Passing on the legacy: exploring the dynamics of succession in family businesses in Pakistan
Asma AbdulRahim Chang
Department of Sciences, Mohammad Ali Jinnah University, Karachi, Pakistan
Muhammad Shujaat Mubarik
Department of Business Administration, Mohammad Ali Jinnah University, Karachi, Pakistan, and
Navaz Naghavi
School of Accounting & Finance, Taylor’s University–Lakeside Campus, Subang Jaya, Malaysia
Abstract
Purpose–By taking the theory of entrepreneurial legacy as the baseline, this study explores the various aspects of succession planning in indigenous family businesses especially the role of female family members in succession and conflicts in family businesses.
Design/methodology/approach–The study is qualitative in nature and adopts narrative inquiry to explore the aspects of succession planning. In doing so, the study utilizes an in-depth interviewing technique with nine participants who run their family-owned firms which are mostly in their second or third generation for analysis.
Findings–The findings are concurrent with the literature that indicates a lack of strategic succession planning although ordinary or natural succession does occur in some firms. The study also reports a lack of consideration for female members in succession, daughters in particular, for traditional family firms (FFs) in contrast to entrepreneurial FFs.
Research limitations/implications–The study has many implications for family-owned firms in Pakistan as they need to align their family business with the theory of entrepreneurial legacy and its three strategic activities in order to ensure the longevity of their business.
Originality/value–Exploring how succession planning takes place in family indigenous family businesses and what is the role of female family members in succession and conflicts in family businesses are original contributions of this study.
KeywordsEntrepreneurial legacy, Family business, Family firm, Family - owned business, Succession plan, Pakistan
Paper typeResearch paper
Introduction
Like most developing economies of the world, family businesses in Pakistan command a domineering figure in both private and public sector, as most businesses in Pakistan are family-owned (Hussain and Safdar, 2018; Sikandar and Mahmood, 2018). Despite this overwhelming number of family businesses operating in the country, however, a general trend reveals that family businesses hardly survive beyond three generations (De Alwis, 2016). This phenomenon also holds true for Pakistan. Prominent examples include Shaheen Air and Dewan Group (Sheikh, 2015); as well as renowned family names like Bawany and Valika that witnessed a footfall in their rankings from top 22 richest family businesses in Pakistan (Siddiqui, 2018). In a roundtable conference at the Institute of Business Administration (IBA), experts pinpointed several reasons such as lack of succession planning and intra-family conflicts that led to fragmentation and disintegration of these businesses (Siddiqui, 2018). On the other hand, we also see cases of flourishing family
The various aspects of succession planning
The current issue and full text archive of this journal is available on Emerald Insight at:
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Received 8 October 2019 Revised 23 January 2020 13 March 2020 Accepted 13 March 2020
Journal of Family Business Management
© Emerald Publishing Limited 2043-6238 DOI10.1108/JFBM-10-2019-0065
businesses in their second or third generation that show no symptoms of their demise so far;
such as Al-Karam, Hum Network and Hamdard Group. This merits the question: what factors lead some firms to successfully transition and cause others to fail? Differently, how is succession planned and managed in family businesses in Pakistan and what kind of conflicts play out as obstacles in the process? The topic of succession planning has remained the apple of family business studies globally and a need to develop a holistic understanding of the succession process in research was again raised recently (Deckeret al., 2016).
Further probing into the literature reveals an astounding gender gap in family businesses and cases where the female counterparts are not even considered by the firm owner during the succession process (Rodriguez-Modronoet al., 2015;Li and Marshall, 2019). Within the local domain,Afghan and Wiqar (2007)brought forward the matter of kinship culture that governs the Pakistani society and has a strong effect on the family business dynamics. This kinship culture underlies the notion that the Pakistani community, characterized as a collectivist, high power distant and a masculine society; expects the elder of the family (in this case, the owner of the family firm (FF)) to look after their extended family members such as cousins and uncles to include them in their businesses and give them undue favors over others (Mubarik and Naghavi, 2019; Naghavi and Mubarik, 2019). Moreover, being a masculine society, women are expected to look after their homes and not to partake in the business affairs. Hence, the practice of considering sons over daughters is customary; yet, there are businesses operating in Pakistan that subsume to father-daughter duo despite having a son in the family (Arifeen, 2016). This merits a need to understand the issues of gender in the succession process.
Along these lines, we couple the succession planning construct with the notion of entrepreneurial legacy – a term coined byJaskiewicz et al. (2014) to describe symbolic narratives and stories of the struggles and hardships of the previous generations that inspire the next generation into continuing and taking forward their forefathers’legacy–to posit that the entrepreneurial legacy is the differentiating factor between thriving and fading FFs or between“entrepreneurial”and“traditional”firms, terms we will use extensively in our findings. The premise of this study then, is that entrepreneurial firms are more likely to possess transgenerational success where their key characteristic lies within entrepreneurial legacy. That is, it is the entrepreneurial firms possessing the characteristics of entrepreneurial legacy that have the tendency to carry entrepreneurship into the next generation in contrast to traditional ones. Consequently, the theory of entrepreneurial legacy serves as a backdrop for this study, particularly in the context of succession planning.
