transgenerational succession

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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]


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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 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

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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


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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


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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 .



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


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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



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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



10/22

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)



14/22

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



16/22

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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