By Kavil Ramachandran,
The 127-year-old story of the Rs 1.76-trillion Godrej business conglomerate as a unified family business that lasted five generations has ended. The group was vertically split across two family branches headed by Adi and Nadir Godrej on one side and cousins Jamshed and Smita Crishna-Godrej on the other. Not long ago, in 2020, the highly-diversified TVS group, with a Rs 70,000 crore revenue, also split branch-wise, ending its 113-year-old legacy built across five generations. In 2016, the Munjal family that built up the Rs 35,000-crore Hero two-wheeler company announced a split across family branches, thus ending its 40-year-old history across three generations. These three well-known Indian family businesses practised sound governance and maintained cordial relationships among family members while managing their businesses professionally. They innovated and built multiple businesses competitively. Then why did they all split, making each branch much weaker in several ways? Is this a signal that business empires are no longer stable and are prone to break up? More fundamentally, can’t Indian family businesses be built as lasting institutions or is a split inevitable?
There are several common features across the three cases discussed above. We can draw important lessons from a closer look at some of them.
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Strong entrepreneurial leadership
The survival and growth of any venture is a certificate of the entrepreneurial acumen of the founders and their ability to take their start-up through the early growth stage. Many of them build their organisations further and manage the later growth stages through professionalisation. That involves not only the introduction of organisational structure, systems and processes, but also building a team to implement the strategies. All along, the founder entrepreneur is committed to the success of the organisation, whether it has one or more businesses. They consider them all equally as their children and give attention and care as they require. As a result, there is a unified and synergistic decision-making at the top across the businesses that may be related or unrelated from a product-market angle. Resource allocation is also balanced with passion shared across businesses.
Operational leadership always with family
Most successful Asian family businesses allow the younger generation to step into the operational leadership of their preceding generation. Alternatively, children are encouraged to pursue their entrepreneurial ideas, often in unrelated areas, partly to make them independent, and partly to avoid possible fights among them. In any case, the next-generation leaders build their own constituency that they fiercely protect. Over a period of time, their loyalty, commitment, and involvement get restricted to their own fiefdoms. With the younger generation concerned mostly with their “own” businesses, there is none like the founder to think synergistically about the group and its corporate strategy. The challenge gets harder when each family member’s performance is measured against the goals specific to the individual business he or she manages. In many families, next-generation champions do not have goals and targets fixed at the group level. While the founder was a great integrator of the various businesses of the group, later generations do not have a group-level champion to think comprehensively. Slowly, the vacuum thus created grows bigger and individuals fiercely try to protect their operational territories (strategic business units). This is akin to states flexing muscles at the cost of the federal governance entity.
Absence of group-level strategy and governance
The split gains momentum when the third generation ascends and cousin bonding wanes compared to that of siblings. The casualty is the absence of a strong group-level strategy that was the hallmark of the founder leader’s entrepreneurial leadership. The implicit presence of a group and shared family governance principles gradually evaporate, leading to simmering differences among family units that may end up in a gridlock and split. In fact, the need for explicit policies and processes of governance is much greater at this stage to keep the growing flock together and united.
Avoiding the gridlock trap
Visionary family businesses set clear expectations from family members, especially from the second or third generation onwards, when economic factors outweigh emotional bonding. In general, families define themselves as the custodians of the wealth of the entire unit and limit their role to strategy and governance. In some cases, families expect the next generation to drive entrepreneurship by spotting opportunities and initiating ventures with clear policies for funding. Those who join operations never become the CEOs of any one vertical. In any case, family members do not steer operational responsibilities and ensure practice of merit and professionalism. It never becomes an employment exchange or a platform to meet the ego needs of family members. In the process, the individuals do not become myopic. They recognise that their surnames alone do not make them the most competent to manage the business competitively.
Family members always remain custodians of their inherited wealth. Across the world, leaders with stewardship values have built and preserved institutions, business or otherwise. Such families know that several silos do not add up to a great lasting structure.
