India Transformed
Page 59
The Future of Indian Business Families
‘Before the multinational corporation, there was family business. Before the industrial revolution, there was family business. Before the enlightenment of Greece and the empire of Rome, there was family business.’
—William T. O’Hara, American business historian (2004)
‘After half a century, and this is an overestimation, no one will talk about family businesses in India.’
—Dwijendra Tripathi, Indian business historian (2011)
I am a firm believer in the O’Hara school of thought. But the views of India’s foremost business historian, my mentor and PhD guide, Dwijendra Tripathi, cannot be taken lightly. In an interview published in Mint, Tripathi highlights four areas of strain in business families that have been exacerbated by liberalization:
Greater availability of business opportunities is testing the ability of business families to manage bigger markets and more complex organizations;
The family is no longer the primary financier for businesses. Many sources of funding businesses are now available;
The persistence of the third-generation syndrome, i.e., the point when a business family breaks up;
The fading of the joint family system. Emotional bonds today are not as strong as in earlier generations.
Tripathi closes by quoting Alfred D. Chandler, the American business historian. Referring to General Motors, Chandler wrote: ‘No family or family institution was large enough to staff the managerial hierarchies required to administer modern multi-unit enterprises. Because the salaried manager developed specialized knowledge, and because their enterprises were able to generate funds necessary for expansion, they ultimately took over the top-level decisionmaking from owners, financiers or their financiers. Family members, as a result, came to view their enterprises as rentors …’ ‘This holds true for Indian businesses as well,’ Tripathi commented.
With the exception of the fifth point—where only time can tell, and the time may not come for many decades, if at all—Tripathi’s views are valid. Liberalization did usher in more opportunities. There are many more funding options today. The third-generation syndrome does play out, but we now know there are ways to channel it. Humans are emotional beings. That will never change. I am an optimist and believe India offers tremendous opportunities for business families, current and unborn.
For a moment, let’s go back in history. Table 6 was compiled backwards, i.e., tracing the roots of the top fifty business families of 2016. Mumbai’s Wadias are the oldest business family in this grouping. Established in 1735 by Lovji Wadia, knighted by the British for services to the Raj, it has morphed over 280 years from building ships to baking bread and biscuits. All the Marwari families mentioned in Table 6 (Birla, Bangur, Bajaj and Piramal) have split, some more often than others, yet continue to contribute a family member to the list. In the course of making Ayurvedic products for over a century, the Burmans have managed to develop a relatively smooth succession planning process that works. A loose–tight structure knits the Godrejs and the TVS group. Tight through the joint selection of the group chairman (usually, the eldest family member) and keeping each other informed of important decisions through cross-directorships of boards. Loose as business operations are independent of each other. At the Hamieds, it is a work in progress.
The list of business houses mentioned in Table 6 is extracted from Annex 1, which is to be considered as a snapshot in time. Markets change continuously, and as the market caps of the companies under their charge fluctuate, so do the rankings of business families. Those featured here are here because of the total market cap of the companies under their control during the fortnight between 1 June 2016 and 16 June 2016. India has many more vintage business families than Table 6 suggests. They happened to not make into the top fifty that fortnight.
Unfortunately, lack of space precludes a deeper examination of the ways in which these vintage business families have defied the three-generation syndrome. The ways in which newer business families manage in-house talent and succession planning will also have to be reserved for another time and place. Perhaps the key for both lies in an ability to straddle tradition and modernity. Food for thought, but for another time and place. In the meantime, a summary of the top fifty by generation in Table 7.
Table 7: Top Fifty Business Families by Generation, 2016
Generations
Business Families
10
1
9
0
8
0
7
2
6
0
5
1
4
1
3
10
2
17
1
18
Sources: Compiled from Annex 1, company websites and documents, media reports, my own books, articles and interviews.
The State
‘What are we seeking to control and for what purpose? Where have we gone wrong and why?’ pondered Rabindra Kishen Hazari (1932–86), idealist, economist and, in the mid-1960s, Jawaharlal Nehru’s key architect of industrial licensing and the Monopolies and Restrictive Trade Practices Commission.
Manmohan Singh (b. 1932), idealist, economist and, in the early 1990s, P.V. Narasimha Rao’s finance minister, who implemented the New Economic Policy and the dismantling of the MRTP Commission, may possibly be asking himself the same question.
According to a 2011 Credit Suisse report, India has the highest percentage share of family businesses in Asia, accounting for 67 per cent of the total listed companies with a market capitalization of over $50 million (3.35 billion). But what about the future?
While I believe in the future of business families, two concerns need to be addressed: the slowing of company incorporations in the private sector; and the seepage of talent to the rest of the world.
