Monday, March 11, 2024

Navigating Succession Storms: A Mediation Odyssey in Family Business

This article was first published in the Financial Express, March 11, 2024; Co-authors: Ray, Sougata & Ollapally, Tara; https://www.financialexpress.com/opinion/navigating-succession-storms-a-mediation-odyssey-in-family-business/3421424/

Succession continues as a paramount challenge for the sustainability of family enterprises, compounded by gender dynamics within India's patriarchal society. Deeply entrenched norms frequently impede the seamless transfer of leadership within these businesses. In recent times, dissatisfaction with succession outcomes has prompted many families to pursue legal actions, resulting in intra-family lawsuits. Such disputes not only exacerbate rifts within the family but also put the business at risk.

In such a context, mediation emerges as a crucial and constructive alternative to adversarial legal battles. By providing a structured yet adaptable platform, mediation facilitates constructive dialogue among family members, allowing them to navigate emotional complexities and collaboratively craft succession plans that honour both familial expectations and business needs. imperatives. This approach, rooted in open communication and understanding, offers a viable path to preserving both family harmony and the continuity and longevity of the family business.

This article delves into a real-world case study where mediation played a pivotal role in resolving succession-related issues and fostering family harmony. The backdrop is a family enterprise spanning several generations, where traditional roles, evolving dynamics, and unforeseen challenges converged, leading to a complex web of emotions and legal intricacies. This article seeks to offer insights into the mediation process, the intricacies of family dynamics, and the crucial role it plays in preserving businesses and relationships.

The Genesis of Conflict: The roots of this family conflict trace back to a business founded by a patriarch with a vision, whose descendants navigated divergent paths. One son separated and built a successful business, while the rest of the family continued the ancestral business. The patriarch's egalitarian upbringing of his four children—two daughters and two sons—set the stage for contrasting expectations and interpretations of their roles in the family business.

The Unforeseen Downturn: Several decades later the family business faced a downturn, burdened by debts and an aging patriarch. His desire to bequeath a generous share to his daughters clashed with the encumbrances on the immovable properties. The sudden demise of the patriarch without a written will intensified the complexity of the situation.

The Catalyst: Mother's Terminal Diagnosis: As the sons stepped in to navigate the business through its challenges, the mother, aware of her husband's intentions, grappled with the urgency of settling the inheritance matter. Terminal cancer heightened the need for resolution. A mediator was engaged in the eleventh hour, with limited time to convene and gather essential documents due to the mother's deteriorating health.

Mediation Dynamics: The mediation process commenced with an air of cordiality, swiftly evolving into a storm of disappointment, anger, and disbelief as the daughters confronted the reality that the business was intended for the sons. Legal rights clashed with perceived fairness, and negotiations became tense. The imminent passing of the mother forced reluctant concessions from the daughters, resulting in a settlement just days before her demise.

Post-Mediation Journey: The mediator's role extended beyond the settlement, addressing unresolved emotions and rebuilding fractured relationships. The brothers, now in control of the business, upheld their promises, clearing debts, and ensuring the business thrived. The subsequent generosity towards the sisters and the continued success of the business underscored the effectiveness of mediation in preserving both familial bonds and business prosperity.

Focus of the Mediator: The mediator's primary challenges included communicating the father's intentions to the daughters, managing their emotions of disappointment and anger, and facilitating constructive negotiations. Cognitive biases, particularly the sisters' refusal to acknowledge the business's depreciated value, posed negotiation challenges that required the mediator's adept handling.

Mediation vs. Legal Battles: Had the dispute entered the court system, the potential consequences loomed large. The family business risked collapse under the weight of litigation, endangering the financial solvency necessary for addressing liens on immovable properties. Inter-sibling relationships stood at risk of irreparable fracture, with the brothers facing uncertain prospects within the business.

Observations and Ripple Effects: The mediation's instructional value extended beyond the immediate case. The brothers, understanding the necessity for a proactive stance, opted to independently and amicably divide their properties, drawing upon insights gained from prior mediation experiences. Their respective sons now oversee separate divisions, operating independently. The arrangement has fostered a harmonious continuity and coexistence.

Conclusion:

In the realm of family businesses, the intersection of tradition, emotions, and legal complexities demands delicate navigation. This case study illustrates the transformative potential of mediation in averting protracted legal battles, preserving harmonious family ties, and safeguarding the sustainability of the business. As family businesses continue to grapple with succession challenges, the lessons gleaned from this mediation odyssey serve as a beacon for those seeking a harmonious transition between and even within generations.

Sunday, March 3, 2024

Mediation in Family Business Disputes: A Holistic Approach Beyond Failed Negotiations

This article was first published in the Financial Express, March 03, 2024; Co-authors: Ollapally, Tara & Ray, Sougata; https://www.financialexpress.com/opinion/mediation-in-family-business-disputes-a-holistic-approach-beyond-failed-negotiations/3411920/

Family businesses, which hold a significant role in the global economic landscape, are inherently prone to conflicts due to the intricate interplay of familial and business dynamics. Disputes can arise from succession planning, divergent business visions, or conflicts of interest among family members. Globally, illustrious family enterprises, such as the feud between the Ambani brothers in India and the disputes over the distribution of the family wealth and control of the business in the Pritzker family, exemplify how conflicts can lead to the dissipation of wealth and fracture familial bonds.