By Kavil Ramachandran,
The 127-year-old story of the Rs 1.76-trillion Godrej business conglomerate as a unified family business that lasted five generations has ended. The group was vertically split across two family branches headed by Adi and Nadir Godrej on one side and cousins Jamshed and Smita Crishna-Godrej on the other. Not long ago, in 2020, the highly-diversified TVS group, with a Rs 70,000 crore revenue, also split branch-wise, ending its 113-year-old legacy built across five generations. In 2016, the Munjal family that built up the Rs 35,000-crore Hero two-wheeler company announced a split across family branches, thus ending its 40-year-old history across three generations. These three well-known Indian family businesses practised sound governance and maintained cordial relationships among family members while managing their businesses professionally. They innovated and built multiple businesses competitively. Then why did they all split, making each branch much weaker in several ways? Is this a signal that business empires are no longer stable and are prone to break up? More fundamentally, can’t Indian family businesses be built as lasting institutions or is a split inevitable?
There are several common features across the three cases discussed above. We can draw important lessons from a closer look at some of them.
The survival and growth of any venture is a certificate of the entrepreneurial acumen of the founders and their ability to take their start-up through the early growth stage. Many of them build their organisations further and manage the later growth stages through professionalisation. That involves not only the introduction of organisational structure, systems and processes, but also building a team to implement the strategies. All along, the founder entrepreneur is committed to the success of the organisation, whether it has one or more businesses. They consider them all equally as their children and give attention and care as they require. As a result, there is a unified and synergistic decision-making at the top across the businesses that may be related or unrelated from a product-market angle. Resource allocation is also balanced with passion shared across businesses.
Most successful Asian family businesses allow the younger generation to step into the operational leadership of their preceding generation. Alternatively, children are encouraged to pursue their entrepreneurial ideas, often in unrelated areas, partly to make them independent, and partly to avoid possible fights among them. In any case, the next-generation leaders build their own constituency that they fiercely protect. Over a period of time, their loyalty, commitment, and involvement get restricted to their own fiefdoms. With the younger generation concerned mostly with their “own” businesses, there is none like the founder to think synergistically about the group and its corporate strategy. The challenge gets harder when each family member’s performance is measured against the goals specific to the individual business he or she manages. In many families, next-generation champions do not have goals and targets fixed at the group level. While the founder was a great integrator of the various businesses of the group, later generations do not have a group-level champion to think comprehensively. Slowly, the vacuum thus created grows bigger and individuals fiercely try to protect their operational territories (strategic business units). This is akin to states flexing muscles at the cost of the federal governance entity.
The split gains momentum when the third generation ascends and cousin bonding wanes compared to that of siblings. The casualty is the absence of a strong group-level strategy that was the hallmark of the founder leader’s entrepreneurial leadership. The implicit presence of a group and shared family governance principles gradually evaporate, leading to simmering differences among family units that may end up in a gridlock and split. In fact, the need for explicit policies and processes of governance is much greater at this stage to keep the growing flock together and united.
Visionary family businesses set clear expectations from family members, especially from the second or third generation onwards, when economic factors outweigh emotional bonding. In general, families define themselves as the custodians of the wealth of the entire unit and limit their role to strategy and governance. In some cases, families expect the next generation to drive entrepreneurship by spotting opportunities and initiating ventures with clear policies for funding. Those who join operations never become the CEOs of any one vertical. In any case, family members do not steer operational responsibilities and ensure practice of merit and professionalism. It never becomes an employment exchange or a platform to meet the ego needs of family members. In the process, the individuals do not become myopic. They recognise that their surnames alone do not make them the most competent to manage the business competitively.
Family members always remain custodians of their inherited wealth. Across the world, leaders with stewardship values have built and preserved institutions, business or otherwise. Such families know that several silos do not add up to a great lasting structure.
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Maruti Suzuki’s net profit in Q4 of FY24 increased by 47.8% to Rs 3,877.8 crore compared to the same quarter in FY23. The company’s revenue from operations also saw a growth, reaching Rs 38,234.9 crore in Q4 of FY24.
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