starting from the immediate source, the impact of culture on an
individuals sensemaking and socialization may be seen in terms of successively
broader circles of family, community, and society. Thus, family may be regarded as
the institution of primary socialization and sensemaking of a person. In family firms,
the incumbent and the successor are expected to play the dual role of a business
leader and the family patriarch. An important aspect of this chain is the institution of
marriage. For example, on the one hand, marriage can be instrumental in strengthening business and community linkages. And, on the other hand, the problem of
succession is acute in communities that permit polygamy.
Politics/law
State policy is perhaps the most dominant aspect of the politico-legal context of business.
In regard to the business groups, it has been a frequently recurring theme (Carney, 2008;
Ma, Yao, & Xi, 2006; Prowse, 1996). Besides state policy, the laws play an important role
in shaping the business system and human behavior. With regard to succession, inheritance laws play a critical role (Kuran & Singh, 2010). The politicolegal contextual factors
included in the framework are state policy, regulation, and inheritance laws.
History
History shapes a nations institutions and administrative heritage (Bartlett & Ghoshal,
1989; Calori, Lubatkin, Very, & Veiga, 1997). It played an important role in the
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firms from other parts of the world (Kim, Kandemir, & Cavusgil, 2004). This, inter
alia, exposes them to global best practices in succession planning as well as governance mechanisms and regulatory regimes.
Influence transmission mechanism
The eclectic framework elaborated in Fig. 1 integrates the PA framework and the
supracontext of succession in business groups/family business. It is important to note
that both the business system and its context coevolve in a two-way interaction
(Williamson, 2000). This interaction need not necessarily be a relay transmission; it
can even be jump transmission. For example, as the business groups interact with
their foreign partners, this interaction is not necessarily via the national institutions.
781
Founder
Year/period
when
foundeda
Whether
included
in the ILPIC
reportb
Year(s) of
split(s)c
Whether included
in the 1997 list of
Indias top
business housesd
DalmiaJain
Ramkrishna Dalmia
1933
No
1952, 1981
No
Thapar
1930s
Yes
1962
Yes
Goenka
N/A
Yes
1979
Yes
Mafatlal
Mafatlal Gangalbhai
Around turn
of the 19th
century
Yes
1979
Yes
Singhania
Kamalpat Singhania
1880s
Yes
1979, 1992
Yes
Piramal
Piramal Chaturbhuj
N/A
No
1982
No
DCMShriram
1909
Yes
1984, 1989
Yes
Birla
1916
Yes
1986
Yes
Punj
1957
No
1987
No
Modi
1898
No
1992
No
Bangur
Mugneeram and
Rangnath Bangur
1934
Yes
1992
Yes
Walchand
Walchand Hirachand
1920
Yes
1993
Yes
Ranbaxy
1961
No
1993
No
TVS
T.V.S. Iyengar
Around World
War II
Yes
1993
Yes
Apollo
Raunaq Singh
1970s
No
1994
No
Bajaj
Jamnalal Bajaj
1926
Yes
2000
Yes
Kirloskar
Laxmanrao Kirloskar
Mid-1920s
No
2000
No
Reliance
Dhirubhai Ambani
1958
No
2005
Yes
The year/period pertains to the time when the group made its first industrial foray. See Sharma (1980)
Mazumdar (2008)
Politico-legal influence
Indian business houses during the British period were dominated by the managing
agency system. Kling (1966: 40) referred to it as the only sub-system in the
economy with the capital, business expertise and continuity to provide the entrepreneurial and managerial system. The system sought to optimize managerial economies via putting diverse industrial enterprises under one agency. After independence,
the managing agency system was abolished. Yet, despite legislative and administrative intent to the contrary, its legacy continued via intercorporate investments. Hazari
(1966) noted that this de facto managing agency system whereby the controlling
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promoters directly participated in the management of the companies within the group
was instrumental in the perpetuation of family control. Appointment of professional
technicians and managers helped in overcoming the managerial void. But the appointment of family members at levels superior to these professionals complicated the
interface between the business and the family ecosystems. It also resulted in mutual
dependence between the family members and the managers and created room for
sycophancy and the family power play.
Economic policy influence
The economic policies of the Government of India also shaped the nature and power
of the business groups. For example, consider the impact of the policies of import
substitution and industrial licensing system. As a consequence of restrictions on
imports, those who were importing products entered into collaboration with their
principals for manufacturing those products in India. Thus, what was once a trading
community gradually transformed into a community of industrialists (Government of
India, 2002). Furthermore, the operation of the industrial licensing system resulted in
a situation whereby the business groups were able to corner industrial licenses. For
example, R.K. Hazari, in a report to the Planning Commission in 1967, noted that of
all the licensed industrial investment approved by the government between 1957 and
1966, 20 % went to the Birla Group alone.
From the foregoing analysis of the contextual influences, it is evident that the
emergence, growing economic power, and splits in the Indian business houses could
be broadly attributable to a myriad of historical, cultural, and politicolegal factors. It
would be apt now to examine as to how the various elements of the psychoanalytic
framework might have impacted succession in Indian business groups. Even at the
cost of repetition, it is pertinent to mention here that the psychoanalytic framework
deals with, among other things, the impact of business characteristics and the
succession process on the effectiveness of transgenerational succession and its
outcomes.
Business characteristics
As a form of economic organization, business groups are often characterized by
(1) the existence of a number of firms under centralized ownership, coordination, and control structure and (2) diversification, rather than amebic multiplication, of firms in the same line. These firms could be promoted from bottomup or acquired.
