Photo : Messenger
In recent years, there have been major collapses in various large corporate institutions in the country, posing a threat to the overall economy according to economists. In most cases, the family business built by the first generation is divided due to conflicts among partners in the second generation. Sometimes, legal battles ensue.
The heirs of the founding entrepreneurs are suing each other. In the face of conflict, old institutions are being broken apart and different ones are being created. In some cases, even before the split, conflicts between business partners are affecting the entire organisation. Institutional and financial capacity is under threat.
Meanwhile, these large companies have been long-standing major customers of various banks in the country. Banks also have substantial loan financing for various businesses of some corporate organisations. Bankers are getting worried as the institutional and financial capacity of the companies is threatened by the collapse.
It is known that most large businesses in the country are family businesses. Almost all such businesses are individual-oriented. After the death or retirement of the founder, the authority of these institutions is being transferred from one generation to another, creating various complications. The heirs are unable to manage the business while maintaining unity.
In this regard, Anwar Ul Alam Chowdhury Parvez, President of Bangladesh Chamber of Industries (BCI), told The Daily Messenger, “There is a common saying, nothing becomes mature until three generations have passed. The first generation earns, the second generation generally spends. In very few cases can the business be retained until the third generation.”
“However, from the third generation onwards, the organisation may start to mature. Very few family businesses in our country have the opportunity to reach the third generation. The proportion of businesses that are sustainable before reaching the third generation is very low,” he added.
Akij Group, the country's largest industrial conglomerate, has been in business for over 75 years. A couple of years ago, the brothers had a conflict over the control of the company's business, coming into the second generation. At one point, they evaluated the assets of the business in order to resolve the conflict between themselves. They divided the responsibilities and authority of various businesses among themselves.
The business that had the highest cash flow was sold. Currently, the company has businesses in various sectors including construction materials, dairy products, beverages, paper, and LPG. They have also made new investments in promising sectors.
Transcom Group, one of the most influential family businesses in the country, started with a tea business. In 1973, the company started its journey in a new form. The business progressed through the trade of various products in stages.
Currently, it is one of the largest home appliance product businesses in Bangladesh. The company is also recognised in the world market for the production of pharmaceutical products. Investments were also expanded into mass media. The founder of Transcom passed away in 2020. Within three years of his death, there were rumours of complications among the second generation. Recently, it escalated to a lawsuit.
United Group started in 1978 and is now one of the leading industrial groups in the country. Initially, the main activity of the organisation was a trading business. The business gradually grew with the partnership of four, later expanded to six friends. Currently, United Group has become one of the largest companies in the country's power sector. As long as the first-generation entrepreneur friends were engaged in running the business, the group had no major complications.
Complications arose when the burden of managing the business passed to the successors of the original partners. The group included 10 children of the six friends. The second generation has differing views on business management. The matter has recently reached the court.
Envoy Group's Apparel Factory was established in 1984 by the initiative of two partners. Over time, this business expanded into various sectors including textiles, clothing, and housing. The group's business grew substantially. The group's annual turnover exceeded $400 million at one point due to the efforts of the two founding leaders.
At one stage of expansion, the children of the two main leaders joined the business. Business diversification also increased after the second generation became involved. At some point, the first generation began the process of ceding key control of the business to the second generation. But when a dispute arose about authority and sharing of business responsibilities among the second generation, it escalated to court proceedings.
For over a century, the private sector's National Bank Limited had been solely controlled by the Sikder family. But after the death of Zainul Haque Sikder, retaining that authority proved impossible. After his death, his wife Manwara Sikder became the bank's chairwoman, mainly due to a dispute among the couple's children over who should assume that role.
However, even though Manwara Sikder was chairwoman, Rono Haque Sikder and Rick Haque Sikder, the two sons of the Sikder family, had sole control over the bank's management. Parveen Haque Sikder got into a dispute with her brothers about this arrangement. Finally, the dispute went to court.
Issues such as leadership transfer, succession planning, wealth management, family relationships and the roles of professionals have become major influencing factors in both global and local contexts, according to analysts. Apart from these factors, there are some other reasons behind the lack of sustainability of family businesses into the second generation.
In addition to the demise of the founder, the disinterest of some heirs and the involvement of the next generation of family members in the business also play a major role in the breakdown of such enterprises.
Mamun Rashid, a family business expert and economic analyst, told The Daily Messenger, “When the second generation takes over, they are confused because they don't know how their father built the business. Again, they become dependent on certain people. If the board cannot be strengthened for these reasons, if it does not include professionals, be it family businesses or others, the governance situation will never improve.”
Bankers are now worried about the break-up of large corporate groups under second generation leadership. According to them, banks have substantial financing exposure to these large groups. The biggest consideration for bankers in lending to these institutions is the 'person behind the entity'. In this regard, no matter how robust the organisation, if there are problems among the entrepreneurs, the organisation will eventually become unproductive.
Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB) and managing director of Mutual Trust Bank, told The Daily Messenger, “Companies in our country are individual-centric. We have seen problems arise when one generation takes over the business and the next generation comes in. That is why we suggest corporatising the operations. Conflict situations are easier to deal with when the organisation is run by professionals.”
Messenger/Fameema
