Politics and the family plot

By S Subramanian, Nupur Pavan Bang| Published: 21st September 2017 04:00 AM

Can political parties in India and abroad find their own Jorgen Vig Knudstorp (Lego), Sergio Marchionne (Fiat Chrysler Automobiles) or Oh-Hyun Kwon (Samsung Electronics)? These people are all successful non-dynast professional CEOs of family-run businesses. Do political parties pick candidates keeping in mind what is best for the party, its growth and purpose?

Typically, communist parties in countries such as China, Vietnam, North Korea and Cuba are run as family affairs. Party leaders pass the baton from one family member to the other and one generation to the next. The descendants of the communist party elites, or ‘princelings’ as they are called, are usually chosen to lead the party, and are given important portfolios in the government and the country when the earlier generation retires or passes away.

It is almost impossible for anybody to rise to the top of the party (and hence the government machinery) unless they have strong family influence in the communist party. In China, four of the seven members in the all-powerful Politburo Standing Committee of Communist Party of China (CPC) are princelings. Similarly, in the Communist Party of Vietnam (CPV), of the 19 members in the Politburo, 11 are princelings. In North Korea, the ‘Kim’ family is in power for the third generation. And in Cuba, after Fidel Castro, his brother Raul Castro came to power.

The above scenario is similar to many family-run businesses all over the world. Closer home, in India, most of the businesses are owned and managed by founders and their family members. The reasons for this phenomenon of family-based succession are culture and the ‘correct fit’.

Asian countries are known for their collectivist family-oriented culture, unlike Western individualist culture. The elders want to pass on what they have earned to the next generation family members. This is reflected in the literature on succession in family-run businesses. The business is passed on from one generation to the next for the family  to retain control, even if there are better candidates outside the family for continued shareholder wealth creation.

The founders of the party earned power when they set up the party and they want to pass on that power to the next generation family members. The thought process is that ‘the founders of the party set up the political establishment in the country and even though the government is for the people, the founders and their family members are best suited to enjoy the outcomes and take the mission of the party forward’.
This thought process is more or less explicit in the succession planning in Vietnam. The Communist party’s informal rule set by Ho Chi Minh, the founding father of the CPV, states that priority should be given to the children of the senior comrades, i.e. party elites.

Even if the incumbent leadership of the family business genuinely wants to consider outsiders for succession planning, it does not work in many situations. The outgoing leadership typically has a vision for the company and wants to choose someone who understands and shares that vision.
When they search for a successor, they find it difficult to find an outsider who fits their expectations. On the other hand, they find that their own family member, who has been brought up under their supervision,is entrenched in the same values and shares the same vision. Hence they prefer to pass on the baton to someone inside the family rather than an outsider.

The communist party elites feel the same. It is up to the non-communist parties in democracies like India to decide if they would like to follow this method of selecting successors. It must be emphasised that if the next generation of the founding family is well qualified, as passionate as the founder or incumbent and as suitable to lead the company as an outsider, the family member may be given a preference over the professional as the family member would be well entrenched in the values of the company. But, if the next generation is not well suited for the top job, the shirt sleeve to shirt sleeve in three generations saying may prove to be right!

A look into the various Birla Groups proves an important point. The Aditya Vikram Birla group which appointed professional CEOs with strategic freedom at the business level for most of its companies continued its success story in the liberalised environment, whereas the other Birla Groups which continued with family leadership did not perform as well.

The political parties would do well to realise that the adage will apply to them as well if they don’t learn from the experiences of family-run businesses and make course corrections. Parties that subscribe to dynastic politics can learn from family businesses that choose ‘outsiders’. Family-run businesses are realising the need for change. So should the political parties!

S Subramanian
Associate Professor (Strategic Management Area), IIM, Kozhikode

Email: s.subramanian@iimk.ac.in

Nupur Pavan Bang

Associate Director, Thomas Schmidheiny Centre for Family Enterprise, ISB

Email:nupur_pavan@isb.edu

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