Within the spirit of the above discussion, the study essentially addresses the five major research questions. First, how entrepreneurial are indigenous FFs in terms of carrying forward entrepreneurial legacy? Second, how is succession planned and managed? Third, what is the role of women in succession? Fourth, what kind of conflicts prevails as a result of succession? And fifth how do family businesses manage and resolve those conflicts? We undertake a purely exploratory expedition to gain a deeper insight into the dynamics of succession in family businesses in Pakistan. The indigenous research on the given domain is still in its infancy and a closer examination reveals that a bulk of these studies have confined family businesses to singular financial metrics such as firms’performance and profitability (Khan and Khan, 2011;Ahmadet al., 2014;Zulfiqar and Fayyaz, 2014;Mujahidet al., 2019) and investment policies (Ahmadet al., 2014;Mubariket al., 2019;Rasiahet al., 2017) and do not encompass a holistic approach of the discipline. Thus, the study contributes to the existing research with respect to originality in it that the literature on family businesses have largely failed to add the element of entrepreneurial legacy; and hence, this is the first of its kind to pair the two constructs together and examine the dynamics of family businesses, in particular succession planning, in the light of the theory of entrepreneurial legacy. In this way, we enrich the field of family business research by showing that firms that fulfill the characteristics of
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entrepreneurial legacy are better positioned to carry their business into the next generation while firms that lack these characteristics show little chance. This is studied especially in the light of succession planning and gender role. Subsequently, the study hopes to inform future research on finding a remedy for challenges and issues faced by FFs, particularly during the succession process. Through this study, we hope to mend the loose ends in succession planning that plague family businesses in Pakistan by bringing in a fresh perspective of entrepreneurial legacy that has been largely ignored so far in the local literature.
The next section progresses with a brief elucidation on the subject in the literature review, followed by an exposition of the research methodology chosen and finally, an analysis of the findings and a brief discussion in the light of literature. Since disarray over the definition of FFs exists, we have selected the definition of FF as one where a majority of family members own and participate in the firms’management and where the family members are offspring, spouse, siblings and their spouse (Kirsipuu, 2012).
Literature review
This section briefly reviews the stock of knowledge disseminated on the family businesses.
Succession process in family businesses
Succession is the most critical element of family businesses; so much so that even the definition of FFs was defined in the light of succession process byWard (1987)who classified FF as one in which the business is handed over from one generation to the next. Succession is mainly a process rather than an event (Handler, 1994;Megaravalli and Sampagnaro, 2019).
The succession process largely pertains to two key steps: the selection of a successor and the transfer of ownership from the successor to the heir. Scholars (e.gMilleret al., 2003;Budhiraja and Pathak, 2018;Chirapanda, 2019) defined succession process as a complex system as it subsumes two complicated systems: a corporate system as well as a family system. While it has been extensively asserted by family business scholars that a formal succession planning must be conducted; research indicates that it is often an ignored element (Wang, 2002;Decker et al., 2016;Josephyet al., 2017). Empirical evidence indicates that it is often the reluctance in first-generation leaders to formally plan and implement succession of the next leader (Sonfield and Lussier, 2004). According to scholars (e.g.Cabrera-Suarez, 2005;Cateret al., 2019;Umanset al., 2019;Hillebrand, 2019), in the heart of failures of family-owned firms lies the absence of a transparent and effective succession plan.
The presence of a well-planned succession, on the other hand, escalates the firm’s growth by encouraging mutual collaboration among family members and reducing conflicts (Eddlestonet al., 2013;Sreihet al., 2019;Hillebrand, 2019). For example,Mugoet al.(2015), found a positive linear relationship between succession planning and firm’s growth strategy in Kenya. They suggested the practice of having a structured and written succession plans indispensable for firm’s long term survival and growth. A victorious transition contributes to the flourish of the business by retaining the tacit knowledge accrued over the years and thus, facilitate in sustaining a competitive edge over other nonfamily and private firms (Chrisman et al., 2003;Machek, 2018;Megaravalli and Sampagnaro, 2019).
Scholars (e.g.Handler, 1989) presented a theoretical model of resistance to succession whereby he underlined several factors that either promote or reduce resistance to succession.
These factors function at a number of levels such as individual level; interpersonal or group level; organizational level and environmental level. Factors such as good health of the founder, or his or her identity constituted in the business or lack of any other interest than business may result in resisting succession from the founder’s side; whereas, factors such as minimal training to the next generation or lack of interest or unavailability of the potential
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heir promote resistance at a group level. Number of contemporary studied (Cabrera-Suarez et al., 2001;Caputoet al., 2018;Bertschi-Michelet al., 2019) took the benefit from this model which shows its high relevance in present context.
Gender dynamics in family businesses
The family businesses are still principally male-dominated, with statistics showing a dwindling figure of mere 22 percent of females holding key positions in family businesses (Moran, 2015). There are, nevertheless, encouraging studies that show that the scenario is changing for women worldwide in the recent years, however, the figures are still comparatively less and done with the alliance of male partners, usually termed as copreneurship (Seamanet al., 2018). Most studies (e.gVadnjal and Zupan, 2009;Rodriguez- Modronoet al., 2015;Li and Marshall, 2019) demonstrate that women are either the’invisible’ element of the family business or partake a role in the business activities as paid employees.
The study ofCappuyns (2007, p. 40), for instance, found that women are one of the prime influencers of a family business even without ownership and form a basis for providing a
‘strong family glue’to the business. Thus, they play a passive yet effective role in the business by rendering a variety of services such as giving advice; creating an open ground for other family members to pitch in their ideas or give suggestions; providing financial assistance to their spouses and instilling strong values to their offspring that can prove to be a useful asset for the business.
Chang and Qureshi (2017)found similar results: the female members of the Chinioti Sheikh community in Pakistan, such as mothers and grandmothers, had a strong indirect influence over the‘owners’of the business by imparting values and beliefs that helped sustain their businesses. In other words, women often play the role of a confidant and work in the backdrop as men take all the glory. Those who do participate actively often do so at second-tier management level as also indicated by (Duganet al.(2011).
Studies (Haberman and Danes, 2007;Overbekeet al., 2013;Furst, 2017) also suggest a dearth of daughter successions, even in cases of primogeniture where the eldest child is the daughter. Nonetheless, a father-daughter relationship is found to be far less competitive than a father-son relationship (Campopiano et al., 2017). Despite such affable relationship, Overbeke et al. (2013) found in their qualitative study that women who did succeed to leadership positions were appraised on much stringent criterion than those set for men and while other researcher found that females needed to exert more efforts to get their male subordinates to comply to their orders (Deng, 2015).Vera and Dean (2005)also concluded that female managers in FFs faced the challenge of mistrust in their capabilities to run the business from surprisingly the nonfamily members. Yet, the question remains as highlighted byFurst (2017): if the situation is as grim for women in family businesses as suggested in the literature, then why would women continue to work in family businesses?
