How business families create lasting value...Focus of family-run companies on long-term growth ensures stability & better returns

Once I was sitting with the Chairman of a leading financial institution, who was also sharing a default of a leading soft-drink company. During our discussions, we exchanged views on the problems being encountered by the said soft -drink company. The Chairman of the financial institution pointed out that the soft -drinks company had seen three CEOs come and go within a span of just one year. The point being made was that three CEOs have changed in the past one year and by virtue of this discontinuity, it was very difficult to apportion responsibility and accountability on individual CEOs in this revolving door scenario. Both of us agreed that in such a scenario, the newer person has all the ways to get out of commitments. And that is what had exactly happened three times in a row. It is extremely difficult to visualise such a predicament being faced by a financial institution or any other stakeholder in a family-owned company.

That’s simply because family-run businesses have more continuity and stability at the top level since key decision makers do not change frequently. This continuity and stability at the top sends out a very powerful message to the outside world and with people who are dealing with the organisation. In my humble opinion, this stability at the top gives tremendous satisfaction to the employees, shareholders as well as to the customers. In fact, the customers, especially distant customers, are very keen to work on supply contracts as a lot of technology flows through. It becomes paramount to go beyond contract alone and family-run organisations and businesses offer unique advantages in this sphere. It is this continuity and stability that has helped us at the Hero Group become globally competitive. For example, in a short span of just 2 years, Hero Motors, the front-end engineering outsourcing company of Hero Group, has been able to negotiate contracts worth Rs.6.5 billion for supply to prominent companies like BRP, Austria/Canada.

In just two short years, Hero Motors has emerged as a single source supplier and there is whole line dependency on each other. This is an excellent example of advantages enjoyed by a family-run organisation. It has also been consistently indicated by historical data that family-run organisations generate more value and deliver better returns to shareholders. This superior performance of family-run companies and organisations has been observed in the United States, Europe and even Asia, including India. There are many reasons for the superior performance of family-run organisations. For one, key decision makers are very closely and emotionally involved with the companies. Then again, better returns and higher profits directly translate into more wealth for the promoters.

Another big factor is that family-run companies can oft en withstand pressures from stock markets and take long-term decisions that are strategically beneficial for the company. In non family-run companies, the CEO oft en becomes hostage to the pressure of generating quarterly profits; usually at the cost of long-term health of the company. This has also been responsible for many excesses that have been witnessed in listed companies like Enron and WorldCom in the United States. That is why 72% of the top 200 market companies are family-run. And it is the emergence of the Indian entrepreneur and family-run company on the global stage that makes analysts predict that India will eventually outperform China in the corporate world.

The Killer of Instincts

Our unequivocal obsession for cricket ensures that officials of other sports disciplines are seldom bothered for failing to improve India’s performance at the international level. But looking at the pathetic state of sports in India, one can only hope for a miracle that would break its perpetual jinx in events like the Olympics. The key question is: Why do we totally lack a sports culture?

In 2004, before the commencement of the Athens Olympics, a study carried out by PricewaterhouseCoopers (PwC) had projected India to rank 27th among the competing nations at Olympics, with a startling tally of 10 medals. For a nation which had won only 11 medals in its entire Olympics history, the glimmer of hope provided by the consulting firm was enough to bring a broad smile on the sullen faces of government officials. However, in their moments of elation, the illiterate politicians smugly ignored the fact that these predictions could be flawed. Firstly because the inputs came from a well-known breed of consultants, generally famous for the mantra – ‘in case of doubt, make it sound convincing’. And secondly, the parameters used to calculate the possible medal tally based on macro-economic indicators rather than a sound assessment of the actual state of sports in the country. As expected, the final medal tally proved to be a kill-joy and the country was soon overwhelmed with a feeling of deja vu – the jumbo contingent representing a one billion strong nation, once again disappointed with just one silver in its kitty.

The high sounding motto of Olympics – Citius (swifter), Altius (higher) and Fortius (stronger) have long lost their meaning in India. The sports structure in the country seems to be afflicted with Lentus, Depressus & Dissolutus, the exact opposites of the motto. The deep-rooted malaise will once again get exposed at the Doha Asian Games beginning December 1, 2006. The Chinese national anthem will reverberate in Qatar stadiums on a regular basis and the Indian Jana Gana Mana will hardly resonate in the minds of Asians. The question thus arises: Why is the state of sports so dismal in our country? Why do our sportsmen suffer from a negative feeling – ‘we strive for victory but defeat is in our blood’, ergo, we fail to perform with alacrity and aplomb at all international competitions. Paradoxically, B. K. Sinha, Secretary, Sports Authority of India (SAI), has a technical (rather philosophical) answer for a question which demands psychological analysis, “It is not only important to assess what we do to our sports, but also what others do to their own. We seem to be adding to our performance in recent times, but at the international level the competition is multiplying rapidly.” Like a typical consultant, he emphasizes the need to develop both human & material resources and shifting the focus away from quantity towards quality. Despite the apparent gaping holes in our policy, Sinha brings in the old argument about paucity of funds in preparing world-class sports-persons and reiterates, “Our sports policy is not bad but not enough money is being spent on sports & training of the sports-persons. Here, on an average, one coach trains 15-16 sports-persons, whereas, in Europe & America, a coach is specially assigned to train one athlete. Are we ready to spend so much?” If only people at the helm of affairs could appreciate that the problem lies in misappropriation and mismanagement of funds rather than any shortages. Take the case of the Sports Training Centre of the SAI in Medak, Andhra Pradesh.

