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Children of Business Moguls Expect to Retire Early

Ambiguous attitudes held by the heirs of Russian moguls may affect the future of the country's big businesses. On one hand, the children of wealthy Russian business owners have an excellent headstart – they are well-educated and generally share their parents' values. Yet on the other hand, they are not likely to become selfless workaholics. Instead, they tend to be more hedonistic than their parents and less inclined to devote their entire life to building the family business. Most Russian business heirs expect to retire early and switch to hobbies, recreation and entertainment in their mid-life. Elena Rozhdestvenskaya, professor of the HSE Faculty of Social Sciences, is the first Russian researcher to study the mindsets of heirs of biggest Russian fortunes.

Her research builds on Russia’s Wealth Possessors Study 2015 initiated by the Skolkovo Business School and co-authored by the HSE sociologists (see Wealthy Russians Reluctant to Hand Down Business to Their Heirs).

According to the Harvard Business School, family businesses account for two-thirds of all businesses globally; their contribution to national economies cannot be overestimated. However, family businesses tend to shrink once a new generation of owners takes over. The children of original founders can find it more difficult to maintain the family business – although much depends on their training, motivation, values, personal qualities and an overall ability to preserve and multiply their wealth.

Business succession is an emerging issue in Russia as the country's pioneer moguls are entering their fifties, having typically started their businesses in the late 1980s and early 1990s. Rozhdestvenskaya examined business heirs' perspectives in her qualitative study, Fathers and Children: Business and Wealth Succession in Families of Big Business Owners in Russia, the first in-depth conversation with members of this fairly closed social group.

The project included 16 interviews with business owners’ adult children aged 24 and over, half of whom were students at the Skolkovo Moscow School of Management. Their parents' fortunes placed some of them in the Forbes Top 100 Wealthiest Ranking for Russia.

Industry-wise, 46% of the parents owned businesses in finance and investments, 25% in real estate development and management, 21% in commerce, and 21% education and research (the study did not address the origins and history of the respective businesses). Most of the original business owners have many children, thus the issue of succession is fairly high on the agenda, with a strong gender bias, as fathers in Russia tend to hand down business to sons, rather than daughters.

Similar Values, Different Attitudes

Business succession is an emerging issue in Russia; the country has yet to develop a relevant infrastructure, such as an institutional framework for training future successors. In addition to this, according to Rozhdestvenskaya, "the challenge of engaging the next generation in business may require a new set of rules or guidelines." So far, businesses owners have to find their own solutions by preparing successors in the family – or, alternatively, selling the business or hiring an external manager.

The fact that capital owners are thinking about succession is reflected in their heavy investment in their children's education – the latter tend to hold two or three university degrees; usually, the heir’s first degree is relevant to the parental business, while their father’s original training was often in engineering or physics.

It would seem that such a headstart should ensure adequate succession, particularly since parents and children seem to share the same set of values. Using Shalom H. Schwartz's theory of basic values, both generations' dominant values include, primarily, self-enhancement and achievement, and secondly, openness to change (including novelty, risk-taking and stimulation). However, Rozhdestvenskaya notes a much stronger social focus in the younger generation. Both generations tend to be actively involved in philanthropy.

An important distinction between the generations lies in the children's hedonistic attitudes which can’t really be explained by their young age alone.

Just Some Fifteen Years to Devote to Business

Hedonism is manifested, in particular, in their self-reported plans for the future. When asked about career plans, the young respondents expected to devote just about fifteen years on average to business, become financially independent by thirty and perhaps build their own business by forty, and then retire at 45 to 50 to spend most of their time on recreation and hobbies.

It may seem that by choosing to retire from business early and focus on other things instead, the younger generation depart from the parental idea of advancing one’s career in business as the ‘right way to live’, yet in terms of self-enhancement, there is no contradiction, as both the young people and their parents prioritise personal fulfilment and tend to see the value of money as a tool for self-fulfillment, associated with passion and achievement. The question is whether heirs and parents are passionate about the same things.

Just One in Three to Start Their Own Business

In order to explore the values and ideas instilled in future business owners, Rozhdestvenskaya asked them to think of a symbolic message from their parents and found that most such messages emphasised personal development, education and business succession, which is consistent with what the children themselves expect from their families – a good education and opportunities in business.

However, the children and parents' attitudes – or should we say the degree of confidence and commitment – differ in that just one young respondent out of three expects to have a business of their own.

More than half agree that participating in their father's business is the right thing to do, yet "more than one in three can foresee potential negative consequences of such a decision," according to Rozhdestvenskaya.

Daughters Excluded from Father's Business

The study's author noted a gender gap in the approach to succession in that women are virtually excluded from taking over the father's business. Most big capital owners hand down their business to sons rather than daughters in what seems to be a 'renaissance' of patriarchy. Instead, fathers give daughters total freedom in the choice of occupation and self-fulfilment – e.g. many daughters of big business owners run charitable projects.

According to Rozhdestvenskaya, young women in such families are raised with conflicting role models: fathers enable them to receive an excellent education and encourage their ambitions, while mothers model total dedication to home and family.

Overall, chances are high for the younger generation to successfully take over parental business, thanks to good education and shared values. In turn, business owners appear confident that their own children can cope with running the family business, but doubt the same abilities in the heirs of some other families.

Either way, business succession remains an issue in Russia, further complicated by the fact that many business operations were started – and continue to be run – as partnerships, and partners' families also expect to be included in decisions about succession.


Author: Olga Sobolevskaya, September 30, 2015