Conflicts in family businesses
While almost every organization is prone to conflicts, the intertwined elements of“family” and“business”in family-owned businesses provides a fertile ground for flaming inter-family clashes; so much so that the probability of conflicts is much greater in FFs than nonfamily firms (Kellermanns and Eddleston, 2004). According to a report byPwC (2014), succession and conflicts are two prime threats menacing over the stability of family businesses. The conflicts can manifest in the form of marital tension; sibling rivalry; reluctance of owners to transfer their ownership to the incumbent and the inclusion of next generation into the family business. For example,Handler (1994)observed that many founders were often reluctant in giving up their‘babies’which often manifested in dysfunctional practices, thus leading to conflicts. The conflicts can even arise when the potential heir is not interested in taking up the
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business. The existing literature presumes that the succession process is a‘preferred choice’ and hence, the successor is eager to keep the business in the family. Yet, there are cases where the child wants to pursue a different career and finds himself or herself in a sticky place which can even clash with his or her self-identity.
Other common kind of challenge that a FF is susceptible to is the appointment of an incompetent successor that impedes the success of the firm. Some scholars have termed this as the Fredo effect from the character of the novelThe Godfather(Kidwellet al., 2013). Thus, the Fredo effects may not necessarily be unethical or criminal; yet they may harm the firm on account of their incapability and wrong decision making (De Massiset al., 2012). Likewise, Stoilkovska (2011)enlisted a number of challenges found common in FFs such as holding grudge against a newcomer in the family such as son or daughter-in-law; siblings competing for inheritance and equity in the FF and failure among the family members in reaching a common decision or vision for the firm.
Political conflicts have especially been associated at a second-generation level, i.e. when the second generation takes control of the firm (Eddlestonet al., 2013;Cateret al., 2019).
Probable reasons can be the inability of the organization’s members to accept the change as the successors most likely bring in their own ideas into the firm that may challenge the status- quo of the firm; or the inability of the new managers to accept the decisions of one another. For example,Eddlestonet al.(2013)highlighted the issue of stagnation in the business when the second generation takes control due to the inclination of family members to obscure one another’s decisions; the end result being that the members reach to a poor or ineffective strategic decision for pure political reasons.
The report byPwC (2014)quoted a number of reasons that lead to conflicts as cited by the participants surveyed in that study; such as clashes on remuneration set for family members;
the decision of next-in-line successor for the business; the decision to include‘in-laws’into the business and reaching a consensus on the valuation of shares for those who withdraw from the business.
Conflict resolution tactics
Studies (e.g.Alderson (2015);Umanset al., 2019;Hillebrand, 2019) found that conflict is a universal issue in almost every family business but can be mitigated and lessened with a right governance strategy. Yet,PwC (2014)reported in his survey that almost 70 percent of the family businesses surveyed did not have any formal conflict resolution mechanism in place to manage such disputes in the family.De Massiset al.(2012)has suggested five strategies that are normally offered for resolving group conflicts but can also be applied to FFs. These include: (1) avoiding; (2) contending; (3) compromising; (4) collaborating and (5) third-party intervention. Other suggestions, particularly to mitigate the Fredo effect and subsequently the feeling of self-entitlement among offspring comprise of setting up well-defined criteria of employment in FF; a clear job description that defines what is expected of each member and formulating a family council for resolving conflicts (De Massiset al., 2012;Hillebrand, 2019;
Umanet al., 2019)
Entrepreneurial legacy
Entrepreneurial legacy has been defined as a symbolic story of family’s previous generations aimed to inspire and motivate the forthcoming generation to execute similar entrepreneurial behavior for their family-owned business. The term was coined byJaskiewiczet al.(2014)who developed a theory of entrepreneurial legacy after having interviewed 21 transgenerational families that owned wineries in Germany.
The theory explains why some FFs are entrepreneurial and others are not; thus, entrepreneurial legacy being the defining factor. The theory takes forward the imprinting
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theory (Marquis and Tilcsik, 2013; Zahra, 2018) – a theory that merely suggests the possibility of imprinting the entrepreneurial behavior on individuals–to explain that the previous generation imprints the entrepreneurial legacy onto the next generation. In this way, entrepreneurial legacy inspires the next generation to carry out three strategic activities, namely, strategic education, entrepreneurial bridging and strategic succession.
Strategic education
When the previous generation chalks out a roadmap of education and work experience for the next generation in areas that would strategically benefit the family business, it is termed as strategic education.
Entrepreneurial bridging
When the younger generation is involved in business and works alongside the older generation for a certain period of time, hence, gaining the necessary training, then entrepreneurial bridging is said to have taken place. This time period acts as an opportunity for the forthcoming generation to apply their strategic education and get exposed to the stories and legacy of the past generation. As a result of working parallel with the older generation, entrepreneurial bridging results in‘entrepreneurial leaps’whereby the family business makes several innovations in the firm.
Strategic succession
In this activity, the older generation preserves the capital and successor, the two chief resources for business, by making certain there are no sibling buyouts, thus conserving capital and by integrating in-laws in the business thereby protecting the successor.
Methodology
Since it was an exploratory qualitative study, we adopted interpretive phenomenological approach for exploring the research objectives. Phenomenology refers to the study of phenomena as individuals experience it (Sloan and Bowe, 2014). While Edmond Husserl (1859–1938) is accredited as the founder of descriptive phenomenology, his student Martin Heideggar (1889–1976) extended his work into new direction by introducing interpretive phenomenology or hermeneutics (Kafle, 2011). The key basis of interpretive phenomenology maintains that it is impractical for the researcher to avoid personal judgment about the subject and that interpretation is in fact, a mutual process that entails description as well as interpretation).