Resorting to traditional litigation often exacerbates these conflicts and underscores the critical need for effective dispute-resolution mechanisms. When traditional negotiations fail, mediation, as a facilitated negotiation, proves to be a compelling alternative.

What is Mediation: Mediation is a nuanced and strategic facilitated negotiation process wherein a professionally trained neutral third person helps families in dispute find their own solutions through a better understanding of their own needs, the other party’s needs as well as the reality that they face. It distinguishes itself by transcending traditional approaches in its focus on understanding the needs of the parties and emerges as a highly effective and efficient mechanism for achieving harmonious resolutions in family business disputes. In family businesses, where personal and professional lives intertwine, a process that addresses emotions, business realities and the law become paramount. The expertise of the neutral mediator in managing the multiple facets of the dispute becomes the guiding force in steering disputing parties towards mutually acceptable solutions This nuanced approach not only facilitates meaningful and sustainable resolution but also cultivates an environment conducive to preserving relationships and the long-term health of the business entity.

Why mediation Works: Beyond the resolution of disputes, mediation offers a myriad of advantages, making it an attractive choice for family businesses. The ability to exercise control over outcomes is crucial, empowering parties to shape resolutions that align with their unique circumstances. Confidentiality in mediation safeguards against the potentially detrimental impact of public disclosures, recognizing the sensitivity of family matters.

Mediation's efficiency is a key differentiator, offering a swift and cost-effective resolution compared to the protracted timelines of traditional legal avenues. The high degree of compliance stems from the active involvement of parties in crafting the agreement during the mediation process, fostering a sense of ownership. The focus on a win-win scenario becomes paramount, preserving both familial harmony and the health of the business.

How mediation Works: Mediation helps parties move from entrenched positions to underlying interests, fostering constructive communication. The mediator's role is pivotal, reframing communication dynamics and guiding parties toward a more holistic and meaningful interest-based negotiation.

Flexibility is a defining feature of mediation, allowing the inclusion of the right individuals and information in the negotiation. This inclusivity ensures that all pertinent perspectives are considered, contributing to the improved quality of negotiation. The process is party-centered, allowing the outcome to be determined by the parties themselves, promoting a voluntary and confidential environment.

The Legal Framework: The Indian Parliament passed The Mediation Act in September 2023, recognizing the value of mediation in promoting and facilitating the resolution of disputes. Mediation is now a recognised legal process wherein the fundamental tenets of confidentiality, self-determination and voluntariness are legally protected. A mediated settlement agreement has the same validity as a court decree, that cannot be appealed except under rare circumstances.

Other legislations like the Commercial Courts Act have also been amended to endorse mediation as a prerequisite for commercial disputes before resorting to court litigation. This reflects a growing acknowledgment of the efficacy of mediation in achieving swift and amicable resolutions.

Conclusion

To ensure the longevity and harmony of family enterprises, mediation must not be a mere consideration but an unequivocal imperative. It is the proactive and strategic approach that transforms disputes into opportunities for constructive dialogue, steering family businesses away from the destructive path of litigation.

Promoting a culture of collaboration, where mediation becomes embedded in dispute resolution clauses, charts a course towards efficient resolutions. By immersing themselves in the lessons drawn from successful cases, family businesses can elevate their acumen, becoming not just resolution seekers but architects of a 'dispute-wise' culture. In this transformative journey, disputes cease to be stumbling blocks; instead, they become the catalysts for innovation and lasting familial and business success. Embracing mediation can open doors for family business longevity and harmonious legacies.

Wednesday, January 24, 2024

India’s cherished “joint families” system is under threat. What can be done to preserve its values?

 This article was originally published in Family Capital, January 24, 2024;

https://www.famcap.com/2024/01/indias-cherished-joint-families-system-is-under-threat-what-can-be-done-to-preserve-its-values/

In India's business world, the Marwari community is a formidable force. A part of its success is often attributed to the system of “joint families", which has created many great business dynasties. But the system is in decline, leading to concerns that its advantages may be irreplaceable and thus pose challenges to the business dominance of communities like the Marwaris.

The “joint families” concept is based on the idea of living together of and shared business responsibilities among grandfather, father, sons, their sons, and other family members or close relatives.

Marwaris, which originally come from Marwar, a region of western Rajasthan state- has given rise to great family business dynasties such as the Birlas, the Mittals, and the Agarwals.

The resources created by joint families, including the pooling of financial resources, collective decision-making, and shared responsibilities, have provided a robust foundation for entrepreneurship in India.

The joint family system facilitated a collaborative approach to business, where the collective wisdom of the family contributed to strategic decision-making and sustainable growth.

Assessing the impact of joint family disintegration on businesses remains elusive and largely anecdotal. Hence, there is a pressing need to investigate the mechanisms that fostered familial cohesion and identifying critical factors that facilitated harmonious coexistence among family members.

By gaining insights into these dynamics, contemporary families may incorporate pertinent traits to preserve the advantages of a diversified resource pool while upholding individuality and freedom.

