Remember Bombay Club? Ten years ago, when India opened its gates to foreign investment, the biggest names in Indian business ganged up to protest what they saw as an imminent deluge of multinationals. “The cowboys are coming,” they complained. “Save us from being taken over,” they pleaded. Bombay Club derived its name because the captains of family-run Indian businesses met in Bombay to raise their banner of protest against the government’s open-door policies being drafted in New Delhi. Its members included inheritors of immense family fortunes who flourished under government patronage for years in the days of the licence-permit raj when the market was closed to outside competition.
The Club included among others, Ballarpur boss Lalit Mohan Thapar, JK supremo Hari Shankar Singhania, Escorts chief Rajan Nanda, B K Modi of Modi Corp, Godrej’s Jamshyd Godrej and, of course, scooter-maker, hamara Rahul Bajaj.
It’s true, that in the 10 years that have lapsed since then, India has hosted several multinational brands, many of which are now market leaders in their own right. It’s equally true that some Indian companies that once dominated the marketplace like Hindustan Motors, Campa Cola, Weston, Modi Threads, JK Synthetics and DCM have fallen by the wayside. Others like Bajaj Auto have been bested in the business they knew best. Yet, call it a tribute to the indomitable spirit of the Indian entrepreneur, there’s been no such thing as a quiet burial of Indian business. India Inc continues to dominate India’s corporate landscape. Flourishing where there was little hope before.
Take, for example, paper-maker Ballarpur Industries, once facing a huge threat from Indonesian paper giant Sinar Mas. Earlier this year in a sudden reversal of roles, the Thapar group flagship took over Sinar Mas’ Indian operations for Rs 540 crore in a deal transacted in just 95 days. Today, Ballarpur is India’s biggest paper maker. Says Ballarpur managing director, Gautam Thapar, of that deal: “The Sinar Mas acquisition was a very important signal not only within the country, but also outside. We told everybody that there was a competitor who came to buy us out; we bought them out. So, be careful about India.”
Others found ingenious solutions to overcome adversities beyond their control. Faced with three years of successive drought in Rajasthan, JK Tyres of the “eastern” Singhanias, now the largest commercial tyre maker in the country, ferried water in 100 tankers over an 80 km distance every day to its plant in Kankroli in Rajasthan for two years at a stretch. Ballarpur and JK Tyres and among select family-run businesses that have shown remarkable competitive spirit and survival instinct when confronted by external threats. What makes their achievement doubly reassuring is that they were virtually written off not so long ago.
Figures available with the Indian industry’s biggest representative body, the Confederation of Indian Industry (CII), suggest that even today, family-run businesses account for 75 per cent of employment in the organised sector and 65 per cent of Indian industry’s contribution to the GDP. The Rs 56,000 crore Reliance group, promoted by the Ambanis best illustrates the power and size of the Indian family business. They have set up among the world’s largest petrochemical and refinery complexes and are executing one of the biggest fibre-optic broadband networks ever.
Says corporate historian Gita Piramal, herself a member of one of India’s premier business dynasties, “Family firms account for 71 per cent of the market capitalisation on Indian bourses, 40 per cent of total sales, 31 per cent of assets and 18 per cent of profit after tax.” Adds CII, “Of the top 10 companies by market capitalisation in India, five are family-owned, three are professionally managed and two are public sector undertakings.”
Adding gloss to these projections is a two-year-old study by Booz Allen and Hamilton. It says that the best promoter companies have outperformed the best professionally-managed multinational corporations in India. Another recent study by the Indira Gandhi Institute of Development Research points out that promoter-led businesses tend to perform well when the controlling group’s stake in the business—their shareholding is beyond a certain level, estimated at 25 per cent.