Selection of respondents
We used an in-depth interview to gain information-rich data. Two non-probability sampling techniques were primarily used for recruiting participants: purposive and snowballing sampling. The use of purposive sampling was only justified because we were looking for family businesses that were at minimum, in their second generation and had been managing their business for at least five years. Although the base study ofJaskiewiczet al.(2014)had not retained any minimum duration as a criterion, another study byFrancis (2016)had assumed a condition of two year as a minimum duration for a firm to be considered successful. We raised the bar high by maintaining five-year duration as we assumed that it is a maximum time for a firm to go through the needed experiences that shape the dynamics of the study.
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Snowballing technique further enabled us to access potential participants via referrals. In this way, 12 entrepreneurs from family-owned businesses were invited for a face-to-face interview, out of which five responded while the remaining either declined or did not respond back.
Additionally, a request for interview was posted on a Facebook group called“Pakistan Startups”with all necessary requirements. The FB group, with nearly 70,000 members, is an active hub for Pakistani entrepreneurs from various industries who share their experiences or post a business-related query. Our post received a total of 15 responses from people, who acclaimed that they were either in the 2nd, 3rd or 4th generation of family businesses and were willing to participate in the interview. After conducting a short screening interview on Facebook Messenger with them, we shortlisted a final list of 6 participants for the phone interview, out of which two withdrew and four accepted the invitation. Since entrepreneurs are hard to locate and even harder to interview, we did not put a cap on any industry as long as the entrepreneurs met the criterion of the study. This also allowed for heterogeneity of sample, thereby resulting in a deeper and enriched analysis. Hence, a total of nine entrepreneurs were interviewed. Interestingly, we observed the saturation point at the 7th interview; however, we interviewed all of the nine selected entrepreneurs to ensure that any new information is not missed.Table 1enlists the details of all participants, in addition to the nature of interview (either conducted on phone or face-to-face). Taking participants consent, we have used the first name of each participant in the analysis.
Interview protocols
An interview protocol was designed that mainly revolved around three areas, i.e. (1) succession; (2) gender and (3) conflicts in family business. Questions were derived from the literature as well as from own source. The interview protocol was assessed by three faculty members, two teaching research subjects to graduate and post-graduate level students and one specialized in topic of family entrepreneurship. The protocol was hence, finalized after incorporating their input and feedback.
Interview
Each interview, either phone or face-to-face, spanned over an average of 45–60 min. We audio-recorded each interview on a mobile device with the consent of the participants; for phone interviews, we had downloaded a software to record phone conversations. All interviews were conducted by the lead researcher. Follow-up interviews were also conducted where we felt the need for elaboration or additional questions that had been missed in the previous interviews.
Transcription and analysis of interviews
The audio-recorded interviews were then transcribed for extracting themes and patterns.
Since the conversation swayed between English and Urdu during the interviews, we had to translate the responses back from Urdu into English, cautious not to distort the essence of the meaning. Both researchers proofread the final transcripts to ensure precision. Following Creswell (2018)approach, we conducted thematic analysis in the following stages. First, the authors carried out a line-by-line coding and extracted initial codes. These initial codes or keywords were then clubbed into themes (also called secondary coding); where some themes had been presupposed by the author such as succession planning; role of female members and conflicts in succession. Others came to surface from the conversation with the participants (such as role of daughters versus daughter-in-law versus wives) which were then regrouped into major themes, thus, becoming the second stage. The third stage involved the
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ParticipantRecruitment sourceBusinessYear foundedGenerationLocationNo.of employeeFamily predecessorPotential successorCaste
Total#ofinterviews (interviewsþfollow ups) JawaidPersonal contactHospitaland pharmaceutical products
19832ndKarachi20EldestsonMissingShaikh2 MujtabaPersonal contactSchoolsand college19902ndHyderabad250SonsEldestsonShaikh1 ErumPersonal contactWaste management andcleaning 19643rdKarachi50Husband– wifeduoEldestsonButt2 SuleimanFacebook groupCloth manufacturing andretailing
19803rdKarachi8EldestsonMissing/ unplannedChippa2 ObaidFacebook groupGravure printing Metallicyarn Softwarehouse 1960s3rdLahore50CousinsMissingParacha3 ArsalanFacebook groupLeather exportersand manufacturers
19902ndSialkot50–60EldestsonMissingSyed3 SajidPersonal contactPlastic manufacturing andrecycling 19654thLahore502ndsonBothsons having equal shares
Masrafi Shaikh2 ZainFacebook groupPrintingpress1942 19504thKarachi8–152ndsonMissing-3 MuhammadPersonal contactLawfirm1960s3rdHyderabad6EldestsonMissingChang2 Note(s):Missing5eitherthesuccessorisnotbornyetornotavailable
Table 1.
Profile description and summary
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authors revisiting the literature to link the newly emerged themes with the literature. We sometimes had to follow up with the participants for a detailed insight about the newly emerged themes. In this way, we were moving back and forth between data and the literature until no new theme came out.
Profile analysis
All nine informants interviewed hailed from diverse industries, yet several analogous patterns can be made out across them as seen inTable 1. Most of informants come from FFs that are in or about to enter their third generation while two have already entered the fourth generation. Almost all of them, with the exception of two have the eldest son as the predecessor; however, only three out of them have the potential successor planned or available while the majority of informants either don’t have a successor planned out or the potential successor is unavailable, as in case of participant # 1 wherein the predecessor never married and thus, does not have the potential heir to business and none of the other family members undertook the technical education that could help them take over the business.
Findings
The following key themes emerged as part of the findings:
Planned versus unplanned succession
The interviews revealed that succession planning could generally be categorized into two main types: a) planned and b) unplanned or natural succession. For most family businesses that participated in the study, succession happened naturally: the successor either knew he has to take over the business or he felt it a responsibility upon himself to help his father in business. For example, the latter type is underlined by participant Sajid who joined his father’s factory when his elder brother went on to pursue a different career.
Waqas Bhai went abroad to do ACCA and settled there. My father had never really told us, or you can say we had never realized that we need to join our dad’s business. Maybe because at that time, he had the energy to do everything himself that we never realized. Then when I was in university, I began to notice my dad’s tiredness; his growing age. And I realized, he needs someone.
