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8/20/2019 Transgenerational Succession
1/22
R E V I E W S
Transgenerational succession in business groups in India
Anand Saxena
Published online: 30 January 2013
# Springer Science+Business Media New York 2013
Abstract This article examines succession-related issues in business groups in India,
where they comprise a species of the genus of family business and account for a
sizable proportion of the economy. It notes that succession in business groups in India
has frequently entailed family feuds and business splits whose effects are not limited
to the concerned family alone. Given the enormity of economic and political power of
these groups, succession-related issues therein pose serious credit- and governance-
related risks. Conventionally, in family business literature, stand-alone firms are the
unit of analysis for examining issues pertaining to transgenerational succession.
Moreover, most studies have done so within the parameters of a psychoanalytic
framework that focuses on the psychology of the incumbent and the successor and
their relationships with other members of the family and stakeholders of the firm.
This article argues that such a restrictive approach would not suffice in the case of
business groups. It acknowledges the emergence and continuance of business groups
in the broader context of historical, economic, political, and sociological circum-
stances of their respective settings. It then extends the psychoanalytic framework and
proposes an eclectic and integrative framework for examining succession-related
issues in business groups. This article illustrates the use of the framework withreference to the saga of transgenerational succession in business groups in India.
Keywords Business groups . Succession
Transgenerational succession and inheritance of business are universal episodes in
family businesses that last long enough. While smooth and competent succession is
desirable in all the businesses — big or small — such a requirement is an absolute
Asia Pac J Manag (2013) 30:769 – 789
DOI 10.1007/s10490-013-9342-z
The author is grateful to the anonymous reviewers and the editors of the Special Issue for their comments
and valuable suggestions on an earlier draft and the presentation at the APJM Special Issue conference at
Beijing during July 8-9, 2011.
A. Saxena (*)
Deen Dayal Upadhyaya College, University of Delhi, Delhi, India
e-mail: [email protected]
8/20/2019 Transgenerational Succession
2/22
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 econo-
mies. 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 hazardsassociated 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, India ’s largest business house accounting for
nearly 2 – 3 % of the gross domestic product of the world’s 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 family’s 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 Asia ’s 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.
Rationale and objectives
Credit- and governance-related risks of poor succession planning in business groups in
India provide the primary rationale for the present article. The magnitude of the risks,
naturally, would vary directly with the economic power of the group experiencing
succession-related problems. In India, family-owned and -controlled business houses
have, in the past, been recognized as a source of concentration of economic power.
These continue to be dominant players in the economy. The publicly listed companies of
just about 11 Indian business houses were reported as having a combined market
capitalization of about US$300 billion, making up nearly 30 % of India ’s total market
capitalization in 2008 (Dutta & Dutta, 2008). Given that these companies would have
access to diverse sources of funds, including debt from financial institutions and
presuming family holdings of about 50 % and a conservative debt-to-equity ratio of .5
(i.e., equity is twice the debt), it should not be difficult to assess the impact of the
ownership structure and changes therein on the financial markets, institutions, and the
stability and well-being of the overall economic system. In fact, a report by Moody’s
Investment Information and Credit Rating Agency (ICRA) (2007) on corporate
770 A. Saxena
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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 under-
standing about (1) Indian business groups whose emergence and subsequent domi-nance of the economic space of the country is attributable to a set of unique
sociocultural, political, and economic circumstances, and (2) the dynamics of trans-
generational 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 trans-
generational 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 advan-
tage of the eclectic framework.
Business succession and business group in the Indian context
Etymologically the word succession comes from the Latin word successionem mean-ing “a following after, a coming into another ’s place.” In widely held corporations, it
is possible for leadership and management succession to be independent of ownership
and control, for example, chief executive officer (CEO) succession. In family busi-
ness as a genus and business groups as a species, succession might entail transfer of
ownership as well as of control and management. Indian business houses — old as
well as new — typify family ownership- and control-driven business groups having
large empires. Thus, succession in Indian business houses and family-controlled
groups implies intergenerational transfer of ownership, control, and management of
business. Such a preference among the incumbents of the family businesses to hand
over their businesses to their offspring or close family members is generally relegated
to the propensity of family firms toward nepotism (Barach, Gantisky, Carlson, &
Doochin, 1988; Beckhard & Dyer, 1983a , b). However, there also have been views
that such a recourse may be rational and efficient, more so when the competitive
advantages of a firm are based in idiosyncratic knowledge that can be efficiently
transferred only to family members or the most-trusted outsiders (Burkart, Panunzi, &
Shleifer, 2003; Lee, Lim, & Lim, 2003; Sharma, 2004).
