MOST of the family businesses in the Punjab region are divided among family members during the succession phase (transfer of management and control from one generation to the next).

A majority of family businesses studied during a research at the Lahore University of Management Sciences (LUMS) were profit-making enterprises-before and after successions. Of course, after the split, the size of the operations become much smaller

Four main factors were responsible for split in the family businesses; the law of inheritance, cultural and social norms, organisational systems and the individual management style.

Law of inheritance: The Muslim family laws are applied to inheritance and to the division of wealth and property. These rules provide that the deceased's property should transferred to those, who by reason of affinity, have the strongest claim to be benefited by it and in proportion to the strength of such claim. The male (son) gets twice the share of the female (daughter).

The inheritance law is enforceable only upon the death of a person, and no law exists that overlooks the division of wealth before his demise. A person can gift all his/her wealth to any organisation or any person during his life. The father/owner of a business can transfer wealth or equity to successors during his lifetime as a gift or hiba without any religious or legal implications. If any family member within the business desires to part ways, these rules are applied. In one case, business was established on the basis of partnerships and percentage shares, therefore legally, it was possible to give each branch of the family its shares or the portion of the businesses. In another, a father set up a new business and gave it to son as the son’s share in the father's business and wealth.

The common legal practice within the family businesses is the division of businesses. Therefore, it can be concluded that inheritance laws and the practice, both influence the division of businesses during the succession phase.

Socio-cultural norms: The second factor is related to cultural and social norms. It is perhaps the most important factor influencing division of family businesses in Punjab. One of the most common social or `Biradari’ norm is `Shareeqah’ among brothers. It is basically based on fear that the other brother or cousin will perform better and get ahead in the business, financially and otherwise, in the family and outside.

This rivalry is not only for financial resources and material wealth but also for status and for developing linkages with civil and political elite. `Shareeqah” begins when there is unfair distribution of land, other property and wealth among brothers (father's land and wealth etc). Such a negative competition in a family could continue for generations.

The `Shareeqah’ does create environment of mistrust and fear among family members. Junior and less competent or less educated members fear that a more senior/competent family member is taking over businesses and other key resources of the business. Such family members think that it is better if there is a division of the business.

In a case study, a brother decided to separate his part of the businesses from the rest of the family due to future possibility of Shareeqah between his children and his brother's children. It is interesting to note that even when there is tough competition among family members on financial, businesses and other resources, they continue to enjoy intermarriages within the same families.

There may be some tension between family members during the negotiations and division of the business phase but once it is over and settled, they pick the family relations and family ties where they had left. Even for elders in the family whom everyone respects, it becomes difficult to stop the division of the business.

In fact, many elders while keeping in mind these fears, build different factories/businesses as independent units and on right time, so that each family (sons, siblings and partners etc) could be given an independent business. Also some time founder/elder provides a chance to each son to develop skills and knowledge about one or two functions or types of businesses. Thus they encourage specialisations of each family and therefore natural basis for future division within the business.

The objective of family harmony and future family relations and intermarriages is achieved by keeping businesses united. Nevertheless, each new owner (son/brother) of the business continue to innovate and diversify the business. The success of this new enterprise depends very much on his competencies as business person, his hard work, luck and his abilities to turnaround and establish new business.

Once business divisions occur, family members do provide financial and other resources to remaining member for establishing new businesses, if they have confidence over his success.

Organisational systems: The third factor influencing the division of the business is the lack of business and organisational systems, particularly in small and medium-size businesses. It includes lack of professionalism and management systems in decision-making. Such family concern depend much on a single member for all operational and related decisions.

The founder/owner rarely transfers decision-making powers to any of the staffers. For that matter, few family concerns have proper accounting, marketing, purchasing, inventory management, financial and salary systems. Many professional managers do not enjoy working where there are few possibilities for growth and where they have no decision-making powers.

Most of such small and medium-size family businesses operate on low cost, high margins basis and are less willing to share these profits with staff. This factor influence future growth and professionalism within such family businesses. Moreover, less growth means little opportunities for next generation of successors, hence family members move out to start new businesses or establish new business partnerships with other family members.

On the other hand, there are also large to very-large family businesses/groups in Punjab. The divisions within these family groups (controlled and managed by family) are also observed during successions.

According to an observer, such big family businesses expand so much that each member becomes specialised in his own field and it becomes very difficult for him to carry on in the family business. Also it is due to an uneven growth in various aspects of a family business. All this leads to a communication breakdowns among family members, notwithstanding the presence of excellent infrastructure and competent professional staff. This could be further clear from the forth factor.

Individual management style: The fourth factor is the differences among individual management styles. This is yet another dominating factor which leads to division of family businesses in Punjab. Individual personality and related differences start early in the life when next generation of successors are sent to different schools for education. One brother’s sons go to a top public school in Canada while the other brother's children attend local schools and hence the differences in their mindsets, thinking, communication skills and the world view.

The early schooling and subsequent higher education and university degrees sets the status of each family member within a family business. In one case study, it was observed that a brother's son graduated from a foreign university at the time of joining the business as a director while the other brother's son, a graduate from a local university, joined it as a manager.

Even if they had the same schooling and same university degrees it was hard to imagine both of them sharing the business in a similar manner. In yet another case, it was observed that two brothers decided to get separated from a family business because of their different opinion about running the financial and banking systems. In other case, it was a difference among two brothers on the future of the businesses. One brother was more ambitious about modernising and expanding the business than the other one.

A large number of studies conducted during the research revealed the challenges of division during the succession phase. Nevertheless, few family businesses showed strong growth, good harmony among its members after the third generation of successors.

Our findings also show how the family businesses achieved their objectives.

Growth: First and the most important for these family businesses was their capacity to have constant and healthy cash from core businesses. Most of them were conservative in their life style and kept very low profiles. They considered all family children as business assets and provided them equally best education to all of them.

They had very fair and open system of providing each family member financial resources for his needs. They all have similar life style and similar cars and houses. They had very strong family values and a respect for senior family members. There was an atmosphere of trust and loyalty.

Every family member attended weekly formal meetings and Sunday family dinners without fail. According to one CEO of a family, he missed even a dinner with the president on a Sunday because of a family dinner.

When a family member entered a business after his university education, senior family members groomed and coached him for future. The successors had core business and family values, best education, technical know-how, fair and open financial and communication systems and early opportunity to set up new businesses within the group.

These family businesses had well developed organisational infrastructure and operational systems, accounting, finance, purchasing, production systems etc. Most of these successful businesses were managed by the third generation of leaders and transferring business and family values and traditions of their founder to their fourth generation of business leaders.

The writer is an Assistant Professor at LUMS.