The phrase‘we had never realized’draws attention to the fact that perhaps the father himself had never realized that the burden of responsibility needs to be ultimately shouldered by the next generation and thus, had never planned. This can be due to father’s good health at that time which reminds one of Handler’s (1989) lists of factors that hampers succession.
Conversely, some children have an innate sense of ownership, such as the case of Arsalan who being the eldest son, knew the responsibility would befall on him one day.
A: Well, I did software engineering because it was a field of my interest. But it was an understood agreement between me and my family that I would join my father’s business once I graduate. But the knowledge I gained helped me expand the business.
I: Was it a verbal agreement or a written one?
A: No, it was a silent contract between me and my father because I was the eldest son.
While succession came naturally for some, other family businesses had formally planned and discussed the tasks and responsibility allocation among their children. For example, the predecessors of the firm CC, run by participant Erum and her husband, shares her insight about how the responsibility of their family empire has been divided into her two children:
Soha will manage our restaurant and golf club. Rohail will be overseeing the cleaning concept firm.
They know it. We have already spoken to them.
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A sweeping glance overTable 1thus reveals a classic primogeniture behavior, with the eldest son sitting on the throne or soon to take over. Nonetheless, one witnesses that six out of ten participants did not have the next-in-line planned, since the next in line was either missing or unplanned as in case of Mujtaba who expressed that he will decide later when the children turn eighteen. In others’case, such as Muhammad and Zain, the eldest child was a daughter and hence, they were waiting for a son who would be a potential heir to the family business. In case of Sajid who already had a daughter as the first child, the business would bypass to both of his younger sons,‘if they agree’as he remarked.
Daughter versus wives: a biased outlook
The female family members had a trifling role in almost all the FFs interviewed. Many participants cited the cultural factors or family traditions that hampered women to partake alongside men in business environment. The author noted that the participants felt the need to protect their female members since they operated in a male dominant environment such as Boulton Market[1]or factory site and thus, did not deem it suitable for their female members such as sisters or daughters. The major reason for not letting women get involved in the business was cited as’unsafe or unsuitable environment’. This can be witnessed in the following narration by Suleiman on the involvement of female family members:
Zero involvement. Because this is a completely male oriented business. If you have ever visited Boulton market you will see that it is no place for a woman. So they have never shown any interest themselves in the buiness nor we have any plans to include them.
However, in some cases, it is the family traditions that prevent women from working or cultural practice of Pakistan that has already defined the career paths for men and women, as illustrated in the following quotes.
My sister has done MBBS and FCPS Part I. As is common here the women opt medicine and male members go into engineering, so she never herself showed any inclination towards business.
(Arsalan)
Women in our family never work. It is not in our family. They study well; they graduate. But they do not work. (Sajid)
Yet, the author noted a biased approach toward the different female members and many participants seemed to have predisposed inclination to favor the current or potential wives into businesses in contrast to daughters. The most plausible rationale can be witnessed in the light of following narrations that highlight the aspect of daughters leaving off to marry a stranger who can even pose as a potential threat to business later on (in terms of taking over the business) while the wives have already integrated into their lives for good and so, it is only best to take benefit of their knowledge.
I would love if my wife joins my business. In fact, I’ve been working on it for a long time. I’ve convinced my father and now trying to convince my fiance that she would join me in the business.
She is also a software engineer so it would be a good value addition. (Arsalan)
No, because she (daughter) has to go away with her husband one day. Suppose she goes to another city, then? In our Pakistani culture, the wife has to align her plans in accordance to her husband’s plans. If her husband does not allow her to run the school and I engage her here and train her and then she goes off with her husband then our school will suffer. Then why not train my son, instead.
(Mujtaba)
What if the daughter wishes to become part of the business? With the exception of the participant Erum who was not only willing to incorporate her daughter into the business but even her future husband on the condition of investing his stakes in the business; the
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remaining participants agreed to engage their daughters in non-executive roles until they get married, as illustrated in the following narratives.
Yes, she can come to our school or college as a teacher and give lectures. But not as an administrator.
(Mujtaba)
I can set her up a separate office elsewhere, like away from factory, and she can manage the IT related tasks such as dealing with online orders and so on but then again, she would not be able to continue for long because she has to get married and take care of her husband’s house. (Sajid)
Thus, it was seen that those who resisted their daughters’involvement were welcoming to their wives and even expressed their interest for an active participation from their wives, such as in the case of Arsalan whose fiance was also a software engineer, or Jawaid whose wife, though a silent partner in the business was capable of running it smoothly lest anything happens to him. The author also noted that the role of mothers was almost nonexistent or invisible. It is significant to mention here that most of the individuals in first and second generation were baby boomers while those in third generation had entered the Generation X.
The author notes that while the successors in Generation X have a positive attitude toward incorporating their wives in business, the predecessors who come from baby boomers family do not have their wives working alongside them.
Three conflict levels
Conflicts in succession occurred in three scenarios: where there had been an unplanned resource allocation or division of SBUs; where the potential successor did not want to be part of the family business; and where the present FF did not include other relatives into the business. In the first scenario, the participants cited severe intra-family clashes resulting in family members boycotting one another. For example, participant Sajid discussed how his uncle, who had been the eldest son, gave each of his brother a separate business unit to manage; however, those business units varying in size resulted in brothers and their sons quarreling over size and profit sharing.
You cannot imagine how tensed the situation is now in our family. We do not see each other on Eid.
My one uncle faced a loss and had to shut down his factory. He now demands that we all feed his family and give him money because it is his right since it is a family business. But the sons of other uncles say the division has been done and the businesses have been separated, so why pool all the resources in one place? Then, there’s quarrel over who got the bigger share. One of my uncles got a shop while the other got a factory. You see the problem? It was all random at that time, but now it has become the source of all quarrels.
In the second, lesser intense scenario, the potential successors have started their own separate business and are not interested in the family business; leading to tension between father and son. As in case of Obaid, who diverted from his father’s family business to start an IT firm with his younger brother. The family business is now managed by his father and cousins who work under his supervision.