In the case of business groups, this idiosyncratic knowledge might pertain to
complex ownership structures and business groups’ contacts and relationships.
Saxena (2005) noted that carrying on and handing over the tradition of business in
one’s family or community may be culturally internalized as one’s duty. An obliga-
tion to preserve wealth for the next generation is also implicit in the guanxi practices
of the Chinese (Chen, Friedman, Yu, & Sun, 2011). Such a tendency, however, may
be responsible for conflict between interests of the shareholders in the controlling
family and other shareholders and for the abuse of private information available to the
Transgenerational succession in business groups in India 771
8/20/2019 Transgenerational Succession
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family members by virtue of direct participation in management (Filatotchev, Zhang,
& Piesse, 2011). Notwithstanding the findings of Jiang and Peng (2011a ) in support
of conflicting hypotheses pertaining to the governance and performance of family
businesses — that is, whether they are good, bad, or irrelevant — the issue of trans-
generational succession in family firms retains its merit nevertheless.Business groups represent a form of economic organization characterized by an
agglomeration of firms engaged in diverse businesses under a centralized, concen-
trated, and closely held ownership and control (Cazurra, 2006; Granovetter, 1994;
Mazumdar, 2008; Peng & Delios, 2006). They are typically said to be lying some-
where between firm and market (Powell, 1990). Firms within the business groups
share productive resources, and this resource sharing is governed by mechanisms
other than markets (Penrose, 1959). Depending on their ownership type, this coordi-
nation mechanism might vest with the family, state, or representatives of absentee
owners. In this regard, business groups may be distinguished from other forms of economic organization also on the criteria of particularistic ties of family, kinship, and
ethnic linkages (Luo & Chung, 2005; Stewart, 2003). Business groups are ubiquitous
in emerging economies and even in some developed economies (Khanna & Yafeh,
2007). Business groups are also particularly prevalent in transitional market econo-
mies such as China, Russia, and Vietnam (Carney, 2008).
In India, business groups are better known as business houses, even though while
describing business groups in India, perhaps for the first time ever, Hazari ( 1966)
preferred to use the term corporate groups, implying a common authority over several
corporate units. The common authority implied in Hazari’s work includes the familyor the managing agents/representatives of absentee owners (British masters). Since
the abolition of the managing agency system after independence in 1947, business
groups in India came to be characterized only by concentrated ownership, gover-
nance, management, and control by family whose succession is the subject matter of
this article.
A focused review of literature
There is a sizable body of research on succession in family businesses. However,
whether in India or elsewhere, research on succession in business groups is scant.
Two observations are clear to us in a focused review of the literature. As shown
in Table 1, much of the research rests on the premise of the conflicts inherent in
the differences between business and family ecosystems. It accordingly focuses
on how the personality characteristics of the incumbent and the successor, the
nature of their relationships, and their interactions with the various stakeholders
in business and in family might have a bearing on the succession process and its
effectiveness. The developed economies of the West comprise the context in most
of the cases. Family-controlled business groups as an organizational form are not
much prevalent in the West. The unit of analysis of these studies, therefore, is
predominantly a stand-alone firm.
Another distinct aspect of the research on business succession reviewed in Table 1
has been a near-absolute reliance on psychoanalytic and economic factors in explain-
ing the succession in family business. These studies miss out on the historical
772 A. Saxena
8/20/2019 Transgenerational Succession
5/22 T a b l e 1
R e s e a r c h o n
s u c c e s s i o n i n f a m i l y b u s i n e s s
T h e m e ( s ) a n d s u b t h e m
e ( s )
R e s e a r c h e r s
M a i n f i n d i n g
I n c u m b e n t c h a r a c t e r i s t i c s
R o l e i n s u c c e s s i o n
S h a r m a e t a l .