If the business group is not adequately diversified, then succession issues and the
succession aftermath get complicated. The disintegration of the Modi Empire, built
by Rai Bahadur Gujar Mal Modi in the early years of the 20th century, may be cited
as an instance in this regard. The group was split in 1989 between the nine Modi
siblings. It was built around two distinct lines of business activity, with a number of
companies in each line of business. When the family split, several of the claimants
became in-charge of competing businesses. Worse still, while the management
control over these companies was succeeded, there was no effort to disentangle
cross-holdings. As a result, on the one hand, managerial incompetence led to
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family is still fresh, the postsplit performance in their case has been very unlike that of
the groups referred to earlier. In fact, even among groups that split, certain factions
have done exceedingly well. Take for instance, the Aditya Birla Group from the Birla
clan and the L.M. Thapar Group from the Thapar clan. The postsplit performance of
the business groups in such cases seem, however, to be pointing toward the quality of
the successors, the quality of succession notwithstanding.
The saga of succession in Indian business houses is also replete with examples of
defaults on bank loans and public deposits. It has also witnessed general disregard of
minority shareholders and creditors. Moreover, though not exclusively attributable to
them alone, Indian business houses have been accused of exploiting political contacts, indulging in insider trading, and expropriation of cashflow rights by paying to
the members of the promoter families unreasonable salaries, perquisites, soft loans,
and so on. The DalmiaJain Groupone of the worst sufferers of splitswas hurt
even more severely because of the involvement of its founder in several cases of tax
evasion. Many shady business practices were brought to light in 1962 by a special
commission (the Daphtary Sastry Commission) appointed by the central government
(Institute of Company Secretaries of India, 1994). This caused irreparable damage to
the groups reputation. It is said that these happenings in the group came to the fore
owing to the conflict in the DalmiaJain families. Such occurrences are indicative of
reputational/franchise risks associated with inadequate succession planning.
Likewise, until the conflict between Ambani brothers, hardly anybody knew that
there was a nexus of 400500 investment companies through which the family owned
the stakes of the promoters and associate companies in the Reliance Group.
Generally, the functioning of the business groups is so opaque and ownership
structures so complex that it becomes virtually impossible to assess the associated
risks, thereby increasing the vulnerability of the other stakeholders.
Concluding observations
Changes in the family culture and the economic environment have made it difficult
for the Indian business groups to function solely as family/kinship-based economic
organizations. Tripathi (2011) also noted that the fissionary tendencies that started
long before independence are likely only to accentuate and that family business is on
the wane.
It is not that the Indian business houses have been unaware of or are unresponsive
to these developments. Some of the business houses out of their own experiences as
well as from others mistakes have started restructuring their businesses on more
rational lines by consolidating businesses along industries, divesting out-of-line
businesses, and untangling the cross-holdings. In fact, the relative success with which
Murugappa and Dabur have traversed the succession trail by separating the operational management from ownership and putting in place family constitutions and
family councils may be regarded as the emerging best practices in business succession. Business houses such as Bajaj and Murugappa consciously followed the
practice of socialism within the family based on equality of allowances, size of
the office, automobiles, vacations, class of air travel, and so on, with the aim of
minimizing differences and comparisons.
785
Some Indian business houses, especially those who have actively globalized their
businesses, on their own, have also shown the courage to transform some of the
longstanding but stifling traditions. For example, saddled with the legacy of tangled
ownership within a large family, Kumar Manglam Birla not only disentangled the
cross-holdings but also inducted the finest managerial talent to strengthen his top
team in a group that was obsessed by loyalty. In fact, Kedia et al. (2006) posited that
there are visible variations in the pattern of behavior of Indian business groups in the
preliberalization and postliberalization eras. Ramachandran and Bhatnagar (2012)
noted that the concept of succession planning is increasingly creeping in the family
business culture in India, something almost unheard of among family firms just about
a decade ago.
The eclectic framework developed in this article is likely to facilitate the mapping
of the myriad of factors influencing business groups and succession planning therein.
A historical count as well as current and futuristic rating of the likely impact of these
factors might facilitate the preparation of what may be referred to as an index of
family business preparedness for transgenerational succession and assessment of
credit- and governance-related risks relating thereto.
Societies in transition evolve their respective ways of simultaneously embracing technological and economic change and preserving social values.
Prescription of straitjacket solutions would only be hasty. Nevertheless, in view
of the substantial credit- and governance-related risks associated with familycontrolled business groups, it is imperative that the business groups be required
to explicitly engage in emergent, short-term, and long-term succession planning
both for the individual firms within the group and for the group as a whole.
The continuance of institutional/bank funding as well as the firms/groups
credit rating may be linked to incumbents performance on the front of succession planning and grooming a successor. Greater stakeholder activism might
further compel the business groups in this regard. In as much as fissionary
tendencies in the family are attributable to the individual members craving for
autonomy, these groups may be better organized as loose federations of independent businesses rather than as the existing morass of ownership and control
structures. Breaches in kinship and filial ties are eminently avoidable, and the
development of newer ways of economic collaboration is eminently possible.
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Anand Saxena (PhD, University of Delhi) is an associate professor of commerce at Deen Dayal Upadhyaya College, University of Delhi, in Delhi, India. His doctoral research pertains to motivation and
rewards of Indian entrepreneurs. His current teaching and research interests include entrepreneurship,
family business, corporate governance, and business ethics. He has developed e-content on Business Ethics
and Entrepreneurship for the University of Delhi. He has contributed content on business studies for school
education and has been a member of the textbook and other committees of the National Council of
Educational Research and Training, India. He is an accredited entrepreneurship motivation trainer. He is
a resource person for faculty development programs. He has presented research papers in national and
international conferences and has published in Information Sciences besides others.
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