ET, in a first-of-its-kind exercise, spent five months researching some of the biggest business dynasties based in Delhi looking for clues to how they have coped with the changing dynamics of the Indian marketplace in the past 10 years. For this, we met entrepreneurs cutting across generations. From 87-year-old retired patriarch of the once prosperous DCM group, Dr Bharat Ram, and 82-year-old founder of global pharma major, Ranbaxy, Bhai Mohan Singh, to the 40-year-old muscle-flexing yet, suave managing director of Ballarpur Industries, Gautam Thapar, to the 32-year-old Modi group scion Sameer Modi and 29-year-old greenhorn Nikhil Nanda of Escorts, among others. In all, ET spoke to members of eight corporate clans—Nandas of Escorts, Thapars of Ballarpur, Singhanias of JK, Munjals of Hero, Bharat Rams of SRF, Kanwars of Apollo, Modis of Godfrey Philips and Singhs of Ranbaxy.
What did ET find?
While some of these family-managed businesses, like the Modis, the Singhanias and DCM is still saddled with several loss-making and non-performing assets, they also have remarkable success stories to narrate. Powered by a never-say-die attitude, individual clan members have not only survived the opening up of the economy, they have emerged as industry leaders, albeit with varying degrees of success.
* Ballarpur Industries Ltd, once sinking under immense debt obligations, a cyclical a downturn in the paper industry and a massive threat from Indonesian paper giant Sinar Mas is today the country’s biggest paper maker with an installed capacity of 700,000 tonnes, having taken over Sinar Mas’ Indian operations. It now plans to ramp up capacity to 1.5 million tonnes over the next four years.
* Hero Honda, once second-fiddle to Bajaj’s huge market monopoly in the two- wheeler business now sells a million motorcycles a year with a 49 per cent market share. It plans to gear up sales to 1.5 million two years from now.
* Ranbaxy Laboratories started as a chemist’s shop in the ’50s in Delhi’s Connaught Circus is today India’s biggest pharma player with global operations spanning 40 countries and a physical presence in 24 nations. It is also among the world’s top 100 pharma companies and the top 10 generic firms.
* Tyre cord-maker SRF Ltd., after going through a series of financial convulsions since its inception in the ’70s, has finally put its house to emerge as the country’s biggest manufacturer of nylon tyre cord. In the process, it has taken over two of the country’s biggest tyre cord manufacturing facilities from Ceat and Du Pont in the past six years. It has also sold its financial services arm SRF Finance to GE Caps and is now foraying into the commercialisation of in-house R&D efforts in speciality chemicals and refrigerant gases.
* Cigarette maker Godfrey Philips has not only retained its turf generating Rs 1,000 crore in revenues, when other Modi businesses have collapsed, it is now in the midst of an ambitious image makeover that should see volumes grow in the future. K K Modi’s family has also spawned new business initiatives that include the biggest Indian network marketing outfit Modi Care, entertainment powerhouse MEN and a soon to be set up education venture.
* J K Tyres, once an also-ran, has emerged as the country’s biggest truck and bus tyre maker and the largest tyre exporter out of India; JK Copier, from its sister company’s stable, is now a Rs 100 crore plus brand. Possibly, it is also the country’s largest-selling photocopier paper with a 40-45 per cent share of the market.
* Tractor major Escorts has not only retained its market edge in agriculture and farm implements business, it is now focussing on select areas of cellular telephony, healthcare services and information technology which it sees as major areas of strength. Consequently, it has exited its two-wheeler joint venture with Yamaha and plans to move out of its auto ancillary and earthmoving equipment businesses.
* Tyre maker Apollo, a me-too player when the economy opened up, now dominates the market as one of the biggest players in the truck and bus tyres segment. It has also cornered a 30 per cent share of the passenger radial tyre segment.
So, what’s brought about this turnaround in their fortunes? Says CII, “Indian families are learning to put business interests ahead of family loyalties.” Simply put, it’s survival instinct at work. Faced with unprecedented competition from a rapidly globalising marketplace, the dynasties are finally taking on the challenge of multinationals in stride. And in many cases coming out as winners.