O: My father and uncles run it. And now my cousins have also joined. I had been working there for 5 years before I moved out. Me and my brother. I left because in family businesses, you do not get any
‘real’authority. You get authority but you do not have any responsibility.
I: So, your father’s business will not go to you.
O: Well, theoretically, my father has shares in business so we will get those. I should be able to liquidate those if I want to. But I’ve got my own thing now.
I: What was your father’s reaction when you left the family business?
O: Very angry. But he’ll come around. I know.
The various
aspects of
succession
planning
How FFs resolve conflicts differed for each firm; yet, a common pattern is seen. Either the eldest son (who would also be the successor in most cases) has the final say and authority; or the conflict is discussed over a family meeting with the father in most cases as playing the role of mediator. In most cases, the conflict is ignored and left unresolved while a positive preventive measure adopted by Mujtaba’s family is seen whereby they discuss business in a business environment, away from home where conflicts and disagreements are perceived as healthy while completing avoiding any business talk at home.
Traditional FF versus entrepreneurial FF
The interviews revealed two contrasting FF types: traditional and entrepreneurial. The entrepreneurial firms, as described byJaskiewiczet al.(2014), are those that are quick to enter new markets or adopt innovative technology. Such firms have whatJaskiewiczet al.(2014) called the entrepreneurial legacy and possessed the following three characteristics: strategic education, entrepreneurial bridging and strategic succession.
The participants interviewed could be categorized then in traditional FFs that underwent unplanned or ordinary succession and entrepreneurial firm that had the elements of entrepreneurial legacy. For example, the entrepreneurial FFs allowed organic offshoots or extension of the business; such as in the case of Erum and her husband who started their cleaning business as an extension of the parent firm dealing in waste management; and in case of Suleiman who started a retail brand of their wholesale business. This also epitomizes the concept of entrepreneurial leap; where the offspring bring introduce innovation as a result of receiving years of training from the successor.
Likewise, the entrepreneurial firms had imprinted the entrepreneurial legacy in their children’s minds and conditioned them to join their family business in contrast to traditional firms where the father or the incumbent owner had not even communicated to them their responsibilities. For example, the FF of Erum is a classic case of entrepreneurial firm where they strategically sketched out their children’s majors according to their firm’s needs; gave them necessary training (such as internships); and strategically mapped their succession process. The following sections of conversation illustrate this.
We trained him in USA. Majors in Finance. Why finance? Because future is of finance.
. . .Son in finance and daughter in HR. Because son has to take over the maintenance business and daughter will handle the restaurants and golf club.
. . .We’ve conditioned them since childhood. We’ve sat down and discussed with them their future.
Rohail (son) wants to also start his own investment firm and additionally he has to manage our family firm. Daughter will handle the restaurants.
Even their past generation showed evidences of strategic succession as illustrated in the following phrase by Erum:
The family firm managed by my father-in-law has transitioned to his other son. It was a smooth transition–no issues surfaced. My brother-in-law had been etched in business 24 hours. He used to fix machinery–nut bolts–would do even the smallest of work. He used to sit with mechanics and fix things.
Thus, it is seen that the entrepreneurial firms, ones that nurture entrepreneurship across generations, train the potential successor from bottom up and for a long time—most likely since childhood. This was also the case with Zain who had been working in his father’s printing press since he was in high school. On the contrary, in traditional firms, the offspring are usually dissociated with the founder and the legacy of the firm, or disinterested, as in the case of Obaid who went off to start his own firm and Mujtaba who revealed that his older brothers had children studying abroad and did not intend to return to join their father’s
JFBM
business. Moreover, the conflict resolution style of Mujtaba where they avoid business talks at home, while healthy in one way, is damaging the life of family business as children do not grow up listening to business conversation and thus, remain dissociated which can be perceived as a major reason for diverting off from the family business.
A closer examination of the interviews reveal that each FF interviewed had either one or two elements of entrepreneurial legacy but lacked the third one with the FF of Erum being the deviant case having fulfilled all three conditions of entrepreneurial legacy.Table 2shows positive and negative cases of the three characteristics of entrepreneurial legacy; where positive indicates presence of the element and negative alludes to its absence.
Furthermore, if one is to map out the FFs interviewed on the scale of succession (planned versus unplanned) and its status as entrepreneurial versus traditional as given inTable 3, there is a likelihood to predict the tendency of growth for the given firms. It is seen that five FFs fall under the umbrella of traditional firms while only two show evidences of being entrepreneurial. Similarly, only one FF has a succession process strategically chalked out and two informally decided while the remaining are undecided (either (a). the children are too young; (b). have daughters and hence, are unsure if they would bring them into the business or (c). the potential successor has not been born yet).
Opinion about longevity of family firm
As a concluding question, the author asked the participants if they agreed that FFs do not survive beyond third generation. Almost all participants expressed their consent; with the exception of Erum. The primary culprit identified by the participants came out as lack of innovation by FFs as the staunchSeth[2]mindset of the founders who cannot accept the superiority of others in terms of ideas and strategies. This is again aligned with the FFs’ entrepreneurial versus traditional feud and the conventional reputation of FFs lagging behind in entrepreneurial activities (Blocket al., 2013).
Another important reason emerged as lack of entrepreneurial imprinting or in other words, the lack of motivation as the business enters into next generations and the traces of the stories of forefathers’struggles in setting up business seem to fade away with every coming generation. This was also highlighted by Arsalan:
Yes, I agree because what happens is that second generation is very enthusiastic because they have heard the stories of struggle from their elders so those stories become a motivational drive for them to take the business to the next level. Like I know how my dad struggled so I want to take it forward.
But for third or later generations, the stories become an old tale and is not much of a motivation for them. They become used to the luxuries and take them for granted and do not want to work hard. Or interested in doing their own thing.
Thus, if one is keen to keep the business inside the family, tying family values with each generation through storytelling and conditioning becomes a necessary element.