As mentioned earlier, roughly 6000 companies were incorporated by large family business groups in the heady early days of liberalization when everything seemed possible. But the picture changes far too quickly. Chart 2 shows the peaks and valleys of non-government-firm incorporation between 1989–90 and 2105–16.
Enthusiasm and hope led to an uptick between 1992–93 and 1995–96 when 1,34,507 non-government companies were promoted. By 2001–02, we are back to 21,000+ levels. The slowdown between 1996–2003 is sharp but a steady and stable GDP, enabled by a series of good monsoons, allows the number of incorporations to start rising. The year 2011–12 was the best, with 99,587 new non-government companies being launched.
Chart 2 captures the optimism of the past. It also points to the current insecurity about the future. Company incorporations are falling, and the sharpest fall is taking place in new companies launched by the large business families. The real picture will become clearer after the company results of 2018–19 are out, but roughly only about 200 important new companies have been launched by major family business groups over the past couple of years. For a country the size of India, that’s like a population of 1.3 billion winning two medals in the Rio Olympics.
The second challenge is that talent is leaving India. In the brain drain of the 1960s, India lost scientists to the West, particularly the United States with their well-funded, high-quality laboratories. The current exodus of entrepreneurship is even more insidious, and harmful to the future of India.
Second- and third-generation members of business families, particularly those in their thirties, are becoming increasingly uneasy with India’s ever-changing regulatory environment. Despite liberalization, the relationship between business and politics is as fragile as it has always been. Disenchanted with the system, a worrying number secretly dream of either leaving India and starting afresh in other parts of the world, or of selling their operations to become capital allocators rather than actual managers.
Their conversations are a reprise of Aditya Birla’s (1943–55), who looked outside India for growth
opportunities. ‘So much time was being taken up that I decided to move out,’ he said. ‘Everyone wants to make his own contribution and whatever I might do in India would only be a drop in the ocean. Going overseas was the only course I had to make it on my own.’
Chart 2: Liberalization and Non-Government Company Incorporations, 1990–2016
Source: Ministry of Corporate Affairs (MCA), retrieved on 13 May 2017.
Disenchantment is not limited to business families but has spread to professional managers who run operations. In fact, managers have pre-empted young inheritors: it is an open secret that over the last five years, India has lost almost 200 of its best senior-level managers to Singapore.
Every single company in the world starts life as a dream. The dream of a restless entrepreneur. But in the end, it is the state, the government and its policies that decide the forms entrepreneurship can take.
Annex 1: India’s Top Fifty Business Families, 1990 and 2016
Rank
1990
2016
1
J.R.D. Tata
Tata
2
B.K.–A.V. Birla
Mukesh Ambani
3
Dhirubhai Ambani
Kumar Mangalam Birla
4
Lalit Mohan Thapar
Sunil Bharti Mittal (Airtel)
5
Gaur Hari Singhania
Dilip Shanghvi (Sun Pharma)
6
Rama Prasad Goenka
Anand Mahindra
7
Ramkrishna Bajaj
Rahul Bajaj
8
Kedarnath Modi
Uday Kotak
9
Shashikant Ruia (Essar)
Azim Premji (Wipro)
10
M.A. Chidambaram
Anil Aggarwal
11
G.P.–C.K. Birla
Shiv Nadar (HCL)
12
Keshub Mahindra
Srichand P. Hinduja
13
K.K. Birla
Ashwin Dani (Asian Paints)
14
S.K. Birla
Gautam Adani
15
Arvind and Mihir Mafatlal
Adi Godrej
16
Abhey Oswal
Desh Bandhu Gupta (Lupin)
17
Manu R. Chhabria
Sajjan Jindal (JSW)
18
Lalchand Hirachand
Pawan Munjal
19
Jaiprakash Gaur (Jaypee)
Anil Ambani (Reliance ADA)
20
A.M.M. Arunachalam (Murugappa)
Anand Burman (Dabur)
21
Bharat Ram
Siddhartha Lal (Eicher)
22
Hari Prasad Nanda (Escorts)
Kallam Satish Reddy (Dr Reddy’s)
23
Priyamvada Birla
Ajay Piramal
24
Gauri Prasad Goenka
Subhash Chandra & Ashok Goel (Zee, Essel)
25
Srichand Parmanand Hinduja
Benu Gopal Bangur*
26
Vijay Mallya
Rana Kapoor (Yes Bank)
27
Uttambhai Nathalal Mehta (Torrent)
Shashikant N. Ruia (Essar)
28
TVS Group
P.V.R. Reddy & K.N. Reddy (Aurobindo Pharma)
29
Brij Mohan Khaitan
A. Vellayan (Murugappa)
30
Sohrab Piroshja Godrej
Sameer Gehlaut (Indiabulls)
31
Arvind Narottambhai Lalbhai
Yusuf Khwaja Hamied (Cipla)
32
Shantanurao Laxmanrao Kirloskar
TVS Group
33
Kanumuri Venkata Krishna Raju (Nagarjuna)
Nusli N. Wadia
34
Neville Ness Wadia
Rahul Bhatia (Indigo)