Forcing this transition are:
1. Fund managers, particularly the FIIs, are demanding greater transparency in the way their companies are run. In the process, the families are removing deadwood retainers and professionalising management structures. The dynasties are also no longer insisting on running the show themselves, irrespective of the competence of individual family members or otherwise. So, the inheritance of corporate fiefdom which was once the accepted rule is now gradually giving way to succession by competence. In other words, given the limited choices, the families have finally begun to take control of their corporate destinies divorcing management responsibilities from promoter interests.
2. Helping bring about this change in corporate cultures are next-generation inheritors of family wealth armed with management degrees from the best campuses in the US. And irrespective of their areas of specialisation, the one thing they have mastered is the art of separating the chaff from the grain. A joint study by Grant Thornton (the sixth-largest accounting firm in the world) and a professor of entrepreneurship and strategy at the Indian Institute of Management, Ahmedabad, Kavil Ramachandran, suggests that business is recognised as the most important source of income and wealth for the family. So, there is a natural concern about its competitiveness. The present generation of owner-managers are increasingly preoccupied with the value of the business and, therefore, recognise the need to keep family affairs separate from business affairs. Says Harsh Pati Singhania, 39, deputy managing director, JK Corp Ltd., and a graduate of the University of Massachusetts, “In a closed economy, you had asset inflation pricing. It was a cost-plus approach. Every year we passed on the cost increases in the selling price. Today, we look at shareholder value and market capitalisation…we look harder at the return on capital employed. In the last few years, we have been putting a lot of emphasis on product quality and customer service.”
Faced with growing competition at home, even ex-generation entrepreneurs in some dynasties like the Bharat Rams have been changing with time. Says, CII director general Tarun Das, “a lot many entrepreneurs have been taking a backseat, vacating the corner rooms to professional managers. The corporate boardrooms too have been changing. True professionals with domain expertise have been brought in even as family members begin to adapt themselves to the role of mere shareholders.” Adds Arun Bharat Ram, 61, senior managing director of SRF Ltd., “Since 1994-95, we realised that in the new era of economic liberalisation, it was going to be imperative for any company to grow to have the best management team. So, we thought of truly professionalising the company and brought in Ravi Sinha as the CEO. He’s running the company for the last three years.”
Bharat Ram’s gambit at experimenting with change by relinquishing charge to a non-family professional seems to be finally paying off. When he took over Ceat’s tyre cord facility in 1995 in what was then billed as the largest takeover in corporate India, SRF ended up with a debt of over Rs 600 crore on a debt-equity ratio of 3:1. Today, the company is financially comfortable with the debt almost reduced to half at Rs 370 crore and a debt-equity ratio of less than 1:1. What is more, not only is SRF the largest tyre cord maker in the country now, it hopes to generate surplus cash soon. So, Mr Bharat Ram is busy figuring out where to invest his extra cash in the next four- five years; one of his options is IT.
That’s quite a change since the early ’90s when most Indian family-owned businesses were spread out thin with restricted capacities and played in protected markets. Admits BILT chairman L M Thapar, “Ballarpur faced a downturn with the change in Indian economy in 1991 because we were in diversified businesses. When things started getting bad, the institutions started persuading us to get back to our core competency and the FIIs started demanding that we get our balance sheet in order.”
Thankfully, for Thapar Sr, nephew Gautam was available at hand to rescue the company from its mess. Says Gautam, 40, who went to Pratt Institute in the US to study chemical engineering yet never quite ended up being an engineer, “I came into the business at a time when Ballarpur didn’t seem to have a choice and nothing much happened. Ours was a very cocooned company.” Now, all that has changed, thanks to what Gautam says were some tough business decisions. Old family retainers on whom Thapar Sr depended for counsel were shown the door and unproductive businesses like leather and glass sold off. The company’s financials were put in order and a premium was placed on retiring old debt even as the company raised fresh capital.
Those initiatives have started showing results with Ballarpur emerging not only as the country’s biggest paper manufacturer but also posting an 8.27 per cent jump in turnover and a 49.28 per cent rise in the bottom line. The previous year was dramatic with sales growing by 70 per cent and net profit rising 200 per cent as of June 2000. BILT has also posted among the highest compounded growth rate in EPS in the paper industry for the last four years and a RONW of more than 10 per cent for 2001.
