Two sides of the same coin; but succession in ownership and management are a study in contrast
Nevin John April 3, 2015Problems usually crop up in large business families when things look up. The Ambani brothers Mukesh and Anil split when their businesses were flourishing in petroleum, telecom, power and financial services in 2005. Moreover, the big plans on cards were exploration and production at Krishna Godavari (KG) Basin, doubling of refining capacity at Jamnagar and venturing into organised retailing.
The Bajaj family's long-running feud ended in 2008 with the exit of Shishir Bajaj, the younger brother of Rahul Bajaj, and his son Kushagra from the joint-family business. Over the duration of the battle, the family's auto, financial services, electrical and sugar mill businesses were promising to the core.
Now it seems the downside of the economic cycle is reaching its tail end. While entering better days, the families in business should revisit their thoughts on succession that are kept on the backburner.
It is not only the feud of the siblings that would worry the families and their businesses in future. The disinterest in the flagship business, lack of management experience and lesser skills to unseat the existing professionals at the top are going to be the worries of new generations in the family business.
In today's scenario, the succession process has two dimensions. The Ambani siblings and Bajajs had grown through the business and fought for management control and gained it. But today's promoter-parents think succession in ownership and succession in management are separate issues that need to be handled separately.
For instance, the Godrej family is pretty clear about giving management control to the fourth generation. The children of Adi, Jamshyd, Nadir and Crishna attend family business board (FBB) meetings as invitees. Tanya Dubash, Nisaba and Pirojsha - Adi's children - are heading various businesses and processes in the group and are directors of companies. The added advantage is that the promoter family holds majority stakes in group companies.
Similarly, Mukesh Ambani's twins, son Akash and daughter Isha, were inducted into the boards of Reliance Retail and Reliance Jio Infocomm last year. The next natural step would be to graduate them to Reliance Industries board. Already, Nita Ambani is there on RIL's board, along with the cousins of Mukesh, the Meswanis, from the family. The ownership position of the family is also safer as they control 45.25 per cent stake in the company. So, transferring control will not be a worry.
Succession in management has been designed well in HCL Technologies. Shiv Nadar's 33-year-old daughter Roshni joined the board of the flagship firm in mid-2013. Contrary to this, Harsh Mariwala's 34-year-old daughter Rajvi had opted out of Marico years ago to focus on her research. Mariwala's son Rishabh also moved out of the family's flagship business Marico for fine-tuning his entrepreneurial skills. Marico is run by professionals now.
Sajjan Jindal formed a sports business company JSW Sports for grooming his son Parth. Dilip Shanghvi's son Aalok set up solar panel maker PV Powertech for sharpening his skills. Anil Agarwal's son Agnivesh, along with his chairmanship in Hindustan Zinc and directorships in Madras Aluminium Company and Sterlite Energy, runs a gold refining business in Dubai. Succession in management would be smooth here.
At one point of time, many have expressed apprehensions that N.R. Narayana Murthy's son Rohan would be groomed for the top job at Infosys, but he stepped down with his father's exit in 2014. However, Rishad Premji, head of strategy at Wipro and son of Azim Premji, has been groomed inside the company for taking over management control.
It is not that the Indian companies are more family-run. If you look at the 30 companies comprising the BSE Sensex, only 11 are family controlled, and the majority are either no-promoter or public sector companies. The Tata Group companies have become completely professionally run after the retirement of Ratan Tata.
Infosys also turned completely professional after the founders exited from management roles. Their ownership also reduced to 13.08 per cent stake, compared to 29.15 per cent in March 2001. In Mahindra & Mahindra and Dr. Reddy's Laboratories, the succession in management went well, but the ownership is in risky zone as the promoters hold just over 25 per cent stake. Moreover, an employee stock option trust, an employee welfare fund and a benefit trust are holding majority of promoter stake in Mahindra.
All these indicate that the difference between successions in ownership and management will be starkly contrasting in the years to come. PricewaterhouseCoopers, in one of its studies, found that most families have no real plans for succession, which leaves the next generation confused and unprepared for the challenges ahead. The transfer of ownership and managing the succession process would be the most difficult challenges that family businesses will encounter in the coming years.