( 2 0 0 3 )
I n c u m b e n t l e a d e r s
o f t h e f a m i l y w i e l d c o n s i d e r a b l e c o n t r o l o v e r t h e p r o c e s s o f s u c c e s s i o n .
D e m o g r a p h i c s : a g e
D u n e m a n n & B a r r e t t ( 2 0 0 4 )
S u c c e s s i o n p l a n n i n g a d i r e c t f u n c t i o n o f a g e o f t h e i n c u m b e n t .
P s y c h o l o g y : i m p o r t a n c e
G r o t e ( 2 0 0 3 )
P s y c h o l o g i c a l p r o c e s s e s a r e a t t h e c o r e o f t h e i n c u m b e n t p r e p a r e d n e s s f o r b u s i n e s s s u c c e s s i o n .
P s y c h o l o g y : w i l l i n g n
e s s
t o r e l i n q u i s h c o n t r o l
C h u n g e t a l .
( 2 0 0 7 ) ; H a n d l e
r ( 1 9 9 0 ) ;
K e p n e r ( 1 9 8 3 ) ; K e t s d e V
r i e s ( 1 9 9 3 )
W i l l i n g n e s s a n d p r e p a r e d n e s s o f t h e i n c u m b e n t t o h a n d
o v e r t h e b a t o n i s c r i t i c a l t o s u c c e s s i o n .
P s y c h o l o g y : a t t i t u d e t o w a r d
s u c c e s s i o n p l a n n i n g
S a x e n a ( 2 0 0 5 )
I n c u m b e n t a t t i t u d e
s m a y l i e a n y w h e r e b e t w e e n “ b u s i n e
s s w i l l f i n d i t s o w n s u c c e s s o r ” t o “ p
l a n a n d t r a i n a
s u c c e s s o r . ”
P o z a ( 2 0 0 4 )
A t t i t u d e s d e p e n d o
n t h e t y p e o f i n c u m b e n t : “ M o n a r c h ” f a i l s t o p l a n ; “ G e n e r a l ” r e t i r e s b u t p l o t s t h e r e t u r n ;
“ A m b a s s a d o r ” d e l e g a t e s ; “ G o v e r n o r ” s e t s t h e e x i t d a
t e a n d o p e n l y p u r s u e s i t ; “ I n v e n t o r ”
i s e a g e r t o e x i t ;
“ T r a n s i t i o n C z a r ” a c t i v e l y p u r s u e s s u c c e s s i o n p l a n n i n g .
S u c c e s s o r c h a r a c t e r i s t i c s
D e m o g r a p h i c s
S t a v r o u ( 1 9 9 9 )
D e m o g r a p h i c f a c t o
r s a f f e c t e d t h e o f f s p r i n g i n t e n t i o n s t o j o i n b u s i n e s s .
R o l e i n s u c c e s s i o n
M a r i s e t t y e t a l .
( 2 0 0 8 )
T h e o t h e r p r i n c i p a l a c t o r , a l b e i t l e s s r e s e a r c h e d o n e .
E x t e n t o f i n v o l v e m e n
t i n
f a m i l y b u s i n e s s
F o x & H a m i l t o n ( 1 9 9 6 )
S u c c e s s o r – b u s i n e s
s r e l a t i o n s h i p b e c o m e s a n o t h e r v i t a l
c o m p o n e n t o f t h e s u c c e s s i o n p r o c e s s .
B i r l e y ( 1 9 8 6 ) ; B i r l e y e t a l . ( 1 9 9 9 )
S u c c e s s o r s m a y b e
l o n g t o f a m i l y b u s i n e s s i n - g r o u p o r
o u t - g r o u p o r t h e y m i g h t j u s t b e t h e j
u g g l e r s .
P s y c h o l o g y : r o l e c o n
f l i c t
G r o t e ( 2 0 0 3 )
T h e y d e s i r e t o b e l i k e t h e i n c u m b e n t y e t a l s o t o s u p e r s e d e h i m o r h e r ; t h e y m u s t i m i t a t e t h e i n c u m b e n t
w h i l e s e e k i n g i n d e p e n d e n c e .