Earlier this year, in a daring move that almost took the industry by surprise, BILT went ahead and acquired its biggest potential competitor, Sinar Mas’ Indian operations for Rs 540 crore in a deal transacted in just 95 days Mr Gautam Thapar, who is now the managing director at Ballarpur, says that both cyclical downturn and managerial inefficiency were equally responsible for the crisis.
Today, there are a lot of comforts. “There is greater transparency in the company between what the family does and what the business does,” he adds. That’s reason why Mr L M Thapar says he’s almost retired from active business: “Today, Gautam is running the business. He uses me as a sounding board. You can’t have two masters...” It’s not that every dynasty has adopted a similar model to grow. Some, like the Munjals have worked on sound business principles from day one. So they haven’t quite really felt threatened. Rather, they have proved the oft-quoted saying, “slow and steady wins the race” to be true. Starting with a bicycle ancillary unit in the post-partition years, the Munjals shaped their first big business venture Hero Cycles, into the world’s biggest bicycle maker before graduating to motorised two-wheeler business in 1985. Today, Hero Honda sells a million motorbikes a year; it's popular The splendour model is the world’s largest-selling bike. Come next year, Hero promises to sell one motorbike for every scooter, motorbike and three-wheeler sold by rival Bajaj Auto. The following year, it promises to touch the magic 1.5 million mark.
More importantly, money management remains a top priority for the company. Today, Hero Honda is debt-free. This has both advantages and disadvantages. A debt-free status can help them raise huge loans to fund future expansion. But right now, Hero ends up paying higher taxes than it should, incurring a higher cost of capital.
Says Pawan Kant Munjal, 47, CEO, of Hero Honda Motors of the reason behind Hero’s success: “We had an early advantage by acquiring the world’s best technology for two-wheelers, which was the four-stroke engine when others came in with two-stroke variants. The company wanted to build brand equity for Hero Honda which combined efficiency and appropriateness for Indian conditions along with superior technology.”
Adding to that is what group patriarch Brijmohan Lall, 78, affectionately called “bade babuji” by his employees, says is an enviable track record of industrial peace. The group, as a whole, employs 16,000 people and has a network of over 4,000 retail outlets. Hero Cycles and Hero Honda have never had an industrial agitation in their history.
Still, others have proved that success can come their way through sheer grit and determination. JK Tyres, which pioneered radial tyre technology in India way back in 1975 has focussed on internal efficiency and innovative marketing to emerge as the country’s leading commercial tyre manufacturer with a combined capacity of 4.8 million tyres a year at its four plants across the country. Says, Raghupati Singhania, 54, and managing director of JK Industries, “Today we are the largest exporters of tyres out of India, exporting 25 per cent of our capacity to 55 countries across six continents.” Part of that success can be attributed to sheer determination to carry on when confronted with adversity. Faced with three consecutive years of drought in Rajasthan, JK Tyres ferried water in 100 tankers over an 80 km distance every day to its plant at Kankroli for two years at a stretch.
It is this ability to keep its feet on the ground in moments of crisis that has also helped JK’s competitor in the commercial tyres business, Apollo, is to challenge market wisdom and emerge as a top player in its segment by creating wealth out of a sinking ship. When vice chairman Onkar Singh Kanwar, 60, walked into the company to take operational control from his father, still the chairman, way back in 1979, the two- the year-old company had run up losses of Rs 30 crore on a capital of Rs 8 crore. “The the moment I landed here, I told the senior management that I had a dream to make Apollo is a Rs 1,000 crore company. So, I told them that if they had faith in me they should just stay on and work.” Ever since, Kanwar has been pushing Apollo beyond the limit, first turning around his loss-making plant in Kerala in 10 years and then setting up a brand new venture in Gujarat. In doing so, Kanwar broke several rules of business, moving out of the tyre manufacturer’s cartel and pushing volumes and driving down prices to gain market share. Today, Apollo boasts Rs 1,400 crore plus turnover and claims its financials are better than JK’s. Kanwar says his next big aim is to shape Apollo into an institution that will live past his time. Perhaps, as a sign of this endeavour, he’s moved his corporate office out of crowded Nehru Place to a futuristic Rs 25 crore, 100,000 sq feet glass and chrome structure in the vast expanse of Gurgaon in Haryana which rivals the best intelligent buildings of the West.