Basant Hetamsaria, the head of the Hetamsaria family, shares a compelling narrative of the organic evolution of their joint family in Ramgarh, in the state of Jharkhand. From a small family of three, the family expanded to 30 members across four generations, diversifying economic pursuits while remaining tightly united. His unexpected role as the family head at a young age underscores the indispensable need for a universal head.

"In the familial framework, I emphasize the pivotal role of a universal head—a unifying force offering direction and leadership, even within collective decision-making. The essence of prudence, fairness, and transparency in our decision-making cannot be overstated. We must strike a delicate balance between authority and respect, endorsing an informal code of conduct that nurtures mutual respect and consideration among us, the family members," says Basant.

The challenges of decision imposition and the necessity for transparency underscore the importance of a unified approach within joint families. “Every adult and youth in the family must have a voice, preventing unnecessary controversies and promoting a harmonious environment. Furthermore, ensuring suitable opportunities for education and employment aligned with individual abilities is crucial for the collective well-being of the joint family,” says Basant.

Strong family values, including familiarity, love, affection, harmony, and cooperation, are essential for the success of joint families. Basant's insights highlight the need for an adaptable family dynamic that can navigate changing environments, ensuring the continued relevance and resilience of joint families.

However, the disintegration of joint families, which was considered one of the strengths of business families in India, poses certain challenges for contemporary business families, such as communication and bonding. Despite the array of communication tools available, such as instant phone calls, WhatsApp, and emails, the absence of physical proximity can lead to communication and personal challenges.

Face-to-face interactions in joint families foster a deeper understanding of individual strengths, preferences, and challenges, which is often difficult to achieve through virtual means. The nuances of non-verbal communication and the daily interactions that build personal bonds are diminished when family members are geographically dispersed.

“In today's era, the concept of joint families may be considered unconventional, and a more open and liberal model should be explored as a potential sustainable family solution amidst the challenges of modern relationships, increasing tensions, growing distances between spouses, and fractured relationships,” says Basant.

Perhaps, establishing a structured leadership model within the family, designating a family leader who plays a pivotal role in providing direction, fostering transparency, and ensuring fair decision-making would help the business families, despite not being in a joint family system.

This leader should embody the qualities of prudence, fairness, and transparency, striking a delicate balance between authority and respect. This structured approach would help maintain a cohesive family unit and facilitates effective decision-making.

Similarly, a culture of collaborative decision-making where the opinions and perspectives of every family member, both adults and youth, are valued, should be encouraged.

Families should develop a framework that ensures active participation from all members, preventing unnecessary controversies and promoting a harmonious environment. By integrating diverse viewpoints, families can tap into the collective wisdom of individual talents, similar to the collaborative approach seen in joint family systems.

The success of many business families that were joint families, lies in their unique ability to create a rich resources basket, fostering collaboration, and providing a robust foundation for entrepreneurial endeavours.

Basant Hetamsaria's insights underscore the importance of a universal head, prudence, fairness, transparency, and commitment in maintaining the resilience of joint families.

Despite the challenges posed by modernity and the disintegration of joint families, its principles continue to be of relevance. It offers valuable lessons for contemporary business families. Incorporating what joint families offered in a modern setting would retain entrepreneuring families and their rich resources basket.

Sunday, December 24, 2023

Nurturing diversity and women’s leadership in family enterprises: A call to action

This article was first published in the Economic Times, December 24, 2023; Co-author: Sougata Ray; https://economictimes.indiatimes.com/news/company/corporate-trends/nurturing-diversity-and-womens-leadership-in-family-enterprises-a-call-to-action/articleshow/106247865.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst 

Introduction

In a world where 50% of the population, representing 3.95 billion individuals, is women, it is both a moral imperative and an economic necessity to address the pervasive exclusion of this substantial talent pool from the workforce. The Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business recently convened a roundtable addressing the pressing issue of Women in Family Business. In the intricate realm of family enterprises, the strategic imperative of empowering women's active involvement goes beyond mere progressive ideals; it is the key to sustainable success.  

Against the backdrop of India's low female labour force participation rate of 24% in 2022, one of the lowest globally, the discussion aimed to explore strategies within family businesses to empower women, thus contributing to elevating this rate and advancing Sustainable Development Goal 5. The focus encompassed nuanced considerations, including factors enabling women's engagement, impediments they face, self-preparation for leadership roles, and the pivotal characteristics of a gender-inclusive family structure.

Drawing from the discussions of the roundtable, this article aims to delve into the critical aspects of promoting women's leadership within family businesses. By focusing on dual role balancing, the importance of support networks, gender inclusivity, and drawing lessons from successful women peers, we can unravel a comprehensive roadmap for transformative change.

Empowering Women's Leadership: Balancing dual roles within the family and the business remains a pivotal concern for women leaders in family enterprises. Successful strategies encompass the delineation of clear boundaries, fostering open communication channels, and implementing flexible work structures. Recognizing and actively addressing these challenges not only promotes women's leadership but also enhances the overall performance of family businesses by tapping into a broader talent pool.

Case studies of successful women leaders navigating the delicate balance between familial responsibilities and professional commitments provide actionable insights. The implementation of flexible work arrangements, tailored mentorship programs, and a commitment to work-life integration emerges as a recurring theme. These strategies empower women within family enterprises, contributing to a more inclusive and adaptive organizational culture that recognizes and values the diverse contributions of women leaders.