I n c u m b e n t – s u c c e s s o r r
e l a t i o n s h i p
P e r c e p t i o n s
F o x & H a m i l t o n ( 1 9 9 6 )
T h e s i m i l a r i t i e s a n
d d i f f e r e n c e s b e t w e e n t h e p e r c e p t i o n
s o f t h e i n c u m b e n t a n d t h e s u c c e s s o r ( a s r e g a r d s
i n t e g r a t i n g f a m i l y a n d b u s i n e s s m a t t e r s , t h e m a i n t e n a
n c e o r c h a n g i n g t h e s t a t u s q u o , e t c . )
c a n h a v e a l o t
o f b e a r i n g o n t h e s u c c e s s i o n p r o c e s s .
D i a l o g u e
L a n s b e r g ( 1 9 9 9 )
I n t e r g e n e r a t i o n a l c
o n v e r s a t i o n s s m o o t h o u t t h e s u c c e s s i o n p r o c e s s .
S t y l e o f b u s i n e s s
T a y l o r e t a l .
( 1 9 9 8 )
“ C o n s e r v a t o r ” o r “ E x p a n d e r . ” F o u r p a i r i n g s p o s s i b l e —
t w o l i k e p a i r i n g s a n d t w o o p p o s i t e p
a i r i n g s .
Transgenerational succession in business groups in India 773
8/20/2019 Transgenerational Succession
6/22 T a b l e 1
( c o n t i n u e d )
T h e m e ( s ) a n d s u b t h e m
e ( s )
R e s e a r c h e r s
M a i n f i n d i n g
F a m i l y e c o s y s t e m
I n f l u e n c e o f f a m i l y
r e l a t i o n s h i p s o n
s u c c e s s i o n
P i e p e r ( 2 0 0 7 )
F a m i l y a d a p t a b i l i t y , f a m i l y c o h e s i o n , s u c c e s s o r t r a i n i n g , t h e f a m i l y ’ s c o m m i t m e n t , a n d t h e q u a l i t y o f o w n e r –
m a n a g e r a n d s u c
c e s s o r r e l a t i o n s h i p s e x e r t m e d i a t i n g
i n f l u e n c e .
L i n k a g e b e t w e e n b u s
i n e s s
a n d f a m i l y l i f e c y c
l e s
B j u g g r e n & S u n d ( 2 0 0 1 )
P r o g r e s s w i t h s u c c
e s s i o n t a s k s w a s m o r e e v i d e n t w h e n
t h e l i f e c y c l e s t a g e s i n t h e f a m i l y , b
u s i n e s s , a n d
o w n e r s h i p s u b s y
s t e m s w e r e c o n g r u e n t .
R e l a t i o n s h i p w i t h b u s i n e s s ’ s o t h e r s t a k e h o l d e r s
P e r s o n a l i z e d o r s h a r e
d
D u n e m a n n & B a r r e t t ( 2 0 0 4 )
I f a n y f a m i l y m e m b e r c u l t i v a t e s e x c l u s i v e r e l a t i o n s h i p w i t h f i r m ’ s s u p p l i e r s o r c u s t o m e r s , i t c a n c o m p l i c a t e t h e
s u c c e s s i o n p r o c e
s s .
D e p e n d e n c e o n p r o f e s s i o n a l
m a n a g e r s
C h u a e t a l .
( 2 0 0 3 )
M a n a g e r i a l m o t i v e
s i m p a c t s u c c e s s i o n p r o c e s s v i a a g e n c y r e l a t i o n s h i p .
B u s i n e s s g r o w t h
I m p o r t a n c e
J a i n ( 2 0 0 6 )
B u s i n e s s g r o w t h a n d f a m i l y g r o w t h c a n f e e d o n e a c h o
t h e r .
S u c c e s s i o n p r o c e s s
A w a r e n e s s o f t h e n e e
d
L a m o n t ( 2 0 1 0 ) ;
S m y r i n o s e t a l .
( 1 9 9 7 )
M o s t f a m i l y b u s i n e s s o w n e r s a r e a w a r e o f t h e n e e d f o r
s u c c e s s i o n p l a n n i n g , y e t t h e y d o n o
t a c t i v e l y p l a n .