Discussion
The findings of the study are concurrent with the past literature. The study found evidences that small FFs in Pakistan usually rely on natural succession planning, i.e.
unplanned and whatJaskiewiczet al.(2014)termed as‘ordinary’succession. For instance, the case of Sajid where his older brother chose a different career path because the children had never realized the need to help their father in business resonates withHandler’s (1989) study where founder’s good health is one of the factors that hamper succession. In other words, since the father was young, healthy and energetic, he himself had never recognized the need to transfer a sense of ownership in his children; and it was only when his health began to deteriorate that the younger son decided to join him. Yet, in many cases, the eldest
The various
aspects of
succession
planning
son is aware of his rightful throne and is sometimes well prepared to take over the business which again epitomizes the primogeniture culture (Francis, 1999). At the same time, the case of Obaid and the nephews of Mujtaba diverting off from business again converge with the previous findings where the eldest son is disinterested in business as he wants to create his own self-identity or finds himself stuck in a coerced ownership. Communication is hence, the key as well as imprinting the legacy through storytelling of the struggles of
Activity Case Quote Activity Case Quote
Strategic education
Sajid
Obaid
Jawaid
I have already decided, both of my sons are going into polymer engineering.
They are still young right now, one is 8 and the other is 4 year old. But this is what they’ll do when they grow up because that’s the future of our business.
(Positive) They can do whatever they want. I am not going to force them to come into my business. (Negative) My father’s business is a technical business; meaning you need to have a special degree to do this work.
Unfortunately, no one from our next generation has opted for this field.
(Negative)
Strategic succession
Suleiman
Arsalan
My cousins and us know already that when we take over the business, we will carry out the same work as our fathers. So the division of work is already done. My father, for example, oversees the Punjab suppliers; one uncle manages the Karachi suppliers and another one does the customer handling at the shop. So, automatically the same work would come to their sons (Positive).
Well, I cannot let my son-in-law in business because then the business would go into the hands of an outsider.
(Negative) Entrepreneurial
bridging
Zain
Suleiman
I used to come with my father in his printing press when I was in Matric (Positive)
When I joined, I made a brand name.. Before this, we used to sell our fabric under a generic name. Then when I came in, I started with the brand name Jeeva Textiles.
(Entrepreneurial leap:
Positive)
Entrepreneurial bridging
Obaid I did receive training and was even made the head of
department. But it was not a real authority, just a title. It just did not appeal me.
(Negative)
Table 2.
Examples of presence or absence of activities of entrepreneurial legacy in FF
JFBM
forefathers (Jaskiewiczet al., 2014), as was also found in the case of Arsalan who grew up seeing his father endure hardships just to get the business running and the entrepreneurial behavior left an inspiring mark on him to take the family business further.
The study also found the role of women in succession aligned with the Pakistani culture.
While one finds successful evidences of daughters running the family businesses such as Moulvi Group of Companies, the sample of the study echoed the conventional patriarchal orientation where women are expected to look after the household as also pointed out by Afghan and Wiqar (2007). Thus, even in cases where the eldest child was the daughter as in the family of Arsalan, the succession was passed on to the second oldest offspring, i.e.
Arsalan, hence providing empirical backdrop to the studies ofHaberman and Danes (2007) and Overbeke et al. (2013). It is interesting to note the time lapse in opinions between developed and developing country. What was considered acceptable 10 years ago in the UK still holds true for Pakistani FF owners, as the opinion of Arsalan resonates with the findings of a study in the UK in 2001 where participants had reasoned that daughters are too good to be working in workplaces or have a better career such as healthcare and teaching (Martin, 2001). Thus, due to the common notion of neglecting daughters in family businesses, women in family businesses often opt for fields of study that do not connect with the primary field of business, such as medicine and healthcare (Schr€oder et al., 2011). Those who do opt for business-related fields tend to challenge the gender-bias in the external environment where they work but accept the biasness as a family norm within the internal family environment (Overbekeet al., 2013). Eventually, those who challenge the internal gender bias agree to work in a subordinate position inside FF (Hyttiet al., 2017). The mother, on the other hand, is usually seen as having an invisible role while the spouses are integrated in the business in some cases (Vadnjal and Zupan, 2009).
The study did not provide sufficient evidence of the kinship culture highlighted by Afghan and Wiqar (2007); although in the example of Sajid, the uncle who had suffered a loss demanded that the rest of the family look after his needs; however, the family resisted to his wishes. This was also seen in Arsalan’s case where his father refused to partner with his relatives and wished to keep the business within family. It can be safe to say that self-made entrepreneurs who did not have entrepreneurs in the family, such as Arsalan’s father or Muhammad, were afraid to include family members and did not believe it was their responsibility to look after the extended family. Community-based entrepreneurs, such as Chinioti Sheikhs, or Memons, on the other hand, have been found to look after the community and support community members (Saqib, 2016;Chang and Qureshi, 2017). Although the growth and stability of Chinioti Sheikhs and Memons is higher due to their connectedness with community, there are some evidences where businesses of these two communities collapsed. The prime reasons behind those collapses were, as noted byChang and Qureshi (2017), lack of effective succession planning and inter-family conflicts. In a few cases, the
Case Succession (planned/unplanned) Entrepreneurial or traditional
Jawaid Unplanned (Potential successor missing) Traditional
Mujtaba Unplanned (unsure yet) Traditional
Erum Strategically planned Entrepreneurial
Suleiman Planned Entrepreneurial
Obaid Unplanned (unsure yet) Traditional
Arsalan Unplanned (unsure yet) Somewhat entrepreneurial
Sajid Planned Traditional
Zain Unplanned (Potential successor missing) Traditional
Muhammad Unplanned (Unsure yet) Traditional
Table 3.
Summary of FFs based on succession and entrepreneurial status
The various
aspects of
succession
planning
incompetence of the incumbent generation was main reason to bring the business at halt (Saqib, 2016).