Even as the older generation has been forced to adapt to changing market realities to keep their family nameplates shining, still others have been looking at the future with brand-new hopes. Bright, educated youngsters, who have shed the “lala” image of their forefathers and are bent on challenging conventional wisdom, exploring new frontiers, and riding the crest of entrepreneurial urge and professional ambition. And they are doing this without snapping the umbilical cords that tie them to their family business.
Take, for instance, K K Modi’s three offspring. Each of them has been fuelling their passion for profits with independent ventures of their own. Nevertheless, their father says each of those endeavours synergises with his cigarette business which essentially has to do with brand distribution. “In grooming my children for business, I followed what my father taught me. I told my sons that they should be entrepreneurial. They should create something of their own. Create a synergy with my group,” says Modi Sr.
So Modi’s elder son, Lalit set up an entertainment venture where it first signed a joint venture with Walt Disney. Modi Entertainment Network is now in the midst of an ambitious plan to wire cable operators across 70 Indian cities to provide broadband services to at least half-a-million Indian homes. Meanwhile, Modi’s youngest son Sameer, 32, has created India’s only network marketing firm over the past five years.
Today, Modi Care ranks No.2 in sales after US giant Amway, raking in Rs 130 crore in sales last year. This year it is targeting an ambitious Rs 500 crore. Sameer Modi now plans to take his business to several neighbouring countries including, Indonesia, Thailand, Malaysia, Bangladesh and Nepal over the next four years to push an Rs 5,000 crore turnover target.
Hardly to be left behind, Modi’s eldest offspring, his daughter, Charu Modi Bhartia, 40, too has now taken to an independent career by tying up with US education giant Apollo International for a $12 million academic venture. A year from now, her graduate school will bring professional degrees from the American Graduate School of International Management to Indian working adults. Says Modi Bhartia of her effort, “For traditional Modi daughters it is unusual to be in business. I got married when I was 19 and had just finished my plus two. We had not seen any of the Modi daughters going to the office.” But then, a divorce with Ajay Bhartia of the Vam Organics group forced the mother of two to join her father’s business. To see her through in her late start, Ms Modi Bhartia even enrolled on an MBA programme in the US at the ripe old age of 33.
Then there is Nikhil Nanda, 29, with an MBA in finance from the University of Columbia and the sole male inheritor of the vast Nanda empire. He’s very much a hands-on person in his father’s tractors business where he works 10 hours a day as executive director. But Nikhil says that he likes giving birth to something new. “What gives me a passion is to creating. I like to be an entrepreneur.” So he has gone and set up a slew of IT ventures that include automatrixindia, a B2B portal for supply chain management hooked on to Escorts’ farm business; iServeindia.com, an Internet service provider that sells under the brand name Zyberway in Kerala; CellNext in the wireless space providing applications and enterprise solutions and is developing software for 3G, banking, insurance, stocks and brokerage; and EscoSoft, a software animation company that has already developed India’s first gaming engine. Says Nanda of his new initiatives: “Our strategy for IT started with e-enabling Escorts. We understand the potential of data.”