S t r a t e g y
Z h a n g & R a j a g o p a l a n ( 2 0 0 6 )
T h r e e t y p e s : r e l a y
s u c c e s s i o n ,
h o r s e r a c e , a n d s u c c e s s i o n f r o m o u t s i d e .
S a x e n a e t a l .
( 2 0 1 1 )
L i n e a r r e c r u i t m e n t
( i . e . , a n n o u n c i n g t h e h e i r a p p a r e n t d
u r i n g t h e t e n u r e o f t h e i n c u m b e n t ) i s a f a r e f f e c t i v e
s t r a t e g y .
S u c c e s s i o n o u t c o m e s
T y p e s o f o u t c o m e s
M e i j a a r d & U h l a n e r ( 2 0 0 5 )
T h r e e t y p e s o f o u t c o m e s : s u r v i v a l a n d c o n t i n u i t y ; c h a n
g e i n s u b j e c t i v e s a t i s f a c t i o n o f t h e s t a k e h o l d e r s ; a n d
c h a n g e i n o b j e c t i v e m e a s u r e s o f s a l e s , p r o f i t a b i l i t y , a
n d s h a r e p r i c e m o v e m e n t .
S u r v i v a l o f t h e f i r m
Q i ( 2 0 0 9 )
S o u n d s u c c e s s i o n e n s u r e s o r g a n i z a t i o n a l s u r v i v a l a n d c
o n t i n u i t y .
C h a n g e
W h i t e e t a l .
( 1 9 9 7 )
S u c c e s s i o n o f t e n a
c c o m p a n i e d b y s t r a t e g i c c h a n g e .
C o s t o f w r o n g s u c c e s s i o n
Q i ( 2 0 0 9 )
L o s s o f p r o d u c t i v i t y a n d s o c i a l c o s t s i n t h e U n i t e d S t a t e s n e a r l y $ 1 4 b i l l i o n p e r y e a r .
774 A. Saxena
8/20/2019 Transgenerational Succession
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narrative and institutional aspects of succession. We believe that the development of
an eclectic perspective on succession is a must in the case of business groups, which
themselves are the product of economic, sociocultural, political, and historical influ-
ences in their respective settings.
In India, one does not come across much research either on business groups or onsuccession therein. There are biographical and historical studies on prominent busi-
ness families (Piramal, 1996, 1998; Tripathi, 1999). However, the focus on the issue
of succession has been relatively conspicuous by its absence. Interest in succession
has been rather episodic. It has been limited to a symptomatic treatment of the subject
whenever a prominent business family experienced difficulties in succession.
Ramachandran (2005) explored the intergenerational survival and success of five
business groups in India that had survived beyond three generations without experi-
encing a split, namely, Dabur, Godrej, Kirloskar, Murugappa, and Wadia. He identi-
fied compassion and competitiveness as the distinguishing (not necessarilyconflicting) value systems affecting family and firm, respectively. In a follow-up
study, Ramachandran and Jha (2007) argued that the governance needs of closely
held family-owned companies are unique, as the board has to be simultaneously
playing the role of the agent of the common shareholders and the steward of family
interests. The multiple roles of the same participants in the family firm’s governance
mechanism are a pointer toward the need for developing a multiple agency perspec-
tive on the governance of family firms/business groups (Filatotchev et al., 2011).
Marisetty, Ramachandran, and Jha (2008) empirically measured the consequences
of succession with respect to its effect on shareholders’
wealth. They measuredshareholders’ wealth in terms of changes in return on assets (ROA) and the post
succession share market performance of the shares of the firm. They analyzed 124
family succession announcements of Indian family business groups during the period
1992 – 2006. They found that succession improves a firm’s ROA. It also results in an
average abnormal stock market return, irrespective of whether it is accompanied by
family feuds/splits or not. However, a split in the family during succession was
observed to decrease a firm’s value.
A study by a reputed credit rating agency in India has noted that leadership/ex-
ecutive transition was a key credit- and governance-related risk for 32 companies
within the fold of 16 prominent business houses of India (Moody’s ICRA, 2007).