The Importance of Support Networks: Building robust support networks is foundational to nurturing the active involvement of women in family enterprises. Research underscores the positive correlation between support systems and the professional advancement of women. Establishing mentorship programs, peer networks, and targeted development initiatives creates a conducive environment that empowers women to overcome challenges, fostering a culture of inclusivity and shared success.

Further exploration into the concept of support networks reveals their impact beyond individual empowerment, influencing the overall resilience of the family enterprise. Mentorship programs, where seasoned women leaders guide the next generation, accelerate leadership development and facilitate the transfer of tacit knowledge and values across generations. Peer networks, characterized by shared experiences and collaborative problem-solving, emerge as dynamic catalysts for innovation and adaptability, creating a vibrant ecosystem for women's active participation.

Promoting Gender Inclusivity: A call to action for family enterprises involves deliberate efforts to dismantle gender stereotypes and promote the active involvement of women. Rigorous adherence to merit-based practices, equal opportunities, and policies addressing gender bias are pivotal in creating an environment where women's talent thrives. The economic and social benefits of gender diversity are well-documented, reinforcing the urgency for family enterprises to prioritize and champion this cause.

The strategic importance of promoting gender inclusivity is underscored by research indicating a direct correlation between diverse leadership teams and enhanced business performance. Fostering an organizational culture that actively seeks and values diverse perspectives positions family enterprises for innovation and resilience in a complex and competitive global landscape. The integration of gender-inclusive practices becomes not only a moral imperative but a strategic imperative for long-term success and relevance.

Leadership Lessons from Successful Women Peers: Drawing lessons from successful women leaders within family enterprises provides invaluable insights. Their journeys serve as blueprints for navigating challenges and seizing opportunities. Documenting and disseminating these narratives not only highlights the transformative power of women's leadership but also inspires the next generation. By fostering a culture of shared experiences and mentorship, family businesses can cultivate a reservoir of women leadership talent poised for sustained success.

In examining leadership lessons from successful women peers, it becomes evident that these narratives extend beyond individual accomplishments to embody collective wisdom. The power of storytelling in transmitting organizational values and fostering a sense of shared identity cannot be overstated. By documenting and disseminating these narratives, family enterprises create a repository of knowledge that transcends generations, ensuring a seamless transfer of women's leadership acumen and a perpetuation of the values that underpin the business.

Conclusion

In conclusion, the imperative for empowering women's active involvement in family enterprises transcends mere rhetoric; it is a strategic imperative for long-term viability. As we embark on this transformative journey, let us remember that embracing women's leadership is not just a moral obligation but a sound business strategy. By fostering a culture that values and empowers every woman member, family enterprises can harness the full spectrum of talent, ensuring a legacy that stands resilient against the test of time. The future of family businesses lies in the hands of leaders who recognize the power of women's active involvement, making it not only a call to action but a commitment to lasting prosperity.

Saturday, September 30, 2023

Pledging of Shares by Promoters of Family Firms in India: Regulatory Concerns and Recommendations

This article was first published in the The Prime Directory 2023, Prime Database Group, September 2023. Co-aurthors: with Ray, Sougata & Ramachandran, Kavil; https://www.primedatabase.com/article/2023/Article-Nupur_Pavan_Bang.pdf 

Introduction

The practice of pledging of shares has existed in the Indian financial system for a long time. However, it gained significant disrepute during the Satyam Corporate Governance scandal in 2009. Since then, the Securities and Exchange Board of India (SEBI) mandated the promoter shareholders of firms to declare their pledging activities to the stock exchanges within seven days.

Regulatory bodies such as SEBI and RBI have continually highlighted their concerns around pledging. As pledging-induced corporate governance scandals have seen stock prices plummet, investors too have called for pledging to be curtailed via the introduction of stringent regulations. Academics and corporate governance experts have associated share pledging with several detrimental firm-level outcomes. Some of these concerns are highlighted below.

Concerns

Health of the financial system: In India, financial institutions have seen a considerable rise in their exposure to debt backed by pledged shares in the past decade. Often, the asset cover set by lending institutions may be too small to cover the price risk associated with shares as collateral. Where pledging loans are non-recourse (i.e., the borrower is not personally liable for the loan apart from the provision of collateral), there is a possibility of the lender not recovering the principal amount in the event of a sudden downturn in the stock price and loan default.

Loss of control of the firm for controlling shareholders: In the hunt for wealth diversification and legacy building, controlling shareholders may be tempted to over-pledge their shares with a lack of provisions to repay the loan or answer margin calls. There have been numerous instances where margin calls have led to controlling shareholders losing control of the firm. These disruptions result in a significant loss in market capitalization of the firm and raise considerable doubt over its future.

Underinvestment in innovation and risk-aversion: While innovation is a strategic driver of long-term growth and firm value, investment in innovation is much riskier than the firm’s business-as-usual activities. Post pledging, there may be a strong incentive for the promoters to underinvest in R&D activities to reduce the possibility of future margin calls.

Impact on accounting practices: To reduce the risk of a decline in the firm’s share price and subsequent margin calls, promoters may attempt to falsely present a positive picture of the firm. Consequently, firms where controlling shareholders pledge shares have a higher propensity to indulge in inferior accounting practices such as earnings management and choose lower-quality auditors to continue earnings management and navigate through the regulatory requirement of a financial audit.