Also shifting gears into the new economy is Arun Bharat Ram’s two offspring, Ashish, 33, and Karthikeyan, 30, are both alumni of Cornell. While the older of the two has set up a back-office software firm, SRF Infotel, the younger brother has set up a third-party material procurement portal SRFeBIZ. Says Ashish, “Sure, we are in the manufacturing business, but our focus is changing from the past.” Ashish also asserts that he did not enter the IT space because he wanted to be there, but because that’s what was decided by the strategic team at SRF. By all counts, these efforts are modest right now, but both the Bharat Ram siblings say that their gamble has just about started paying off. SRF Infotel has already set up a 150-seat pilot facility in Chennai and expects to be fully operational one-and-a-half years from now. As for SRFeBIZ, its transactional portal has already catalogued 40,000 items which it supplies to corporate clients like Vam Organics, Eicher, Sona Steerings, Nirula’s, Liberty, Samtel and Dabur. The portal plans to catalogue another 35,000 items soon, ranging across diverse applications from mechanical to electricals and instrumentation to packaging, chemicals, lubricants, safety equipment, office supplies and transportation. The company hopes to generate Rs 6 crore in revenue this year. Says Karthikeyan, “We are also helping our clients with ERP integration, which means that if they place an order with us, it gets registered in their system. We are the only supplier with a catalogue and are concentrating on being a horizontal portal.”
Also riding the IT bandwagon is Rajaa S Kanwar, 32, the elder of the Apollo boss’ two sons. He started life as a fashion photographer in the US and was hardly interested in managing his father’s huge tyre empire. But Rajaa has now set up Dusk Valley Corporation, an IT venture providing solutions to American and European insurance firms. Rajaa, who’s given himself the fancy designation of Chief EcoNet Officer (CEO) has already done business worth $8 million last year from seven locations worldwide and hopes to hit the $50 million mark three years from now, doing business across 18 locations. IT, says Kanwar, is a very big area for him.
So, he wants to be a global player in a niche category. “I want to be able to build something, which I hope is as big as Apollo,” he adds. Kanwar’s other pet venture is a four-year-old ladies' leather fashionwear business. He exported Rs 55 crore worth of high-fashion stuff to global fashion houses last year.
Yet, of all the new economy initiatives launched by the Nexgen family entrepreneurs, few have been as successful as the Singhs of Ranbaxy. The late Dr Parvinder Singh’s son Malvinder, 28 and his brother Shivinder, 27, have carried forward their family’s healthcare business by foraying into hospital services. Says Malvinder, who has worked his way up the corporate ladder at Ranbaxy, starting as manager of corporate finance in 1988 and is now, director, of global licensing and business development, “Fortis Healthcare - a Rs 155 crore, 200-bed cardiac speciality hospital in Chandigarh - is a contribution of my brother and me to the business, which our father had planned but couldn’t set up before his untimely death.” In the next five years, Fortis will focus on North India where it is planning to set up four or five similar 200-bed facilities, half of them in and around Delhi, spending upwards of Rs 1,000 crore. Malvinder says he is comfortable not enjoying a board presence in group flagship Ranbaxy Laboratories; he’s reserved that role for him at Fortis. Yet, the brothers are keen that as inheritors of a huge family fortune, the group focus its presence in four specific areas - pharmaceuticals, through Ranbaxy Labs; health delivery system, through Fortis Healthcare; pathology, through Ranbaxy Specialities; and health insurance, through a yet-to-be-set-up joint venture. “My brother and I are very clear about what we want. We want to be focussed around healthcare,” he says. Given their age and their passion for creating something new outside the domain of their vast inheritances, it is early yet to predict how far these initiatives will take Lalit, Sameer, Charu, Ashish, Karthikeyan, Nikhil, Rajaa, Malvinder and Shivinder in regenerating their family fortunes. Yet, grant it to their perseverance and sheer determination that every new initiative has been adding new momentum to carry their family’s legacy forward.
So, what makes them tick? ET’s research into the present and possible future of Delhi’s business dynasties threw up some common indicators of what makes them tick. And we found that each initiative was marked by a clear growth focus, an urge for consolidation, a passion for offsetting their traditional businesses with new growth opportunities, and a hunger for achieving huge turnovers in the shortest possible time. Above all, the kids are clued into the dynamics of a rapidly growing economy.
Classical management pundits say that the newcomers have not just imbibed the values of the traditional textbook entrepreneur who is opportunity-driven is a risk-taker and relationship-oriented, their modern upbringing has also imparted to them the qualities of a professional manager who is efficient and task-oriented, though being somewhat risk averse.