These risks are accentuated by the lack of transparency about the nonlisted family-
controlled holding companies that may have raised a significant amount of debt to
fund the group’s companies. The study brings to the fore the relationship between
business succession and credit risks by referring to the predominance and entrench-
ment of the members of the controlling family on the board. The study notes that the
predominance and entrenchment of family members on the board dulls independence
and freshness of perspective. It was also found to be responsible for expropriation of
cash-flow rights by appointment of and compensation to the family members and
secondary treatment of minority shareholders. The study notes that although compa-
nies are obliged to treat shareholders equally, in practice that rarely happens and
especially not when a group breaks up to resolve family succession. Tripathi (1999)
noted that in several cases it was indeed a case of expropriation of the rights of the
majority by the controlling minority, thanks to the pyramid structure of ownership of
these groups. Jiang and Peng (2011b) viewed such a situation of corporate
Transgenerational succession in business groups in India 775
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governance in family-controlled large firms/business groups as an instance of prin-
cipal – principal conflicts.
The foregoing findings about the credit- and governance-related risks of business
group ownership and succession in India are neither isolated nor recent observations.
The Daphtary Sastry Committee brought to the fore irregularities in the Dalmia – Jaingroup in the 1950s (Institute of Company Secretaries of India, 1994). The Hazari
Committee report of the 1960s observed that business groups were a source of
concentration of economic power. Another study reported that Indian business groups
engaged in “rent-seeking” behavior (Majumdar & Sen, 2006). Transgenerational
succession in business houses then, ipso facto, also implies the succession of these
characteristics with obvious implications for the economic system.
In the backdrop of continuing globalization, there seems to be a renewed justifi-
cation for the further strengthening of the economic power of these business groups.
On the other hand, the exposure to governance and management practices might also pave the way toward greater professionalization of management. At the cultural level,
the emerging social order is getting characterized by weakening of the family ties and,
in Hofstede’s (1984a , b) formulation, the growing “individualism” and shortening of
“ power distance.” The scenario of transgenerational succession in Indian business
groups is indeed getting queerer.
How do we account for these transitions? We are of the view that it should be
possible to develop an eclectic framework that considers the precipitating, proximate,
as well as background factors impacting the actors, the act, and the outcomes of
succession. This is what we turn our attention to in the next section.
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;
D’Mello, 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 per-
mits construction and consideration of regulative, normative, and cognitive mecha-
nisms 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 institu-
tions 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, Hofstede’s
cultural dimensions, and Hall’s notion of context. The community and familylinkage-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 im-
perfect contracts in high-context cultures. Business groups typify this integrity and
Fig. 1 Eclectic framework
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social capital (Encarnation, 1989; Leff, 1978). Unfortunately, however, relationship-
based 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 nepo-
tism and of family capitalism as cronyism misses out on the salient facets of theculture 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-size-
fits-all” model of governance has been adequately and rightly questioned, and theneed 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
individual’s 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 strength-
ening 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, inheri-
tance 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 nation’s institutions and administrative heritage (Bartlett & Ghoshal,
1989; Calori, Lubatkin, Very, & Veiga, 1997). It played an important role in the
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emergence of business groups in Japan (Morikawa, 1992), in Korea (Amsden,
1989), and in India (Mazumdar, 2008). History also accounts for the differences
in the nature of business groups in these countries. As an example, Indian
business groups are often referred to as the legacy of the colonial rule. History
provides a temporal dimension to the issue of succession. Incumbent ’s experi-ence at the time he or she succeeded the business is likely to affect his or her
succession-related predispositions, decisions, and behavior. The attributes of this
factor included in the framework are evolution of institutions, legacy of busi-
ness system, and colonial rule.
Economy
In the early stages of economic development, concentration of entrepreneurial
activity in select pockets (business communities, families) is a generallyreported phenomenon. In relation to business groups, the antecedent of early
stages is referred to as institutional void (Fisman & Khanna, 2004; Khanna &
Palepu, 1997; Khanna & Yafeh, 2007; Leff, 1978). It implies, inter alia,
deficiency of demand, and inadequately developed capital markets, labor mar-
kets, and markets for managerial talent. However, business groups last long
enough and even after the voids have been filled because of the unassailable
economic power accumulated over time (Mazumdar, 2008; Morck, Wolfenzon,
& Yeung, 2005). The variables included in the framework comprise stage in
development, basic conditions of demand and supply, capital market, andmarket for managerial talent.
