The war within Indian business families and its effects

The reported agreement in the Bajaj Group on issues of how the family will jointly own group companies, along with a well-laid-out process for handling matters related to succession, ownership and conflict resolution, is a welcome boost for the struggling Indian business family system. This historical social structuring, already fraying at the edges, has been showing signs of fracturing at the centre as well, with family feuds becoming a regular feature of the business environment.

Brothers engaged in an ugly spat. A father-son duo engaged in a duel. And that’s not even the full story as subterranean conflicts rise to the surface and the growth and development of companies take a back seat. These fratricidal struggles have severe consequences for owners and shareholders alike.

Two brothers of a once mighty business dynasty reduced to fisticuffs in full view of a social media-drummed audience isn’t just an unedifying spectacle. It is also a warning to the patriarchs of corporate India that for all the love and affection they bear towards their progeny, bestowing their businesses to them as birthday gifts may not be the smartest of business moves.

Sample the saga of the Ranbaxy family. Shivinder and Malvinder Singh, the sons of an illustrious father and grandsons of an equally illustrious grandfather, showed us their true colours while trading blows and then promptly placing the ugly video of the event for full public viewing. Not that it came as any surprise. Over the last one year, there has been enough mud-slinging between them to suggest this was a natural progression. Accusations of petty thefts, large-scale fund diversion, and serious charges of fraud have been some of the milestones in this sibling rivalry.

The result has been the total destruction of a once proud business dynasty. It would have been tragic had it not been so comical. After all, it takes special talent to lose that kind of fortune.

Through the June 2008 sale of their 34% stake in their pharma inheritance Ranbaxy to Japan’s Daiichi Sankyo, the brothers made over ₹5,000 crore. Their wealth peaked at $3.5 billion in 2012, according to Forbes, after which the various shenanigans that have unfolded over the last two years saw a steady drain of that wealth. Even then, as of two years ago, their collective net worth, according to Forbes, was still a whopping $1.4 billion. Now, the two brothers face a multitude of legal woes, not least of them servicing the ₹3,500 crore arbitration award in the case filed against them by Daiichi Sankyo.

It has all happened before. Their father, the late Parvinder Singh, battled both his father, Bhai Mohan Singh, and later his brothers over the family business. Indeed, business families and internecine struggles have been a regular feature of this country’s landscape.

Even when Ratan Tata was eased into the role of heading a then splintered Tata group in 1991, there were other claimants to the job, some of who made their claims quite forcefully. Among those who had legitimate claims were Russi Mody, then head of the Tata Iron and Steel Co. (Tisco), Sumant Moolgaokar, who headed Tata Engineering and Locomotive Co. Ltd (Telco), legal eagle Nani Palkhivala, and others like Freddie Mehta and, of course, Naval Tata. Finally, only the sheer force of J.R.D. Tata’s personality led to Ratan Tata’s ascension.

Partly of course it is to do with the preponderance of this structure in Indian business. Family businesses contribute 79% of India’s gross domestic product (GDP), the third highest in the world after the US and Germany. That creates its own set of stress factors as we have seen with the almost sudden eruption of ill will between Vijaypat Singhania and his son Gautam Singhaniaover how the 90-year-old business is to be run. In a just-released report titled Family Businesses In India—Transforming Organizations To Unlock Unrealized Potential, professional services firm Alvarez & Marsal writes, “For family businesses, the inherent structural and cultural construct increases the level of complexity of the transformation process.”

Till such time as business in India was access-controlled, the key requirement for success was the ability to manage the political equations. In the post-liberalized business world, leadership of diversified conglomerates in particular calls for a portfolio of skills that tests not just the inheritors but also the dynamics of their relationship with their families.

The Alvarez & Marsal report points to some issues that exacerbate these conflicts: management bandwidth constraints, key man risk, power centres, resistance to change and increased business complexity.

Some of the biggest threats to the institution of the business family come from within, with conflicts over new business plans, investments, sharing of wealth and naming of successors becoming the impulses that can destroy carefully constructed inheritances. These fissiparous tendencies usually surface in the third generation though that may be too broad a generalization. Soon, some of India’s best family-run businesses, such as Reliance and Wipro, will confront issues of succession planning and division of assets among the siblings. How well they manage them will define not just their own but the future of Indian business.
[“source=livemint”]