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Journalists have a peculiar penchant for the dynasty story. So when The Hindu, one of India’s oldest and well respected newspapers underwent a leadership change last week, bringing the family back into the fold after barely a couple of years of professional management, it seemed like a good time to ruminate over the firm hold of family in Indian life - in politics, in the media, but above all in corporate boardrooms.
Dynasties abound in Indian politics and are much maligned. But as in politics, in the private sector too, the glue of heredity has for long weighed down on businesses. And despite some of India’s most iconic family run empires making a concerted effort towards professionalization, shrugging off the pull of lineage has proved more difficult than anticipated.
Sometime a couple of years ago, a 5 member search committee was tasked with finding a successor for Ratan Tata. The team scouted for the best of talent around the globe, only to have Cyrus Mistry, progeny of the Shapoorji Pallonji empire; the largest shareholders in the Tata Group, take reins of the complex salt to steel conglomerate.
Earlier this year, when the under-performing I.T giant Infosys brought back N. R. Narayana Murthy, a fierce proponent of meritocracy, to resurrect its fortunes, he brought along with him his academically inclined son Rohan as executive assistant, leading many to allege that Murthy was laying a foundation for dynastic rule at Infosys.
Of course Rohan’s job, as categorically clarified by Murthy, was temporary, so one couldn’t really accuse him of falling prey to the temptations of family rule. But for a company that’s venerated for its professionalism, commitment to meritocracy and high corporate governance standards, this appointment definitely had a perception problem.
In case of The Hindu too, kinship and tight family control have eventually presided over professional management, no matter that there wasn’t much love lost between members of the feuding clan. United we may not stand, but divided we must control was the message sent out, as family managed to strike back using the casting vote as a measure of last resort.
None of this should surprise us. Two thirds or 67% of India’s listed companies with a market capitalization of more than $50 million are family run according to Credit Suisse, far higher than roughly a third of Fortune 500 companies. But what’s drawn particular attention to the 3 aforementioned cases – The Hindu, Tata Group and Infosys, is that they have retreated towards kinship after a conscious tryst with professionalization.
The once envisaged Infosys-Tata model of succession, separating the key functions of management and ownership was expected to trickledown to other boardrooms, bringing about a much needed change in governance, but alas it was choked back at start itself.
“A transition to complete professional control has been half hearted at best in India. I can’t think of too many companies except maybe an Asian Paints or Thermax where families have let go of control completely. While attempts are being made, most companies haven’t articulated a clear vision or strategy for complete professionalization” Shriram Subramanian, Founder of InGovern Research Services, a proxy advisory firm told Business Standard.
This is quite in contrast with the global trend, where increasingly founder driven companies like Apple, Microsoft, Wal-Mart, Bank of America etc. are being run by professional managers with investors of Microsoft even recently calling founder Bill Gates to step down as chairman.
This is quite in contrast with the global trend, where increasingly founder driven companies like Apple, Microsoft, Wal-Mart, Bank of America etc. are being run by professional managers with investors of Microsoft even recently calling founder Bill Gates to step down as chairman.
So what is it, that’s stopping even some of India’s most transparent and forward looking corporates from making this bold transition? Why are companies unable to rise above family?
“That is not entirely true” says Professor Sushil Khanna of IIM Calcutta. “All the Tata group companies or Birla group companies are run by professionals without exception, with family successors donning the chairman’s hat, but not necessarily taking all the business decisions.”
All Tata Group companies do indeed have independent professional CEOs undertaking day to day functions, and even at the group level, a large executive council provides strategic direction, charting the long term vision of the group. Infosys too has recently beefed up its executive council in a bid to groom more professionals for the top jobs. But not many other founder run corporations can boast of such standards of transparency and corporate governance.
“But can professional run companies claim to be any better?” asks Khanna. “They have looted shareholders and amassed absurd amounts of wealth, far more patently than family run businesses. Contrary to popular belief, there is nothing at all to say that professionally run companies are better governed, or family owned companies inferior” says Khanna, referring to the so called professionally run Wall Street banks, whose gross transgressions are being uncovered even till date.
Khanna also points towards the synergistic advantages of having a family promoter who brings in a larger vision for the group, provides smoother internal markets and cross-company resources that aid quicker growth in a tough environment.
“When it works well it is because families take a long view. They say we are building this company for my children, so we should worry about the next 20 years, not just the next three,” Adil Zainulbhai McKinsey’s India Chairman told the Financial Times recently.
It is a difficult dilemma for family scions, who as major shareholders have to balance the aspirations of family on one hand, and a changing business landscape that demands more accountability on the other. But the two aspirations needn’t be at mutually exclusive says Gita Piramal, Business Historian and Author of Business Maharajas, who recommends that traditional Indian companies could start exploring hybrid models of succession to gradually adapt to the new environment.
“Some companies in Japan and Europe have been in the family fold for as long as 400 and 600 years, with the 15th and 16th generations running them perfectly well – so if one wants to keep a business in the family, controlled by its members, so be it. But there has also been a lot of experimentation, where a company like Bata for instance, was professionalized by the father and then taken control of again by the son. Such experiments can rejuvenate a business, and can work as well as a linear model of succession."
Infosys is already adopting this approach, plausibly. And many believe the rest of India Inc. too will experiment with multiple distinctive, culturally idiosyncratic models rather than following the Western idea of entirely segregating family and management.
As long as they raise the bar on corporate governance, what with the recent barrage of scams catching the who’s who of India Inc with their pants down, no one is complaining.