Ethics
Ethics comprise the philosophical foundation of the very institutions of “ business,”
“corporation,” and “ business group.” It is known that business groups propagate their
economic power through pyramid structures and cross-holdings. As a result, with
minimal equity they are able to build vast empires, which, in fact, are funded by
public financial institutions and common investors. An ethical question in relation to
business succession is, how can one bequeath what one does not really own?
Moreover, there is a lot to the darker side of business groups. Business groups have
been criticized for serving as devices for expropriating minority shareholders, and for
tunneling, looting, and plundering the assets of their affiliates (Morck & Yeung,
2004; Scharfstein & Stein, 2000; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008).
Succession also entails the moral hazard of perpetuation of their darker side. Besides,
if the managers outside the family are not considered or consulted for leadership
succession despite their competence, there is an associated ethical problem of
employees’ rights.
International environment
The state, the economy, and the society comprise the domestic context of business
groups. However, the present context is also characterised by globalisation. In such a
scenario, the business groups have to compete against or establish alliances with
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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 gover-
nance 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.
Applying the eclectic perspective on succession in Indian business groups
Having elaborated the contours of the eclectic framework for understanding succes-
sion in business groups/family business, we can now examine the evidence of trans-
generational succession in Indian business groups using the framework as lens. The
saga of succession in business groups is characterized by family splits. Dalmias were
the first prominent business house to break up after freedom. They were the third
largest industrial group in the 1940s after the Tata Group and the undivided Birlas.
They had 21 businesses, including banks, aviation, newspapers, and railway compa-nies. The split happened in the early 1950s. It was then regarded as an isolated
incident. Family splits, indeed, were few and far between during the first two decades
after independence. The pace, however, accelerated beginning with 1970, and the
following 25 years witnessed splits in many business families: the Birlas, Modis,
Sarabhais, Bangurs, Singhanias, Mafatlals, Shrirams, Thapars, Walchands, and
Goenkas (Table 2).
Historical and sociocultural influence
Tripathi (2005) considered splits in business groups and stress on the family
system as a natural consequence of socioeconomic change (viz., industrialization,
urbanization, exposure to Western values and ethos, etc.). Given further that
India ’s industrial houses emerged out of the forays of the trading communities
that would, for obvious reasons, be town-based and basically urban, appearance of
the fissionary trends in family structures seems only natural. The fissions became
starker with successive generations and as the family structure changed into a
consortium of cousins. This should explain why family business splits are common
in the third generation.
Community linkage is an inescapable fact of Indian business houses, and so is the
cross-community variation in succession-related experiences. Mukhopadhyaya
(2005) wrote that feuds over succession have been a part and parcel of Kolkata-
based Marwari businessmen. In the South, however, more conservative upbringing
and stronger cultural background and family ties seem to be playing a mitigating role
in such occurrences (FES Bureau, 2005).
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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 entrepre-neurial and managerial system.” The system sought to optimize managerial econo-
mies via putting diverse industrial enterprises under one agency. After independence,
the managing agency system was abolished. Yet, despite legislative and administra-
tive intent to the contrary, its legacy continued via intercorporate investments. Hazari
(1966) noted that this de facto managing agency system whereby the controlling
Table 2 Instances of splits in Indian business houses
Name of
the group
Founder Year/period
when
foundeda
Whether
included
in the ILPIC
report b
Year(s) of
split(s)cWhether included
in the 1997 list of
India ’s top
business housesd
Dalmia – Jain Ramkrishna Dalmia 1933 No 1952, 1981 No
Thapar Karam Chand Thapar 1930s Yes 1962 Yes
Goenka Badri Das 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
DCM-
Shriram
Lala Shri Ram 1909 Yes 1984, 1989 Yes
Birla Baldeo Das Birla 1916 Yes 1986 Yes
Punj Kanhaiya Lal Punj 1957 No 1987 No
Modi Rai Bahadur Gujar
Mal Modi
1898 No 1992 No
Bangur Mugneeram and
Rangnath Bangur
1934 Yes 1992 Yes
Walchand Walchand Hirachand 1920 Yes 1993 Yes
Ranbaxy Bhai Mohan Singh 1961 No 1993 NoTVS 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
ILPIC Industrial Licensing Policy Inquiry Committee; N/A Not availablea The year/period pertains to the time when the group made its first industrial foray. See Sharma (1980) b Government of India (1965)c Financial Express (2005)d Mazumdar (2008)
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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 ap-
pointment of family members at levels superior to these professionals complicated the
interface between the business and the family ecosystems. It also resulted in mutualdependence 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, coordina-
tion, and control structure and (2) diversification, rather than amebic multipli-
cation, of firms in the same line. These firms could be promoted from bottom-
up 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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industrial sickness. And, on the other hand, nonresolution of cross-holdings led to
court battles among the family members.
