Table of Contents

Chapter – I INTRODUCTION

1.1 BACKGROUND

1.2 DEVELOPMENT OF FAMILY BUSINESSES RESEARCH

1.3 DEVELOPMENT OF INDIAN FAMILY BUSINESSES

1.4 CHARACTERISTICS OF FAMILY BUSINESS 1.5 SUCCESSION IN FAMILY BUSINESS

1.6 RESEARCH PROBLEM

1.7 PURPOSE OF THE STUDY

1.8 SIGNIFICANCE OF THE STUDY

1.9 ORGANIZATION OF THE THESIS

Chapter-II REVIEW OF THE LITERATURE, PROBLEM DEFINITION AND RESEARCH DESIGN

2.1 INTRODUCTION

2.2 THE DUAL IDENTITY OF FAMILY BUSINESSES

2.3 RESEARCH ON SUCCESSION IN FAMILY BUSINESS

2.4 THE SUCCESSION PROCESS

2.5 INDIAN FAMILY OWNED BUSINESSES IN INDIA

2.6 OPERATIONAL DEFINITION OF FAMILY BUSINESS

2.7 PROBLEM

2.8 OBJECTIVES OF THE STUDY

2.9 METHODOLOGY OF THE STUDY

Chapter- IIIDESCRIPTIVE STATISTICS AND HYPOTHESIS TESTING 3.1 DESCRIPTIVE STATISTICS

3.2 HYPOTHESIS TESTING FOR IMPACT ON THE CHANCE OF SUCCESS 3.3 A REGRESSION MODEL BETWEEN CHANCE OF SUCCESS AND THE ABOVE

SIGNIFICANT VARIABLES 3.4 CONCLUSION

Chapter - IV

DEVELOPMENT OF A MODEL FOR CHANCE OF SUCCESS 4.1 MEASURING THE FACTORS

4.2 THE REGRESSION MODEL BETWEEN THE SIX FACTORS AND CHANCE OF SUCCESS

4.3 THE CFA MODEL BETWEEN THE SIX FACTORS AND CHANCE OF SUCCESS

Chapter - V SUMMARY, LIMITATIONS OF THE STUDY, CONCLUSION AND SCOPE FOR FUTURE WORK 5.1 SUMMARY OF FINDINGS

5.2 LIMITATIONS OF THE STUDY

5.3 CONCLUSION

5.4 SCOPE FOR FUTURE WORK

Chapter – I

Introduction

Chapter-II

Review of the Literature, Problem Definition and Research Design

Chapter- III

Descriptive Statistics and

Hypothesis Testing

Chapter – IV

Development of A Model for

Chance of Succes s

Chapter – V

Summary, Limitations of the study,

Conclusion and Scope FOR FUTURE

WORK

References

Appendix - 1Questionnaire

1.1 BACKGROUND

Family businesses are among the most important contributors to

wealth and employment creation in virtually every country of the world

(Venter et al, 2005). Family businesses not only represent the most prevalent

type of business in India, but also play an important role in the country’s

economy. Over 90% of all the businesses in India are family firms. These

family businesses come in all sizes and shapes, from the typical ‘pan shops’ or

'pettikada' to the large multinationals. Some family business have grown to

become large corporations that have are influential in particular industries;

for example, Tata Steel, Reliance Petroleum, TELCO, MRF Tyre, WIPRO,

United Breweries, and others. Most people think, family businesses are just

small closely held private firms. On the contrary, it is estimated that about

one-third of fortune 500 companies are considered family businesses (Ibrahim

and Ellis, 2004).

Family as a social institution is one of the oldest surviving (Goode,

1982), but only in recent years family business, an important arm of it, started

receiving academic attention. After a detailed review of the existing literature,

Zahra and Sharma (2004) concluded that family business research has a long

way to go from the present fragmented and descriptive state. There are

conceptual differences between family and business (Ward 1987, 2004),

though opinions on treating them as conflicting systems vary. Despite the

importance of the family businesses in nation’s economy, relatively little

attention has been devoted in management research to the family firms

unique and complex issues [Litz, 1997; Hoy and Veser, 1994; Brockhaus,

1994]. According to family business expert, Leon Danco (1993):

The family owned business is so much more than a business. It’s a boiling

pot of human concerns, a stew of family relationships, both of love and resentment, of

1

opportunity and entitlement- all masked by the more obvious ingredients of jobs,

money, taxes, products, markets and benefits. No wonder it has a tendency to boil

over.