In a paper, titled “Towards professionalism in family-managed business,” Prof V K Murti and Dr Manesh Shrikant of the Centre for family-managed business, S P Jain Institute of Management Research, Mumbai, say that “entrepreneurship and professionalism can co-exist, both in an individual and also within an organisation.”
For, as the business grows in size and complexity, it requires changes in organisational structure and induction of formal systems. The growth of a business entails an increase in the scale and scope of activities. Centralised and ad-hoc decision-making, often vested in one individual, i.e., the owner-manager becomes inappropriate. So, does the new generation have what it takes to push their companies forward? Answer: “Yes”. Not only do these inheritors have the necessary business background and the support of their forebears, but they also enjoy sound financial backing. They are also armed with the requisite education and business exposure that has helped them shed the herd mentality in favour of unprecedented courage to experiment and win.
Yet, the more you look at the NexGen entrepreneurs of Delhi’s old dynasties, the fewer things seem to have changed. As with the new kids on the block, their forefathers too came into the business, with an uncanny determination to tap unexplored frontiers and surge ahead where few had dared to tread before. Unlike the more established traditional business families elsewhere in the country, most of Delhi’s barons, except for the odd exception, made fortunes out of hitherto unexplored businesses. So, you once had the redoubtable Raunaq Singh, graduating from being a steel tube trader to a steel tube manufacturer before setting up Apollo Tyres.
And then, there was Bhai Mohan Singh, 82, who channelled his father’s huge construction profits generated by World War II, first into money-lending and then into a successful pharma business. Says Bhai Mohan Singh of his early effort, “My father was a farmer and money-lender. I told him that I didn’t like his business. I would like to join some industry. After the partition, we arrived in India, and I got into the financing business. I first financed a chemist’s shop below Marina Hotel that went by the name Ranbaxy Chemists.
Somehow, they could not pay us back for two years. That’s when I decided to buy the shop. Soon, I closed the shop and took up an agency business and became the northern India distributor for Pfizer...” The rest, as they say, is history. Other more established business houses like the Shrirams and Singhanias, too were bent upon creating history, taking advantage of the shortages during the second great war and later when India gained freedom. Says Dr Bharat Ram, 87, who joined the Delhi Cloth Mills after graduating from St Stephens in 1935, “The War came in 1938 and we got busy producing tents. As a result, our company grew quite a bit. During that period there was also a shortage of chemicals. We didn’t have sulphuric acid, so we got into the chemical business. The British needed help from Indian industry for the war effort. The country had to produce. That’s how our company grew. Gradually, we went into fertilisers in the The ’60s and then into viscose tyre cord. Up to the ’70s, DCM was the seventh largest corporation in India.”
Hari Shankar Singhania 68, president of JK Organisation and head of the eastern wing of the now-divided Singhania family, who joined his family business in 1952, also learnt early in life that the pot of gold indeed lay buried at the end of the rainbow. “When I started, my father asked me to find out every conceivable item that was being imported into the country.
So, I went about collecting data from the ports in Mumbai, Kolkata and Chennai and dug out whatever was being imported from their customs lists.” The Singhanias were the first Indian company to manufacture aluminium. They were also the first to produce nylon 6, the first to make radial tyres, the first to make steel engineering files, the first to make Calico prints and the first to make acrylic fibre. Over the years they have moved out of several of those businesses and Mr Singhania says his group’s focus is now on paper, cement and tyres. And for a person who’s been through half a century of active business, Singhania says matter-of-factly: “Change is a continuous process. Moreso, when the economy and science make rapid progress, they help in the pace of change. You have to respond according to your environment.”
It is this change brought about by science and the economy that’s propelling the next generation to grow. That’s also the reason why most have taken to brand-new IT ventures. Says CII’s Tarun Das of this initiative, “It’s not just a herd mentality that’s making them opt for IT. That’s where the next big business opportunity lies. After all, we are still just 10 per cent of the global capacity.” Of course, Mr Das says that the transition taking place in family businesses is still in the early stages. It will take time to predict how far they will go. For, while in many cases the old guard has started creating space for professionals, giving up control has been painful for most. That’s perhaps why you have Gautam Thapar stepping into “old-man” LMT’s shoes or Hari Shankar Singhania grooming his nephew Harsh Pati to take on the family’s mantle after he calls it a day.