35
Ashok Bhalchandra Garware
Madhukar P Parekh (Pidilite)
36
Vijaypat Singhania (Raymond)
Harsh Mariwala (Marico)
37
Vasant Sheth (Great Eastern)
Pankaj Raman Patel (Cadila)
38
Mohan Lal Mittal (Ispat)
Sudhir Mehta (Torrent)
39
Neelkanth Kalyani (Bharat Forge)
Sandra Shroff (UPL)
40
Raunaq Singh (Apollo)
Murali Krishna Divi
41
C.K. Mehta (Deepak Fertilisers)
Baba Kalyani (Bharat Forge)
42
Gautam Sarabhai
Kushal Pal Singh (DLF)
43
T.S. Sajeevan (Continental)
Radhe Shyam Agarwal and Radhe Shyam Goenka (Emami)
44
Naidu G.V. (Lakshmi)
Glenn Saldanha (Glenmark)
45
Basant K. Jhawar (Usha Martin)
Rajan Beharilal Raheja
46
Rajendra Prasad Mody (Hindustan Development)
Kuldip and Gurbachan Singh Dhingra
47
Mohan Singh Oberoi
P.R. Ramasubrahmaneya Rajha (Ramco)
48
A. Sivasailam (Amalgamation)
Basudeo N. Singh (Alkem Lab)
49
Vishwasrao D. Chowgule
Ramchandra Naidu Galla (Amara Raja Batteries)
50
Om Prakash Jindal
Kiran Mazumdar-Shaw (Biocon)
* The Bangurs of Kolkata would have featured in the 1990 ranking but were working their way through a family split at the time.
Sources: Compiled from company websites and documents, CMIE Prowess, moneycontrol.com and bseindia.com, media reports, my own books, articles and interviews. Market-cap data were captured between 1 June and 16 June 2016. Also:
Harish Damodaran, India’s New Capitalists: Caste, Business, and Industry in a Modern Nation; Tarun Khanna and Krishna Palepu, ‘The Evolution of Concentrated Ownership in India: Broad Patterns and a History of the Indian Software Industry’, in A History of Corporate Governance around the World: Family Business Groups to Professional Managers, ed. Randall K. Morck (Chicago: University of Chicago Press, November 2005).
A Comment on the Data
(1) The list of companies controlled by a business family was compiled from a variety of sources, including, but not limited to, government records, Bombay Stock Exchange, CMIE Prowess, moneycontrol.com, bseindia.com, Bloomberg, corporate annual reports, company websites and other company documents, as well as books and media reports.
(2) Only listed companies have been considered for ranking purposes. The base dates are 31 March 2015 for companies listed on the BSE and 1–16 June 2016 for companies’ market capitalization.
(3) Strictly speaking, the data for 1990 and 2016 are not comparable, but using the popular yardsticks of the times enables a picture of trends as they were at the various points in time. In the controlled economy that was 1964–91, assets as a measure of a business family’s success was probably the purest criteria as the government monitored the results continuously. In post-liberalization era, market capitalization instantly becomes the criteria of success as managements are rated by their nimbleness and ability to manage change.
(4) Where a company has a foreign subsidiary and its financials are included in the consolidated statement, its contribution is automatically captured in the company’s market capitalization.
(5) The data set does not include foreign companies that are stand-alone and listed in their countries of registration.
26
India’s National Innovation System: Transformed or Half-formed?
Naushad Forbes
This chapter has benefited
greatly from the expert support of Janak Nabar and his team at the Centre for Technology, Innovation and Economic Research, Pune, and Digvijay Bhandari at Forbes Marshall. The comments of Rakesh Mohan on an earlier draft are much appreciated.
Indian industry has changed beyond recognition in the twenty-five years since the reforms. From operating in a protected home market, often producing old designs of indifferent quality in sector after sector, there are now no product gaps between what is available in India and what is available in the rest of the world. We take this for granted today, but in 1991, as an affluent Indian, I was fortunate to buy a new car only ten years out of date (replacing my old new car, which was twenty-five years out of date). I bought most of my clothes overseas; no decent cheese or processed food was available in the country; we booked phone lines five years ahead of when we thought we might need them; our one domestic airline—Indian Airlines—published its timetable for the sole purpose of enabling you to calculate how late you were; and television consisted (on Doordarshan) of picking between the news and a stimulating programme on animal husbandry. Contrast that with 2016, when what we enjoy in each large Indian city is at par with most large international cities. (And if you take a flight today from New York or London to Mumbai or Delhi, you leave a Third-World airport and arrive at a First-World one.)