1.2 DEVELOPMENT OF FAMILY BUSINESSES RESEARCH

Family business research is an emerging academic field (Astrachan,

2003), early research focused on the identity of a family business and its

characteristics vis-a-vis non-family businesses. However recent trends point

towards conceptual frame works and theory building not only with in the

family business field, but also in relation to other fields [Ibrahim and Elis,

2004: Zahra and Sharma, 2004; Chrisman, Chua and Litz, 2003; Wortman,

1994]. Dyer (1986) has said that during the 1990’s researchers focused on the

following topics: interpersonal family dynamics, succession, business

performance, and consulting to family firms. The other topics studied then

were gender and ethnicity studies, legal and fiscal issues, estate issues,

organizational change, as well as issues of governance. Aronoff (1998)

stressed on the importance of studying the succession process from a multi-

generational point of view, rather than just focusing on the succession

planning event. Aronoff also highlighted leadership and ownership issues

that can help in understanding family businesses.

Bird et. al. (2003) noted that major topics on family business issues

that have been covered by researchers are: succession, distinctiveness of

family business, conflict management strategy, helping family business, and

macro issues (economics, policy). Sharma (2004) noted in her review of the

literature that the field is still in a pre-paradigmatic stage where research has

been undertaken at four levels of analysis: individual (founders, next-

generation, women, and/or non family employees); interpersonal/group

(agency theory, stewardship theory, interpersonal conflicts, and/or inter-

2

generation transition); organizational (governance, strategic management,

strategic decision making, performance, and/or resource based view); and

societal (macro-economic and/or environmental). Zahra and Sharma (2004)

concluded that family business research has a long way to go from the present

fragmented and descriptive state.

It is observed that, there has been an increased interest in learning

more about family businesses, not just from a social point of view, but also

from a scholarly perspective. Litz (1997) addressed the issue of the lack of

research on family business in business school and pointed out the

opportunities that exist in exploring this new field. It is seen that more work

in this area is being done by consultants rather than academicians. The use of

qualitative studies (such as case studies) can be used to build further

understanding of family firms [Bird et. al 2003; Ibrahim and Elis, 2004;]. Litz

(1997) also recommended the use of methodologies that “nurture long-term,

mutually beneficial linkages with family firms that might facilitate in-depth

longitudinal analysis. Murray (2003) used this longitudinal case method

analysis to describe the succession transition process as a journey that may be

categorized as evolutionary or revolutionary, depending on the business

structure and ownership in place in the family business. Goffe (1996)

recommended the use of longitudinal case method analysis to explore and

study in greater depth the complex relationships between ownership and

managerial control in family businesses.

For historical, evolutionary reasons, most countries have family

businesses constituting the largest category in terms of ownership; estimates

do vary, but is above 75 percent in all cases [Duman 1992, Paisner 1999; Watts

and Tucker 2004]. About a third of the companies listed in Fortune 500 are

family businesses (Lee 2004). Since they normally do not have short term

orientation but are interested in growing the family wealth with necessary 3

precautions and have a different set of strategic goals compared to non-family

owned private companies [Ward, 1987; Sharma et al 1997], their long term

contribution to economy is significant. This is true with the Family Businesses

in the Indian economy too.

Researchers in the field of family business agree that succession is

the most important issue that most family firms face. Succession is so central

to the firm's existence that Ward (1987) chooses to define family firms in

terms of the potential for succession: "we define a family business as one that

will be passed on for the family's next generation to manage and control".

Long term sustenance of family business depends on its smooth survival

across generations. Families that successfully survive three or four

generations have a complex web of structures, agreements, councils and

forms of accountability to manage their wealth (Jaffe and Lane 2004). This

seems to be much more evident in the west compared to emerging economies

such as India. Reflecting the complexity of the process involved, succession

planning has been an area of keen interest for researchers. This could be for a

variety of reasons. One, organizational transition from an entrepreneurial

stage to a system driven, professionally managed firm is not easy (Churchill,

1983), and involves evolutions, revolutions and crisis (Greiner, 1998). Two,

there is often a simultaneous process of transformation taking place in the

family and business with the size of activities of both growing [Kepner 1991;

Morris et al 1997; Sharma et al 2003].

