Consider the case of political parties of all sizes and hues from different parts of India. For example, even though the Indian National Congress was not founded by the Nehru-Gandhi family, the family dominance of the party started with Jawaharlal Nehru and went to Indira Gandhi, Rajiv and Sonia Gandhi and now to Rahul Gandhi. In its fourth generation, it is a pale shadow of its earlier self.

In Jammu and Kashmir, the National Conference (NC) that was founded by Sheikh Abdullah is an emaciated organisation by the time the leadership was passed on to Omar Abdullah from Farooq Abdullah. In Uttar Pradesh, the Samajwadi Party (SP) has lost much of its clout from the halcyon days of its founder late Mulayam Singh Yadav. 

Shiromani Akali Dal, a Sikh religion-based party, after it became a dynastic party, is hardly strong now under its second generation. Under the onslaught of the Bharatiya Janata Party (BJP), regional parties with once-powerful leaders from Chandrababu Naidu to Sharad Pawar are struggling to survive. One report said that there were as many as 34 political family-run parties in India -- across the states of Tamil Nadu, Karnataka, Punjab, Kerala, Uttar Pradesh, Andhra Pradesh, and Telangana.

The Third Generation Factor

What is it about dynastic political parties and business families that they struggle and often fail to survive after the third generation? Importantly, are there lessons from the business landscape that political parties can learn? 

“At the founder’s generation, the family business works with passion and hard work. The second generation is fully committed and works closely with the first generation. But the third generation is born with a silver spoon and the group is often likely to lose steam. They feel that the family business is their birthright,” said Professor Kavil Ramachandran at the Thomas Schmidheiny Centre of Family Enterprises at the Hyderabad-based Indian School of Business (ISB).  

According to the not-for-profit Parampara Family Business Institute, "It has been observed that just 13 per cent of family-run businesses survive till the third generation; only 4 per cent go beyond it, and one-third of business families disintegrate because of generational conflict."

Various other global studies also show that over the decades, 90 per cent of family businesses—even those that manage to scale—do not survive beyond the third, or, at maximum, the fourth generation. 

All of the knotty issues mentioned above can and do result in collateral damage to the longevity of family businesses. What starts as a small strain in one generation leads to crises when the business shifts to the next generation. It is believed that the genesis of the ‘three generations’ theory emerged from a 1980s study of manufacturing companies in Illinois.

Ramachandran recalled an expression, ‘shirt sleeves to shirt sleeves’, which suggests that the money made by one family generation is exhausted by the time of their grandchildren in the third generation. The same is exemplified in the Brazilian saying, ‘Rich father, noble son, poor grandson’.  

In a nutshell, there are a host of factors that inhibit business families after the third generation -- limited and strained communication between incumbent and incoming generations, inability to handle succession planning and lack of attention to issues between division of ownership and management.

Lack of clarity in terms of devolution could lead to insecurity and eventually the break-up of family businesses, while complex cross-holding ownership structures often end up pushing the family into a maze. Other factors include a poor understanding of financial issues and a lack of financial education for the next generation,  

“Many Indian business families, once leading corporate and social figures, found themselves unable to survive industry competition due to the absence of succession planning and a lack of essential business competencies,” said Srinath Sridharan, a Mumbai-based policy researcher and corporate advisor who helps business families with succession planning. 

Sridharan explained that the lack of succession planning often leads to the downfall of business families, contributing to broken legacies rather than enduring enterprises. 

“Without a clear plan for a leadership transition, disputes can arise over who will take over the reins, causing rifts within the family and jeopardising the future of the business. Inadequate grooming of potential successors and a failure to address family dynamics further exacerbate the situation, increasing the likelihood of instability and eventual decline,” Sridharan said.

Consequently, it's a must for business families to recognise succession planning not just as a business necessity but as a legacy-building endeavour, ensuring the continuity of their family's heritage and values for generations to come. In the modern business ecosystem, corporate governance is paramount, emphasising the importance of professionalism within business families, including effective succession planning, as valued by all stakeholders.

Lessons from Enduring Family Businesses

Despite the above challenges, a small percentage of family business groups survive and thrive. From the Merck group of Germany, which is now over 350 years old, to India’s Tata Group whose origin goes back to 1868, these families follow about 10 broad-based rules that allow them to move in strength from one generation to the other. 

These critical drivers include: a growth mindset; bold vision and strategy; commitment to formal governance processes; commitment to succession planning; professionalisation as the business scales; focus on building great brands; ability to manage well the external environment; going global; unlocking value and wealth; and, recognising the importance of family business advisors.

Japan is home to some of the oldest business families in the world. It is believed that the oldest family business in the world is Hoshi Ryokan - a Japanese hotel that has been owned by the same family since the year 718 and is now run by its 47th generation.

Out of the total 5,000 companies in the world that are more than 200 years old, over 60 per cent or approximately 3,000 companies are located in Japan, according to a study. For example, Sudo Honke - makers of the Japanese wine sake -- is in its 55th generation.

What is the secret to the longevity of Japanese companies? Global studies say that one of the key reasons is adherence to family values. In Japan, this core family value is taken into the business very seriously.

By following the 10 golden rules, Indian family businesses have also stood out in their sustainability. The Tatas have an outside professional in N. Chandrasekharan leading the group strongly. Similarly, the Mahindras have not only professionalised but also built a strong board of directors.

At the next level of family businesses, Evolve Back and the House of Ramapuram in Bengaluru, a third-generation group that started the Orange County Resorts vows by a family constitution that holds together above 35 members of the family involved in the management of the group. 

Gera Developments, a real estate group in Pune has all its younger family members go overseas and get the best of education. Koch-based Eastern Condiments in its third generation has unlocked value and wealth for the next generation. Iconic fashion brand the House of Anita Dongre in Mumbai has focused on building a strong brand in India and overseas. 

“Implementing proper succession planning measures can transform the trajectory of business families, fostering enduring corporations and preserving their legacy. By proactively identifying and grooming capable successors, business families mitigate conflicts and ensure a seamless transition of leadership," said Sridharan.

Also, "developing a comprehensive plan that encompasses governance structures, family dynamics, and leadership development instils confidence in stakeholders and creates a solid foundation for the business to thrive across generations,” he added.

Although these enduring family businesses are relatively small in numbers, they hold important lessons for political families in building sustainable legacies.