Succession process
It is often alleged in the case of Indian businessmen that planning often takes place in
their minds, the planning process is informal, and plans are rarely put in black and
white (Sharma, 1994). The same may be said in respect of succession planning in
Indian business houses. Moreover, since it is predecided that the successor will be
from among the family members, the issue is essentially of grooming the successor
rather than that of finding one. And the grooming might involve occasionally taking
the children to office when they are young, requiring them to come to office from
their school/college. Gradually, they may be involved in day-to-day, routine oper-
ations such as meeting customers, interacting with suppliers, picking up the shopfloor cues, and so on. Otherwise, the children may be deliberately encouraged to
pursue higher studies in engineering, marketing, finance, and so on.
An early exposure to business life orients and prepares the next generation for
assuming bigger responsibilities when the time comes. While they are interlocked in a
conflict that has aroused many an interest and anxiety, both Mukesh Ambani and Anil
Ambani were carefully groomed by their father for taking up the roles of business
leadership. While Dhirubhai was not highly educated, he knew the value of educa-
tion. Mukesh pursued chemical engineering and went to Stanford for his MBA. Anil
pursued marketing at Wharton. When G.D. Birla passed away in 1983 at the age of 89 years, he bequeathed his companies to grandson Aditya Vikram Birla, even as
B.K. Birla, G.D. Birla ’s son, continued to head his set of companies. Born in 1943,
Aditya Vikram Birla was the first Birla to be educated abroad and received a degree in
chemical engineering from MIT Boston in 1962. Anand Mahindra studied at
Harvard. Rahul Bajaj too studied at Harvard.
Qualified scions might legitimize succession of the family members to directorial/-
top-level managerial positions vis-à-vis nonfamily managers but then what about the
fissionary tendencies in the families? One view could be that if the families split, let
them, as long as the splits in the family do not result in externalities for the business
ecosystem. The other view could be that if business houses represent an endogenous
and an inherently whole amalgam of business and joint family system, happenings in
one are likely to impact the other.
Business consequences of family splits
Family disputes and the lack of succession planning triggered the decline in fortunes
of many business families. These slowed down the growth of Singhanias, pulled
down the businesses of the Modi Group, badly affected Kirloskars, and spelt a
financial mess on the DCM-Shriram Group. The foreign partners of the groups
experiencing family squabbles chose to part ways as happened in the case of
Modi’s joint ventures (JVs) with Xerox Corp., Alcatel, Motorola, and Olivetti and
Kirloskar ’s JV with Cummins Engine Co. of the United States. Such instances were
frequent in cases in which the Indian partner was bringing little to the table other than
managing the environment (Gupta, 2007). Interestingly, while the split in the Ambani
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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 con-
tacts, 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 Dalmia – Jain Group — one of the worst sufferers of splits — was hurt
even more severely because of the involvement of its founder in several cases of taxevasion. 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 group’s reputation. It is said that these happenings in the group came to the fore
owing to the conflict in the Dalmia – Jain 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 400 – 500 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 opera-
tional management from ownership and putting in place family constitutions and
family councils may be regarded as the emerging best practices in business succes-
sion. 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.
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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 topteam 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 thesefactors 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 em-
bracing 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 family-
controlled 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 firm’s/group’s
credit rating may be linked to incumbent ’s performance on the front of succes-
sion 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 member ’s craving for
autonomy, these groups may be better organized as loose federations of inde-
pendent 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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