Family businesses are found to split up like amoeba as they grow,

and very few of them survive beyond three generations, supporting the age

old saying, “shirt sleeve to shirt sleeve in three generations” [Carlock and

Ward 2001, McCulloch 2004]. According to Ramachandran (2012), most

discussions in this area are based on research in advanced countries. In most

developing countries, including India, it still remains a black box; academics 4

and industry observers were puzzled to witness the recent break up in the

second generation of the Ambani family, the largest private sector group

worth over US $ 20 billion. Even anecdotal evidence is limited to a few

biographical sketches [Tripathi 2004; Piramal 1998] and consultant

impressions [Dutta 1997; Sampath 2001]. Sharma and Manikutty’s (2005)

study of diversified family groups is one of the few notable research pieces

from India in this area. In essence, not much is known either about the

survival rate or the factors contributing to the successful survival of family

businesses in India. Taking the survival bar as three generations, it will be

interesting and instructive to know how family businesses perform in the

fourth generation. Since the implicit assumption here is that the family has

survived as a single entity, it is important to know how the family’s

involvement in business is and also how the family and outside professionals

manage the business.

1.3 DEVELOPMENT OF INDIAN FAMILY BUSINESSES

The beginning of the present Indian family business dates back to

the latter half of the 19th century. It is not surprising then that family-run

businesses currently account for nearly a whopping 95 per cent of all Indian

companies. The Indian economy, currently is in a state of rapid development,

is burgeoning with innumerable small and medium-sized family-run

enterprises. Family businesses in India initially started in the 1890's as a

means to promote import substitution and attain economic freedom from the

British. These enterprises were an integral part of India’s freedom struggle,

and as part of the Swadeshi movement, got special treatment and subsidies

from the government. Many such businesses consolidated their positions as

near monopolies under the protective environment of the license raj and their

inefficiencies did not get exposed to market realities. Some of the prominent

5

business families during the 1970s were the Tatas, Modis, Thapars, Shrirams,

Singhanias, Birlas, Wadias and Godrej.

The Indian family business has been merely tolerated by

government, not much has been done for their development. Yet it has

managed to remain the main employer and the user and creator of economic

resources. It has been the primary supplier of goods and services to Indian

society. Indian society has not allowed the traders and Industrialist to

dominate the national political agenda. For long it has created bureaucratic,

legislative and political obstacles to keep the Indian Family Business from

growing too powerful. Just as in most developed and developing countries

Family Business contributes 60-70 percent of GDP in India also.

1.4 CHARACTERISTICS OF FAMILY BUSINESS

For the family members, one of the obvious advantages of working

for a family firm is the sense of being in control of their destiny. Running

something in which one has a personal stake certainly creates a greater feeling

of independence. Advantages of Family Business are its long term orientation,

greater independence of action with less pressure from the stock market and

less takeover risk. Because of the family culture being a source of pride, there

is stability, strong identification, commitment and motivation. Less

bureaucracy, continuity in leadership, greater resilience in hard times with

willingness to plow back profits, are some often observed positive features of

Family Businesses.

Even though there are numerous advantages, some of the

disadvantages of Family Businesses are, confusing organization with messy

structure and less clear division of tasks. There is nepotism and tolerance of

inept family members as managers. Inequitable reward systems lead to

greater difficulties in attracting professional management. They also have less 6

access to capital markets which may curtail growth. The culture tends in

family businesses tend to be paternalistic with autocratic rule; there is

resistance to change and secrecy. Turbulent succession dramas are also their

salient feature.