In 2005, the SAI and the Sports Authority of Andhra Pradesh signed a Memorandum of Understanding paving the way for setting up of a model training centre. But the current pitiable state on the ground suggests that it is not even fit for cattle rearing, let alone talking about producing athletes. Even though a well qualified and reputed coach like M. Ranga Rao has been hired, how does one expect him to churn out a world-quality product from a barren land devoid of facilities? This halfhearted and cockeyed distribution of resources has deprived India of its adequate share of medals in global sports arena. With the objective of raising the standard of sports in the country, the national sports policy was first formulated in 1984. The policy was further revised in 2001. It emphasised on “broad-basing” of sports and “achieving excellence in sports at the national & international levels.” However, the continuing apathy of our policy makers has dealt an apocalyptical blow to India’s prospects at the international level. Every Olympics is preceded by tall claims and succeeded by equally tall future plans. But the situation remains the same because we fail to set our priority list straight. Sports which have the potential to bring us medals, suffer from inadequate funds, while money is generously allocated for sundry games merely to appease a particular lobby. One only has to peep into the Annual Report 2005-06 of the Ministry of Youth Affairs & Sports to get to the genesis of the problem. For example, between 2003-05, nearly Rs.41 million was doled out to unknown Federations like Atya Patya Federation of India, Squash Rackets Federation of India, Sepak Takraw Federation of India, Tug of War Federation of India, Tenni Koit Federation of India & Tennis Ball Cricket Federation of India. B. K. Sinha justifies those expenditures on the grounds that they form a part of government’s efforts to promote indigenous games. But when shooters like Jaspal Rana miss championship glory by a whisker because they are forced to compete with defective and low-quality equipment, such arguments fail to convince even a moron. If money is one reason cited for the dismal state of affairs, then politics is the other big reason gnawing at our medal hopes.

Former Olympian and hockey legend, Jaffar Iqbal, blames politics and politicians who have entered the foundations of the sports bodies in India. “We support only a few games both financially and socially. We are not sure about the players’ performance potential. The reason for this is that we tend to play politics in games rather than effectively playing the games,” laments Iqbal. Resentment of sporting greats against the prevalent system is understandable, especially when one sees little-known players with bureaucratic clouts being catapulted to a stature similar to those who have achieved it through years of hard work. In 2001, the prevalent bias and favouritism in the selection panel lay exposed, when Rachna Govil was bestowed with the Arjuna Award for lifetime contribution along with Milkha Singh. For a former district-level player, without any record of participation in international games, to be equated with legendary athlete was not only an insult for the ‘Flying Sikh’, but also a slur on the face of administration which professes to be working hard for Indian sports. The awards controversy led to the reconstitution of the selection panel and review of the selection procedure. But as the cock crows – ‘the more things change, the more they remain the same’. The points chart that was introduced to assesses the players, favoured participation in international competitions to their actual achievements in the field. It is a sad story that India, which almost equals China in terms of population, lags miles behind the Dragon in sports; the comparison between the two is nothing less than that between David and Goliath. A concerted effort is needed to assuage the existing conditions, or else we will continue to remain satisfied with the performance of few sport prodigies like Sachin Tendulkar, Leander Paes, Sania Mirza and Gopi Chand. No nation has achieved greatness without sporting heroes and successes.

The dragon opens fire...

The land of martial arts – China – has been able to transform itself from an ancient sports legend to a modern sports heartthrob. A poor performer till 1980, the sports level in China jumped up to grow manifolds after that. It did well, both at the regional as well as international level, winning numerous medals. While it had a meagre tally of ‘O’ (yes, it’s zero only) medals in 1980, by 2004 Athens Olympics, Chinese sports geniuses laughed all the way to the presentation ceremonies to receive 63 medals (32 gold), making China the second-best performer. This has been possible because of its active sports policy. It currently has 3,584 community level sports federations, which prepare more than 100 million students every year maintaining a high national standard of sports performance. This helps in producing 100,000 trained and competitive sports-persons every year who really battle it out when it matters the most instead of just flaunting and fluttering sportsmen.