‘Fame’ily Feuds
Hear about them fighting and tearing their kingdom apart... but did you also take note of the aftermath?

With more than twenty Indian business families breaking apart in the past twenty years, a relevant question pops up in the minds of the masses – “Is globalization tearing the Indian business family ties apart”? Well, add to the abovementioned observation the very recent Ambani split or the much discussed Ranbaxy and Apollo splits, and the question turns more into a statement. But surely, even though family feuds continue to characterize the longstanding social structures, the reality is far from obvious. Post-termination of the ill-famed License Raj and the onset of liberalisation, a host of professionally managed systems of governance came to surface. But does this mean that family-fortunes are being dragged over the edge?

Though less than 4% of family businesses in India have witnessed heartbeats beyond the third generation, yet it cannot be denied that they contribute to more than 60% of national GDP. So has the importance of family-run businesses in India fallen in signifi cance? Certainly not! However, what has received maximum attention of late are the melodramatic splits, which are as real as the studded success stories of men like Dhirubhai Ambani, and Jamshedji Tata. Family run businesses have had to undergo and survive not merely challenges incumbent in a liberalized industrial environment but also radical re-orientations in the oldest institution of civil society – the family – and many illustrious business families have been victims of this double-edged catastrophe. The Birlas, Modis, Sarabhais, Bangurs, Dalmias, Singhanias, Mafatlals, Shrirams, Thapars and Goenkas – pick any and you’d find glory (and fame) and turbulence (and shame) together!

And what has continuously rattled these conglomerates is vertical disintegration after the splits. For instance, post the Modis split in 1989, their textile chain disintegrated. This thereby affected overall profitability of their textile enterprise. There is also the danger of weakening of their financial position, coupled with a dent on goodwill & financial bargaining power. Another case is that of the Birla family’s cement asset division in the 1980s, post which it only worsened until thankfully, K. M. Birla made it the group’s core business & eventually acquired L&T’s cement business which enabled the group to gain some respect. Then followed the rattling billion-dollar controversy surrounding Priyamvada Birla’s will which exposed the chances of an outsider to gain controlling stakes in various M.P.Birla-owned companies. Dwiwendra Tripathi, a renowned historian, however optimistically notes, “Despite loosening financial control of families over their companies and the divides, the control of business families over their businesses have almost remained unimpaired.”

Succession issues have been the prime accused for many family fiascos. And while each feud possesses its unique triggering factor(s), there certainly exist definite common threads like the conspicuous absence of proper succession planning, an ineffective remuneration mechanism, et al. But thankfully, corporate India can also boast of families that are still effectively managing mammoth enterprises in an increasingly liberalized landscape despite going through rough patches & who have not been mere silent spectators. For instance, Ratan Tata has launched measures since 1998 (also the time when acquisitions we first initiated on a larger platform by global corporations) to restructure his empire – the Tata Group with a view to reduce the total group’s firms from 80 to under 30! Then there was the shrewd C. K. Birla who also streamlined Birla group’s operations. Not to forget the Godrej group which has planned to spin-off its non-core areas, Dabur India group which is increasing its focus on core areas of food products and FMCG and the Wadia group which recently forayed ino the aviation industry which further strengthens the group. Many family-run Indian businesses have also undergone financial restructuring – by lowering of debt-to-equity ratio to levels below 10% – thus reducing their risks and shielding itself against the threat of hostile takeovers by stronger multinationals. The Chennaibased Murugappa group is also an example of change. Being counted among the largest business groups in India, postliberalization, it realigned its policy and professionalised its organization. A unique case in point is the Bajaj group which showed to the nation how planned succession should be like. Rahul Bajaj made sure that his two sons – Rajiv and Sanjiv – despite being actively involved in the management of the Bajaj group have their priorities and future roles set-right.

Hence while on one side we might hear tales of how family feuds in India have shattered the fortune-pots that their forefather had toiled for, the flipside clearly presents a much brighter picture. And family feuds are perhaps the only sureshot means to discover which family-run enterprise can survive through the short-run to become a corporation that even multinationals fear, and in the long run!

Beyond boundaries Beyond boundaries
F(i)at fiasco turns thinner...
...and with recent profits, the next man in will have an easier job at hand

Founded by Giovani Agnelli in 1899, the Fiat group’s interests have spanned across diverse sectors such as construction, aviation, finance and most critically automotive. The Agnelli family lost prominence after World War II, until the founder’s grandson Gianni Agnelli regained control in 1953. The automotive major felt the heat of competition from Japanese rivals likes Honda and Toyota during the 1990s and in 2000, forged an alliance with General Motors. It soon turned out to be a bad deal as both of them were incurring huge losses. In February 2005, GM ended the partnership by paying $2.55 billion to Fiat. The dawn of the new millennium opened up the Pandora’s box for Fiat – declining market shares and falling profits became a common sight. Fiat auto, which played a critical role for Fiat group’s revenues for decades, lay shattered and the fortune of Fiat group was in doldrums. Amidst financial mess, Sergio Marchionne was appointed as the CEO in 2004 & the picture has turned prettier in recent months. From persistent losses since 2001, it posted a profit of $294 million in 2005. Fiat auto which contributes more than 45% to the group revenues, is undergoing operational restructuring and all seems in place for the next heir-apparent John Elkann, the 30-year old Vice-Chairman and grand son of Gianni Agnelli. Their flamboyance and affairs made them popular, but it’s still the family’s business acumen that the Agnellis name is renowned for. But what’s in a name, right?

A tale of Arkansas & Bentonville...
...that propelled a small retail initiative to the coveted spot of becoming the largest retailer!

If you’re looking for inspiration, here’s the man – Sam Walton! He started-off from merely franchising a Ben Franklin’s variety store in Arkansas and has today created a $200 billion worth giant called Wal-Mart.

Earning profits through volume- play became their prime philosophy. In 1962, the first Wal-Mart store was opened in Arkansas which was followed by a further opening-up of 15 stores. Its expansion strategy of penetrating only small towns with less than 10,000 people paid-off and accelerated its growth. Wal-Mart’s stock was listed on NYSE in 1970 & the overwhelming response enabled the company to open a further 261 stores. Even after Sam’s demise, his wife Helen and four children – Robson, John, Jim and Alice – continued the strong growth and with 38% stake continue to play an active role in strategic decisions.

With Rob Walton (Sam Walton’s eldest son) as the Chairman and Lee Scott as the CEO, Wal-Mart has retained the tag of world’s largest retailer. And despite being often critised for its unethical policies, it still looks proud enough to be the second-largest entity on the Fortune 500 list!