“What you are seeing today is the first phase of change. Phase 2 will see the promoters increasingly taking up the investor’s role. Ten years from now I see them as investor managers, no longer running the operations of a company.” There’s still a big question about whether that will happen. Harsh Pati Singhania, who got inducted full-time into his family business in 1989 says, “I did reasonably well in my studies. My family was as keen as me that I should study abroad. I have graduated from the University of Massachusetts and have done an MBA programme at Harvard. I came back and joined as an executive and sat in a hall at Ganges Manufacturing in Calcutta with the clerks and wrote books. That has held me in good stead. I believe that family managers are real professionals.
So, how can you question my competence?”
That’s a big question. Or how else do you challenge Gautam Thapar’s contention when he says, “I see myself very much as a professional.” Possibly most of the doubts about the role of family members in the context of dynasty-run businesses stem from the nasty confrontations of the eighties and the early nineties that led to the split of the big empires across India. In Delhi, warring Modi's siblings waged a bitter battle for control in the late eighties and a settlement eluded them for years. This resulted in a haphazard division of the family silver.
Result: several of their companies have since gone to seed. Ditto for the Shriram family. Even with the Thapars, who have not waged a public battle to divide their once prosperous empire, only Ballarpur remains an island of hope. And in almost every case, incompetent family managers have had to share the blame. Admits K K Modi, “The Modi group witnessed a very good growth because of the large number of family members each of whom wanted to excel. Till 1976, my father was in charge of the group. Later, the control passed on to the hands of my uncle (K N Modi) and me. This eventually led to a split in the group in 1989. I attribute the split to the failure of leadership provided by my uncle and me to manage a large number of family members. Because this team could not work, it led to fragmentation.”
Others see a split as a logical means to help the family grow. Says Dr Bharat Ram, “I think the splitting of DCM was a natural process. As families grow, everyone wants independent responsibility. So families should split but in an organised manner. DCM was split peacefully and everyone is happy.”
And new wine in the old bottle.
Yet a generation or two down the line, the new entrepreneurs are realising that professionalism comes alongside sticking it out together. So they are leaving the acrimony of the past behind. Where family members squabbled once over how to share the loot, they are now sitting together to decide what is in the best interest of the family. And in doing so, they are seeking outside help. Some time ago, K K Modi’s family went to Aspin Institute in the US to attend a four-day workshop on family bonding. Says Charu Modi Bhartia of that experience, “We realised the joint family system had a lot of merits. Through interdependence, they could draw on each other's talents. Today, the way inheritance can be handled is getting restricted. Maybe we can work out a new model. Our education is different from what our parents got...”
Others are figuring out their place in a rapidly-changing boardroom where the outsider is deemed important. Arun Bharat took his family to IMD, Laussane, this September to attend a $5,000 per head week-long programme on managing the family business. Says Karthikeyan Bharat Ram, “We discovered that family entrepreneurs from across the world share a lot of common problems. There’s this big question about whether family members should play the role of a manager or an owner. One of the outcomes of that workshops was that the board, which ultimately represents the shareholder, should be actively involved in running the business.”
Elder brother Ashish believes that families generally split when their value systems are different. When ambitions and values are similar and you have a basic understanding of each other’s needs then you generally stay together.”
Last January, Arun Bharat Ram’s family worked out a code of conduct to govern basic family issues like how many times each member travels, what comes out of a common pool, what comes out of dividends and what comes out of salary. Very soon they plan to start a family forum as well to discuss all matters relating to their family, including wives, mothers, children and sisters besides the male clan members.
Taking a cue from these early initiatives even the CII is putting up a forum for family businesses where both sociologists and psychologists will advise family members how to stick it out in business together. See how they work...!
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