Decline in Firm Value: Following a share pledge by a controlling shareholder, increased risk-aversion and a rise in the firm’s equity risk is likely to contribute to a decline in firm value in the longer term. Thus, while insiders pledging shares receive benefits in the form of a loan, outsiders must face a decline in firm value with no associated upsides, if the loan amount is not used for the same firm and with a judicious strategic plan.

Theoretically, there is a divergence in risks and rewards of the promoters who pledge their shares and other shareholders of a firm. This may act as an incentive for the promoters to pledge their shares despite all the concerns mentioned above. In the next section, the authors enumerate a few recommendations for the regulators that should help minimize the negative impact of pledging, while retaining the tool to access funds when in need.

Recommendations

Awareness and information dissemination: Despite concerns from all quarters over the negative implications of pledging, SEBI has indicated that it does not intend to prohibit the pledging of shares. SEBI believes that it should be the right of the owner of equity to decide the best possible way of utilizing it. Hence, given its positioning as a relatively accessible form of financing for shareholders, pledging of shares is expected to remain in the financial markets as a popular form of raising capital. Moving forward, it is critical for the regulators to create awareness and disseminate information about pledging of shares to all key stakeholders (including minority shareholders and financial institutions).

Integration and standardization: As of now, the disclosures on pledging by promoters to SEBI and the information available to RBI regarding the lending by financial institutions are not integrated. Both the regulators should jointly seek information from the promoters and disseminate the information in a consolidated manner to the investors. In addition, rules surrounding adequate cover for share pledges (and provision of the maintenance margin) must be standardized and ensured that they are implemented across all financial institutions uniformly.

End-use of pledging capital: SEBI has been considerably proactive in monitoring the pledging of shares and introducing stricter regulations around the same. We feel that these are steps in the correct direction. However, disclosure of the reasons for pledging must be mandated against all share pledges irrespective of the size of the pledge to further protect the interest of the minority shareholders. SEBI must actively mandate the precise destination of the funds obtained through pledging, as several promoters provide vague reasons for pledging in the disclosure reports. 

Control and cash flows: In an ideal scenario, the associated risks, returns and control should be homogenous across the firm’s shareholders. That is, the promotors, institutional investors and the retail investors should receive returns (in the form of capital gains and dividends), face risks and exercise control in accordance with the size of their shareholding in the firm. However, pledging may alter this homogeneity associated with stock ownership. While the shares are used as a collateral to raise funds, the promoters continue to enjoy all cash flows associated with those shares as well as their control and voting rights. In a way, this incentivizes the promoter to pledge their shares since there is no immediate negative consequence of doing so.

While, in a situation where the firm is close to default or needs immediate cash, the promoters might have no choice but to use pledging as a tool to access immediate capital, the promoters should have a plan to pay back the loan to the financial institution. Checks and balances are required to ensure that due to asymmetry of information, the promoters do not “cash out” of firms in distress leaving the financial institutions (lenders) and other shareholders to take the fall. A negative spiral in the stock price will most significantly impact the minority shareholders and leave the lenders with a collateral that may not cover the value of the loan extended. Such divergence can be checked by the SEBI by bringing in clauses such as deferred dividend payments until the shares are pledged or suspending the voting rights in proportion to the extent of shares pledged.

Guidance to the board: The role of the board of directors is critical in the event the promoters pledge their shares due to its far-reaching implications. The Ministry of Corporate Affairs may stress of the benefits of an empowered board of directors. It may also lay out the responsibilities of the board if a promoter wants to pledge its shares. The directors must caution the promoters from over pledging and should shield the firm from the promoters if they try to manage the margin calls by taking hasty or short-term view decisions in the firm. In addition, the board of directors should also evaluate if pledging is indeed the best option for the firm. Independent directors to be more vigilant and check that decision making at firm level is not impacted. In addition, they should be made more accountable for lack of carrying out their fiduciary duties.

Guidance to promoters: The Companies Act should also detail the expectations from the promoters when deciding to raise capital via pledging, viz. the promoters should be cognizant of the risks that this form of financing carries, the promoters should be reasonably confident of the cash-flow generation abilities of the investments made by them in the future. Overtly wishful and hopeful thinking by promoters without due diligence has indeed impacted many business barons in making over-optimistic bets. Also, the impact of variations in stock price of the firm observed in the short-term on the pledging contract should be manageable. The promoter should also have a contingency plan to answer margin calls made to the firm and they should disclose it to SEBI.

Compliance: Disclosure by the promoters and the companies should be monitored stringently with strict action for delays and non-compliance. For a better governed and efficient running of the market, there must not be any slip between the cup and the lip.

Conclusion

When we study individual cases of pledging of shares, we find that in conjunction with bad business decisions, pledging has had dire consequences for the promoters and other stakeholders. Such companies are many. They include Satyam, Future Group, and Zee Entertainment. However, there are also companies that have created long-term wealth for all shareholders by using pledging as a strategic tool to raise funds for expansion and growth. Examples include Apollo Hospitals and Granules Pharmaceuticals.

