Feet of clay: What family biz leaders can learn from succession missteps

Several business gods have stumbled at the task of planning succession. What can today's family business leaders learn from them?

Okay, true story. Years ago, in 2007, I was bringing out two management magazines for Business Standard. Though I tried to infuse them with a dash of practical realism, the two mags retained an unhealthy component of theory, rendering my job lugubrious to the point of being mournful.

 

To make the most of a turbid situation, I convinced my boss to let me attend a conference on family businesses at the Indian School of Business in Hyderabad, purportedly to learn more about the theory part of management. The conference turned out to be surprisingly useful, as much for the sessions as for the impromptu group chats during the breaks.

 

During one such break, I heard the well-known head of a family-led enterprise say: “They (meaning the expert speakers) want us to plan family succession, but what if we have a family idiot?”

 

His audience, other heads of business families, were nodding vigorously. The speaker had come into his own during the 1990s, while the country unshackled businesses and ushered in an era of competition and near-free markets. But he appeared to have serious misgivings about passing on the baton to the next generation.

 

The 1990s saw an entire posse of businessmen flower. Ratan Tata went on from being the fledgling head of a sprawling empire to a player on the global stage. N R Narayan Murthy and Azim Premji rode the information technology outsourcing wave to the extent that “Bangalored” became a term to describe those who had lost their jobs in the United States.

 

Birla and Modi, entrenched business houses well before the onset of liberalisation in 1991, grew bigger, with their many shoots and branches. Rama Prasad Goenka established acquisition as a bonafide business strategy for growth. Bajaj took foreign competition head on and morphed into a motorcycle company, leaving behind its storied legacy of scooters — essential dowry items at one point — for which buyers waited years.

 

Above all, Dhirubhai Ambani built up the cult of equity in India, helping Reliance Industries dramatically climb the ladder of revenue and put it on track to joining the list of Fortune magazine’s 500 largest companies in the world (which happened in 2004).

 

Surprisingly, though, many of the formidable businessmen who became bigger in the 1990s did not adequately address the one ticklish issue that has plagued family businesses around the world and one that has played a critical role in the widely held belief that a majority of family businesses begin to disintegrate in the third generation.

 

  Succession battles

 

A research paper on mckinsey.com, dated August 2, 2024, lists five points that differentiate top performing family-owned businesses from others. “Effective transition from one generation to the next” is listed at number two, right behind “core operational excellence”. Yet, according to a Grant Thornton article of March last year, though 80 per cent of Indian businesses are family-owned, only 21 per cent have a succession plan in place.

 

It seems unbelievable that so many of the great men who built formidable empires in the 1990s were not fully on top of this. The intent is never to speak ill of those who have passed on, but Ratan Tata, who died on October 9, was not able to ease into his retirement as he may have wanted to.

 

He made way for Cyrus Mistry as Tata Sons Chairman in 2012, only to oust his young successor four years later and return as interim chairman. But that is recent history. If you go back, you will find that Tata implemented a policy in 1992 requiring directors to step down upon turning 75, nudging some so-called satraps into retirement. Eight years later, the retirement age was lowered to 70 for non-executive directors. But it was raised back to 75 in 2005, which extended Tata’s tenure at the helm.

 

That does not look like strong evidence of succession planning.

 

Mr Murthy did have a succession plan at Infosys, a curious one. It involved the founders taking turns at the top, one after the other. The thing fizzled out, bringing in Vishal Sikka as the first non-founder chief executive officer (CEO). But Mr Sikka quit amid none-too-pleasant circumstances.

 

Wipro went through a series of CEOs and there was a phase in which it experimented with two CEOs, only to jettison the model. Things seem calmer now — though Thierry Delaporte resigned as CEO this year before completing his term — with Premji’s son Rishad as executive chairman.

 

Many other business families have grappled with succession. Battles among people answering to surnames Birla and Modi are now part of the folklore. But the most astonishing battle was fought by Dhirubhai’s sons, Mukesh and Anil, until their mother divided the empire vertically in 2005.

 

  Goenka and Bajaj

 

Goenka was so shaken up by the Ambani feud that he initiated a division of his business between his two sons, Harsh and Sanjiv. A Bloomberg interview quoted Harsh as saying: “It (the split) is something my father desired… It was literally thrust upon us…”

 

Rahul Bajaj endured an unsavoury episode when his nephew, Kushagra, wanted his own slice of the empire. But the senior Bajaj was adroit in managing the rest of his clan. In fact, way back, when his son Rajiv wanted to convert Bajaj Auto into a motorcycle maker, Rahul was opposed to the idea but did not stand in the way. Eventually, Rajiv got full control of the two-wheeler giant and his brother Sanjiv would thrive in financial services.

 

This is not an exhaustive list, so please do not accuse me of playing favourites. But there are enough examples here for today’s helmsman at family businesses to draw lessons from.

 

Unless they are besieged with a family idiot. There can be no plan for that succession.