1.5 SUCCESSION IN FAMILY BUSINESS

Succession has been and still is one of the most important events

and process in a family business. It is topic that is widely reported in the

popular media, as well as researched in the field, as noted by the attention it

receives. Family business succession is expected to become a major issue over

the next 20years. It is estimated that over US $ 15 trillion in assets will pass

from one generation to the next, as baby boomers who own family businesses

reach retirement age (Zaudtke and Ammerman, 1997). Research also shows

that only 30% of these family businesses will be successfully transferred to the

next generation, 12% will be successfully transferred to the third generation,

and only 3% survive to the fourth generation and beyond [Astrachan and

Shanker, 2003; Kets de Vries, 1993; Ward, 1987; Birely, 1986; Dyer, 1986;

Beckhard and Dyer, 1983 a & b]. Ibrahim and Elis (1994) noted that the

transference of leadership from one generation to the next represents one of

the most critical issues facing large family firms; and that the failure of family

businesses can result in loss of assets, jobs and family relationships.

Most of the Business families face unique management challenges

because of the differences in the attitude & aspirations of family members. As

new generations join the family business, it is an enormous challenge to keep

the family & business together. Some sacrifice the business to keep the

families together, while others sacrifice the family to keep the business.

However, the close-knit structure of families, which fosters teamwork

combined with respect to family values and family elders, has been the key to

7

success of many family businesses. Indian Family Businesses forms the

‘backbone’ of the Indian economy and hence there is a need to extend the life

span of Family Businesses so that the economy can continue to derive benefit

from their contribution.

1.6 RESEARCH PROBLEM

There has been growth in Family Businesses in India since

independence and entrepreneurs from non-business families have also

ventured into business. Many such businesses are facing the daunting task of

handing over inheritance to the next generation with no previous experience

or tradition in doing so. Inheritance phase is the time when many Family

Businesses and Business families get destroyed. Therefore it is crucial that

inheritance in family businesses be managed well. Research shows that there

are many factors related to religion, culture and tradition that impact success

of inheritance process in family businesses. India has religions, culture and

tradition which very different from that of the west, therefore separate studies

are required for understanding problems related to inheritance management

in the Indian context. There is lack of such studies in Indian context.

1.7 PURPOSE OF THE STUDY

The purpose of this study is to explore and study inheritance

management in family businesses in Kerala. The first goal of the research is to

examine the characteristics of the family business that have impact on chance

of success of inheritance management in family business in Kerala. The

second goal is to identify the key factors in the inheritance management

process, that impact chance of success of inheritance management in family

business in Kerala, and develop models for it.

8

1.8 SIGNIFICANCE OF THE STUDY

Succession in family firms is an emerging area of study within the

field of family business research, because of demographic and social trends,

combined with the high probability of succession failure. Moreover, research

in family business is challenging because of the overlap between two distinct

fields, the business side characterized by objectivity and the family side

characterized by emotions. Succession is affected by culture and traditions to

a great extent. Kerala can be taken as a state with a common culture and

tradition (with religion forming the sub-groups). A survey based study to

identify the characteristics of the family business and process factors that

have impact on chance of success of inheritance management in family

business in Kerala, will greatly add to the understanding of this important

process and contribute to measures for its improvement. The models

developed from this research will further augment the understanding of

succession in family firms and provide a basis for further research on

generational transitions in family businesses. The outcomes of this research

will be useful for consultants engaged in helping Family Businesses in Kerala

manage the inheritance process.

1.9 ORGANIZATION OF THE THESIS

This first chapter gave an introduction to Family businesses, the

areas covered with special emphasis on research in inheritance management.

The research problem was introduced and its significance discussed.

The second chapter on literature review, research problem

formulation and methodology starts with a general board picture of the

emerging field of family business research, by discussion of selected works in

this area. This is followed by a review of the literature of succession in family

9

business. The chapter then goes on to present the research problem,

objectives set for the study and methodology used in this research work.

In chapter three we first present a descriptive analysis of the key

variables of the study to show that they have been adequately covered in the

sample. The organization and person related variables and their impact on

‘chance of success’ is then discussed.

Chapter four is used to present the measurement of the six factors

of Management of Inheritance in Family Business that impact ‘chance of

success’. The chapter then goes on to present models connecting the factors

and ‘chance of success’.

The last chapter of the thesis is devoted to the presentation of a

summary of findings, followed by limitations of the work, conclusion and

scope for future work. The references used in the thesis are given next,

followed by the appendix which contains a copy of the schedule used for data

collection.

∗∗∗∗∗∗∗∗∗∗∗∗∗

10