Therefore, all cases of pledging of shares should not be painted with the same stroke of negative. Rather, responsible pledging should be promoted, with appropriate checks and balances, transparent motivations to pledge, and a plan to revoke the pledge.

Friday, September 29, 2023

Overcoming Barriers and Unlocking Potential

This article was first published in the Economic Times on September 29, 2023. Co-author: Sougata Ray.

The role of women in family businesses has been a subject of enduring debate and scrutiny. Traditionally, women within business families have encountered barriers that limited their participation in key decision-making processes and leadership roles. However, the past few decades have witnessed significant transformations in social, economic, and cultural spheres, leading to a reevaluation of gender roles in family businesses. It In this article, we argue that recognizing and promoting women's participation in family businesses is not merely a matter of gender equality, but a strategic imperative that can have far-reaching implications for the success and sustainability of such businesses.

Women in Family Businesses

Historical Perspectives: The historical treatment of women in family businesses has often been marked by discrimination and exclusion. Women were frequently relegated to secondary roles, if not entirely barred from participating in the decision-making and operational aspects of family enterprises. Such traditional norms and practices stemmed from deeply entrenched patriarchal structures within both family and society. However, as society has evolved and become more inclusive, there is growing recognition that women possess valuable skills and attributes that can contribute significantly to the success of family businesses.

Shifting Paradigms: Recent years have witnessed remarkable examples of women breaking through barriers and excelling in leadership roles within family businesses. Both locally and globally, numerous success stories highlight the significant contributions of women in various sectors, underscoring the transformative impact of female leadership. The success stories proove that when given equal opportunities, women can demonstrate exceptional leadership qualities and drive business growth.

Feminine Leadership Characteristics: One key aspect that sets women apart in leadership roles is their possession of traditionally feminine characteristics. These characteristics, such as loyalty, concern for others, sensitivity, patience, problem-solving, and conflict resolution skills, are highly relevant in the context of family businesses. Effective leadership in family businesses often requires managing complex family dynamics and reconciling multiple viewpoints. Women, with their well-developed social skills and inclination towards maintaining harmony, are well-suited to address these challenges through collaboration and consultation.

Enriching the Talent Pool: In addition to their leadership qualities, the participation of women in family businesses can significantly enhance the talent pool within these enterprises. Historically, family businesses have relied heavily on a limited set of family members to fill leadership and expert roles. The inclusion of women in these roles can broaden the family's skill set, bringing fresh perspectives, diverse expertise, and innovation to the business.

Preparing Women for Family Business Roles

Early Socialization and Education: To realize the potential of women in family businesses, it is imperative that both men and women within business families are actively socialized from an early age. This socialization process should involve garnering knowledge of the business and receiving the necessary education and training to prepare them for future roles within the family enterprise. Early exposure to the business environment can help women and men develop a strong foundation of business acumen and leadership skills.

Beyond Individual Preparation: While individual preparation is crucial, the effectiveness of women in family business roles is also contingent upon systemic changes within both the family and the business. Preparing women for leadership roles must go beyond tokenism and address structural and cultural barriers that may hinder their progress.

Systemic Changes for Gender Diversity

Ownership and Inheritance: One of the fundamental challenges in promoting gender diversity in family businesses is addressing issues related to ownership and inheritance. Traditionally, these matters have favored male heirs, perpetuating gender imbalances. To rectify this, family businesses must reevaluate their succession plans and adopt more equitable approaches to property and asset distribution.

Next Generation Grooming: Effective succession planning involves grooming the next generation of leaders, irrespective of their gender. Family businesses should invest in comprehensive leadership development programs that prepare both women and men to take on leadership roles within the company. These programs should focus on building the skills, knowledge, and confidence necessary to lead effectively.

Redefining Family Roles: The inclusion of women in family businesses necessitates a redefinition of traditional family roles. Family members should be encouraged to break free from traditional gender expectations, allowing individuals to choose their roles within the family and the business based on their interests and competencies.

Dynamics of Family Relationships: The involvement of women in family businesses can sometimes strain family relationships due to the increased complexity of overlapping roles. Effective communication, conflict resolution, and family governance mechanisms are essential for maintaining healthy relationships while managing business responsibilities.

Work-Life Balance: Balancing family responsibilities with business commitments is a challenge faced by both men and women in family businesses. Supportive policies, such as flexible work arrangements and family-friendly policies, can help address this issue and create a conducive environment for all family members involved in the business.

The involvement of women in family businesses is a topic of growing significance in today's evolving business landscape. While historical discrimination and exclusion have limited their participation, there is ample evidence to suggest that women can excel in leadership roles within family enterprises (and beyond). Their feminine leadership characteristics, combined with the potential to enrich the talent pool, make them valuable assets to family businesses.

To harness this potential, active socialization, education, and grooming of both women and men within business families are essential. Furthermore, systemic changes within family and business structures are necessary to ensure meaningful gender diversity that goes beyond tokenism. Such changes will not only benefit women but also the entire family business system and society at large, leading to greater sustainability and success in an ever-changing business environment.

Considering the prevailing trend towards smaller nuclear families, the integration of women into family businesses seems not only natural but also inevitable. Therefore, the question is not whether women should be involved in family businesses, but how best to prepare and support them in their dual roles within the family and the business for the benefit of all stakeholders.

