Nephews and succession planning: Lessons from politics and business

Meritocracy and dint of hard work have marked the rise of nephew in business leadership; in politics, dynastic mindsets and opportunism have driven the trend

Last Sunday, Bahujan Samaj Party (BSP) supreme Mayawati appointed her nephew Akash Anand the National Coordinator of the political outfit. Reports suggest that he is widely tipped to be her political heir. Mayawati, a critic of dynastic poilitics, seems to have turned a blind eye to that. 

Clearly, nephews, especially those of political leaders, are increasingly in the news and on the rise these days. 

There are other prominent nephews in the political sphere apart from Anand, such as Trinamool Congress supremo Mamta Banerjee's nephew, Abhishek Banerjee and Nationalist Congress Party (NCP) chief Sharad Pawar’s grand-nephew Parth Ajit Pawar (son of the NCP chief's nephew Ajit Pawar). 

But this phenonomen is not new per se. In the field of business, several nephews have succeeded their predecessor uncles and have established themselves as industrial leaders in their own right. Ratan Tata, Anand Mahindra, Deepak Parekh and Gautam Thapar have all made their mark in their respective business groups and beyond. 

Says noted business historian, Gita Piramal, “Business empires for centuries used to be built on the bedrock of the multi-generation joint family. The role of the Karta (head) was to ensure that every male member was allocated a job, ideally according to his ability. Much effort was spent grooming boys. The Birlas, for example, had a tradition that an uncle would train a nephew, not a son by his father. Gradually a few business families - Godrej, TVS, Burman, Jindal and Munjal in particular come to mind – gravitated towards a more structured concept of the multi-generation joint family." 

Piramal says the structures vary diametrically, and often there is friction, but at the core, all members of the family -- grandparents, parents, uncles, the occasional aunt, nephews and increasingly nieces -- are allocated responsibilities in family businesses according to their abilities. These capabilities, she says, are those perceived by the elders in the Family Council.

In the Tata Group, J R D Tata, the son of Ratanji Tata, passed on the leadership of the group to his nephew, Ratan, son of Naval Tata, who was adopted by the Tata family. After heading the Group for nearly five decades, when Keshub Mahindra retired as chairman of Mahindra & Mahindra in August 2012, he handed over the baton to his nephew, Anand Mahindra. At HDFC Ltd, it was nephew Deepak Parekh who took over as the chairman from founder H T Parekh. Again, when the flamboyant L M Thapar (LMT) decided to step down at Thapar Group, it was his nephew Gautam Thapar who succeeded him. 

Why nephews?

In the Indian tradition, where sons -- and now increasingly daughters -– have the natural right of inheritance and succession, the rise of nephews might seem an outlier. Management guru Mrithunjaya Athreya offers a rationale. “There are three important reasons for the entrustment of the business to nephews in some families," he explains. "First, there may be no son; or, the son(s) may not be considered competent or trustworthy. Second, global competitive pressures call for the best person to be in charge. Third, activist institutional shareholders and Shareholder Associations demand growth in share price and market capitalisation. The first two arguments apply in political families as well.”

Anil Sainani, Managing Partner, BAF (Business and Families) Consulting, believes this trend in business and politics is an offshoot of the traditional feudal system in the country where there has been an effort to keep control of institutions within families. But, crucially, there is a positive side to it, he argues. Says Sainani: “Nephews, being within the family, give a sense of trust and reliability to the controlling family. That is one of the reasons why nephews are gaining importance both within business groups and political parties.” Interestingly, a majority of political parties in India are, like business families, dynastic. These include the Indian National Congress, Shiv Sena, Bahujan Samajwadi Party and the Samajwadi Party.

Inheritor traits 

One must have certain key attributes in order to be a successful nephew inheritor. First, he must demonstrate his total business management competence, by achieving high growth, profits and share price, through Vision, Mission, Strategy, HR, Systems and Execution. Second, he should be sensitive to the feelings of the sons, daughters, their spouses and the extended business family, and take care of their legitimate needs. Third, he must plan for good successors after him, so that the business flourishes in perpetuity.

Sums up Athreya, “In many overseas business families, the search for the competent successor may consider the nephew, but go even further, including to non-family professionals. The family will continue to hold shares. A competent future scion of the family could even come back into management, after one, two or more generations, as happened in the case of Ford. One long-term model is for the family to be in the role of governance; and competent professionals to be in charge of the management of the business.”

What then are lessons from the trend of succession by nephews? In the leading business groups where nephews have made a mark, they took on the mantle when the family had no clear successor in a son or a daughter. But what is noteworthy is that each of them worked within the company for many years and proved themselves before they reached the top. They started at the junior levels and worked up the ladder. All of them have had the benefit of good higher education: Ratan Tata at Cornell University; Anand Mahindra at Wharton School; and Gautam Thapar at the Pratt Institute in the US.    

Adds Piramal, “In Europe, business family dynasties exist where seventh, eighth and ninth generations, male and female, work together. In India, the traditional tutelage system which jumbled sons and nephews died as business families began to split as early as the 2nd generation. By the 21st century, this habit became deadly for future business growth. Like the rest of India, business families adopted the ‘Hum Do, Hamare Do’ mantra encouraged by the government since 1952. The result: a severe shortage of heirs to run business empires. The shortage of sons opened the door for nephews and sons-in-law, daughters and daughters-in-law, and on rare occasions, a niece.”

In each of them, they have proved themselves worthy of their succession. But this is not the case in politics. The track record of the nephews are at best “mixed”. They have joined the party when the party supremo is not married (like in Mayawati and Mamta) or they are part of the extended political dynasties like in Shiv Sena and NCP. 

In sum, the business family succession model of nephews is a much superior model than that of the political parties.

The author studies management issues and is a former editor of Indian Management.