Since most family businesses are still in second generation and some have recently entered third generation and are still in training mode, conflicts so far have not surfaced; the only intense case of conflict due to succession is found where an unplanned and thus, unfair division of companies has been done as underlined by Sajid. The other kind of conflicts include son dissociating himself from the family business, resulting in clashes between father and son, as in case of Obaid. The participants interviewed, however, concurred with the report byPwC (2014)in that they did not have any formal conflict resolution mechanism in place for such conflicts and either went for avoiding tactic or compromising from the Thomas and Kilman five conflict resolution strategies (Thomas and Kilmann, 1974).
Finally, the study distinguishes between entrepreneurial and traditional FFs. While most of the FFs from the sample were more inclined toward traditional side, only two FFs had all the characteristics of the entrepreneurial legacy (Jaskiewiczet al., 2014) which is believed to nurture entrepreneurship across generations. Similarly, the study found that entrepreneurial firms promote extension of business, even in a different industry as it extends the lifespan of the family business. This was seen in case of Erum who had launched their own offshoot of the parent company and her son, who had expressed interest in starting an investment firm which is again a completely different industry from the core family business. In this perspective, the extension of the business or an organic offshoot can be considered a natural evolution of the business which can be considered as part of strategic succession. Traditional FFs, on the other hand, were seen to have lacked the storytelling element which binds the family together and thus, is most likely the reason why the coming generation breaks off from the family bind.
Conclusion and implication
The study contributes to the existing literature by fusing succession within the theoretical framework of entrepreneurial legacy. The study was undertaken to grasp an understanding of how succession worked in local family-owned businesses and what defined entrepreneurial FFs from traditional ones in the light of entrepreneurial legacy. Thus, the study furthers the existing literature by demonstrating that entrepreneurial legacy is the essence for transgenerational entrepreneurship as well as the primary differentiator between entrepreneurial and traditional FFs.
Our study concludes an absence of any formal succession planning framework by and large and while there exists evidences of informal or natural succession, the element of strategic succession is missing from many traditional FFs. As a result, the future of these FFs stands bleak. Succession planning, hence, is emerging as a challenge for survival of family- owned businesses. Moreover, a gap between conventional and modern school of thought, in terms of doing business, has created a divergence across generations, thereby pushing away the newer generation from the family-owned business. While there are firms having the streaks of entrepreneurial legacy, such firms are fewer in number. Therefore, the study has several implications for FFs, academicians and researchers working on family businesses.
First, the owner-managers of FFs need to imprint an entrepreneurial legacy on to the subsequent generation by engaging in the three strategic activities, i.e. strategic education, entrepreneurial bridging and strategic succession in order to ensure the longevity of their FFs. The need to align the education of their children with the firm’s needs, condition the children’s mind toward business through entrepreneurial bridging and strategically devising a succession plan by integrating in-laws are the three primary activities that family businesses in Pakistan must engage in to ensure transgenerational continuity of their business. Our findings stress the need for owner-managers of FFs to develop a formal
JFBM
succession plan for their children and their offspring by bringing in line their education, work experiences and skills in domains that are beneficial for the firm. Furthermore, constructive meetings and discussions related to business must take place at family dinners as well so that the offspring develop a sense of affiliation with the firm and in turn, willingly accept their role as successors when the time comes. The elements of storytelling of the past struggles as well as recent happenings of businesses help frame a positive perception of the FFs in the children’s minds. The study provides sufficient evidence that ignoring female members of the family during succession planning only trims the lifespan of the FF and that entrepreneurial FFs are more open toward their female family members than traditional FFs; thus, owner- managers are encouraged to consider competent female members in the FF to promote transgenerational survival. Last, the study demonstrates that there is a crucial need for owner-managers to understand and encourage natural offshoots of the business as they help extend the longevity of the FF. Moreover, discouraging such offshoots only result in children breaking off from FFs to start their own ventures.
Areas for further studies
The study opens up a plethora of opportunities for further empirical advancements. More evidence is needed, for example, by gathering a larger sample to validate the difference between entrepreneurial and traditional firms. Since the study is exploratory, further advancement can also be made in quantitative directions wherein a scale can be used to measure the rate of doing strategic succession in family-owned firms.
Likewise, while the study suggested that there are local firms that have shattered the common myth of an FF lacking the reputation of being entrepreneurial; an empirical gap is observed in the literature that can be addressed by collecting the accounts of successful FFs to validate the theory of entrepreneurial legacy. The author suggests a grounded theory approach to gain an enriched insight into the phenomenon.
Notes
1. One of Karachi’s biggest wholesale marketplace.
2. Feudal.
References
Afghan, N. and Wiqar, T. (2007),“Succession in family businesses of Pakistan: kinship culture and islamic inheritance law”, CMER, Working Paper # 07-54, pp. 1-28.
Ahmad, N., Nadeem, M., Ahmad, R. and Naqvi, H.S. (2014),“Impact of family ownership on firm’s financial performance: a comparison study between manfucturing firms and financial firms in Pakistan”,Nigerian Chapter of Arabian Journal of Business and Management Review, Vol. 2 No. 8, pp. 51-56.
Alderson, K. (2015),“Conflict management and resolution in family-owned businesses: a practitioner focused review”,Journal of Family Business Management, Vol. 5 No. 2, pp. 140-156.
Arifeen, S.R. (2016),“Pakistan: father-daugther family business succession in Pakistan: a case study”, in Halkias, D., Thurman, P.W., Smith, C. and Nason, R.S. (Eds.),Father-daughter Succession in Family Business - A Cross-Cultural Perspective, Routledge, New York, pp. 63-71.
Block, J.H., Miller, D., Jaskiewicz, P. and Spiegel, F. (2013),“Economic and technological importance of innovation in large family and founder firms: an analysis of patent data”,Family Business Review, Vol. 26 No. 2, pp. 180-199.
Bertschi-Michel, A., Sieger, P. and Kammerlander, N. (2019),“Succession in family-owned SMEs: the impact of advisors”,Small Business Economics, pp. 1-21. Available at:https://doi.org/10.1007/
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