Wednesday, August 23, 2023

An Unmissable Journey For Family Business Owners & Scholars

This review was first published in the Family Business United on August 22, 2023; https://www.familybusinessunited.com/post/an-unmissable-journey-for-family-business-owners-scholars

About the book:

The Cartiers is the revealing tale of a jewelry dynasty's four generations, from revolutionary France to the 1970s. At its heart are the three Cartier brothers whose motto was 'Never copy, only create' and who made their family firm internationally famous in the early days of the twentieth century, thanks to their unique and complementary talents: Louis, the visionary designer who created the first men's wristwatch to help an aviator friend tell the time without taking his hands off the controls of his flying machine; Pierre, the master dealmaker who bought the New York headquarters on Fifth Avenue for a double-stranded natural pearl necklace; and Jacques, the globe-trotting gemstone expert whose travels to India gave Cartier access to the world's best rubies, emeralds, and sapphires, inspiring the celebrated Tutti Frutti jewelry.

Francesca Cartier Brickell, whose great-grandfather was the youngest of the brothers, has traveled the world researching her family's history, tracking down those connected with her ancestors and discovering long-lost pieces of the puzzle along the way. Now she reveals never-before-told dramas, romances, intrigues, betrayals, and more.

The Cartiers also offers a behind-the-scenes look at the firm's most iconic jewelry- the notoriously cursed Hope Diamond, the Romanov emeralds, the classic panther pieces, and the long line of stars from the worlds of fashion, film, and royalty who wore them, from Indian maharajas and Russian grand duchesses to Wallis Simpson, Coco Chanel, and Elizabeth Taylor.

Published in the two-hundredth anniversary year of the birth of the dynasty's founder, Louis-François Cartier, this book is a magnificent, definitive, epic social history shown through the deeply personal lens of one legendary family.

Review:

Francesca Cartier Brickell's magnum opus, "The Cartiers," creates an enthralling narrative that captivated me from the very beginning. As I delved into the book, I felt part of the Cartier family, standing shoulder to shoulder with the family members and the illustrious figures that shaped their history. The author masterfully blends historical facts with personal accounts, transporting the readers to the grand salons and dazzling soirées of the Belle Époque, where the Cartiers' creations adorned the crème de la crème of society.

This book is an enchanting exploration of family, business, artistry, and the timeless allure of the Cartier legacy, the brilliance of a dynasty that, while no longer owned by the family, continues to thrive as a testament to their enduring legacy. This must-read book offers invaluable insights and profound lessons for family business owners and scholars, making it an essential addition to any family business library.

The book delves into the heart of family dynamics, the unique opportunities, and challenges that being a family business pose. The nuances of sibling camaraderie, complex relationships between cousins, shared vision and family governance, and the circumstances leading to selling the family members' stake in the business, have been poignantly narrated.

I can safely say that I have read thousands (at least a thousand plus some more) of books in my lifetime. Many of them are good. Few are extraordinary. And a handful are books that transported me to being a witness to the journey, the story. Buddenbrooks by Thomas Mann was one such book. The Cartiers is the other. While it is not right to compare both, they are both magnificent in their own right. One significant difference is that Buddenbrooks is fiction, while the Cartiers is reality! And the reality is stranger rather more interesting than fiction in this case.

In this fan-girl account and book review, I dwell upon my journey with the Cartiers in the following paragraphs. In the process, I highlight a few aspects where Cartiers provide living proof of the theories in family businesses.

Traveling back in time

One of the book's most compelling aspects is the portrayal of iconic personalities who adorned Cartier's jewels. From Princess Grace of Monaco to the incomparable Elizabeth Taylor, their stories intertwine with the history of the pieces they wore, elevating them to objects of profound significance, and transporting the readers to the world of passion, resilience, opulence, and elegance.

Brickell's meticulous research and intimate family anecdotes allowed me to travel back in time to participate in the Cartier journey. I was there when the fire broke out in the Cartier store leading monsieur Louis-François Cartier to be risk averse. I felt his pain when his only son Alfred traveled to the US, and he pined to be reunited with him. I witnessed Alfred convincing his eldest son, Louis, to marry a Worth as it would benefit Cartier's name and business. I celebrated with Alfred when Jean-Jacques Cartier, his first grandson, was born (albeit with a tinge of guilt. But I had traveled back in time to 1919, you see! I can't really blame myself for being a part of the patriarchal society back then).

I rooted for Jacques to return to the business. I cried out aloud. "Oh, come on, Jacques. Cartiers needs you. Come back soon." I felt one with Elma and Nelly, like the third band of the Trinity ring.

I witnessed the Eiffel Tower being unveiled and felt the anxiety of Pierre and Nelly aboard a ship from New York to London when they heard of the Titanic sinking. I traveled to the durbars of the Gaekwads and the Nizam of Hyderabad with Jacques.

When Jacques passed away, I sobbed uncontrollably. I felt the pain of Nelly and Jean-Jacques. I paid my obeisance to the genius of Louis. I felt the loneliness of Pierre, who lost both his brothers within a year.

Adapting on the go

The Cartiers' journey mirrors the ever-changing landscape of world society, as their creations adorned monarchs, celebrities, and the crème de la crème of society. Good jewelry touches every who's who, from the Czarinas to the Kings, the Nizams, the businessmen, Elizabeth Taylor, the Beatles, Elton John, and more recently, Deepika Padukone.

As demonstrated in their successful multi-national transatlantic operations, the Cartiers' ability to embrace change and adapt to evolving markets aligns with the "Dynamic Capabilities" theory, allowing them to thrive through turbulent times. As the Romanovs fell and the bodice gave way for practical clothes for women, as the war raged and even the wealthy preferred a more austere way of life, as the Maharajas in India paved the way for democracy and the rare pearls gave way to cultured pearls, the Cartiers kept adapting through their designs, prices, and products.

Expression of feelings and archiving

Francesca Cartier Brickell found a trunk of letters in her grandfather's cellar. These letters formed an important source of information for her book. The letters provided her with the raw emotions expressed by the writer. When Louis-Francois wrote to his son Alfred, "I don't need to tell you that I long for your return. You and I are inseparable…," we can feel him pine for his son. I could imagine Pierre fuming when he wrote to his nephew, Claude, "…the consequences, serious for you and regrettable for us."

While the means of communication have increased, they have become instant, will future generations have such words of expression to recreate the journeys of the 21st century, which will be history in the future? Will we have saved WhatsApp messages and phone calls? Do the torchbearers of business families today express themselves so openly through emails? The reality is not lost on any of us.  

We are in touch more but express less. We talk more but communicate less. We write more words, but they mean less. We have more storage, but we have no records of emotions.

The book is a testament to the importance of writing, expressing, and archiving. This art is dwindling and will cost legacy building dearly in centuries to come.

Familiness and Resources

At its core, "The Cartiers" is a profound exploration of the power of family unity and vision in shaping a lasting legacy. The Cartiers' unwavering belief in brotherhood and collaboration embodies the concept of "familiness," where the family's collective strengths drive their entrepreneurial endeavors to remarkable heights.

The book delves into the heart of the Cartier family, exposing their triumphs and tribulations, successes, and challenges. Brickell brings forth the complexity of family dynamics, painting a vivid picture of their relationships and the impact of their shared passion for jewelry. The interplay of personalities between the Cartier brothers – Louis, Pierre, and Jacques – was a driving force behind their success, where creative vision, sales acumen, and financial acuity converged harmoniously. It propelled them through challenging times, navigating global conflicts, economic downturns, or changing consumer preferences.

On one occasion, Pierre recognises their strength, "We brothers are very close, that is our strength" (pg 131). Jean-Jacques added, "Pierre was a brilliant businessman. He didn't have Louis' creative vision, but then again, Louis didn't have Pierre's ability for selling or his understanding of finance... But Pierre understood the markets and he understood people's motivations. Cartier needed the mix of different talents, you see, that was one of the reasons that it did so well" (pg 243).

It's not that the brothers did not have differences or fights. They did. "The trade knew how tight the Cartier brothers were. That was important. It was one of their strengths-when dealing with one, you were actually dealing with all three. They had a lot more bargaining power that way", said Jean- Jacques (pg 330). This crucial lesson in unity is a beacon for any business family seeking to thrive across generations.

The Cartiers also demonstrate the resources acquired through marriage in a family business. All three sons of Alfred Cartier, and Alfred himself, married into families that benefited the Cartier business. The strategic alliances forged through marriage enhanced their reputation and helped them build strong family social capital. The Cartiers' embrace of such unions underscores the importance of carefully curated partnerships and their role in building lasting success.

Family governance and togetherness

In 1906, "Not wanting any arguments between his sons, Alfred had a dispute resolution clause built into the firm's constitutional documents. If there was a disagreement between Louis and Pierre, the matter should be resolved by either Alfred or, interestingly, Louis' father-in-law, Jean-Philippe Worth." There was even a family council in place. Most business families don't have a stated dispute resolution mechanism or a constitution, even today! They must have one! The Cartiers' shareholding also changed and kept up with the growing multi-national transatlantic operations.

However, the presence of family governance mechanisms did not prevent the Cartiers from eventually selling off their stake in the firm. I think one reason the family sold out their stake was the dwindling bond within the fourth-generation members, their bond with the business, and the passion to keep it in the family.

The fourth generation of the Cartiers grew up apart due to the third generation primarily living in three different far-off cities. They did not have the same bond as the third generation, which had grown up together. Brickell laments, "But whereas three close brothers with complementary talents could survive the storms life threw at them, from a huge global conflict to a great depression, the cousins, lacking the same bond and shared upbringing, found the challenges of the postwar world overwhelming" (pg 539).

I also felt the pressure on Claude, Marion and Claudel, and Jean- Jacque to live up to their predecessors. Each one of them handled it differently. The tussle between Pierre and Claudel was unfortunate. But who was wrong, and who was right? I felt anger towards Claudel, but could I blame him for being different from the rest of the flock? I could feel the weight on his shoulders and the rebellion, perhaps because of it.

In the end, family bonding, pride in the family name, and shared values keep the family and the business together. Brickell wonders, "Perhaps, as a unified family, the Cartiers might have adapted to the changes sweeping through the luxury world, but apart and alone, they could not" (pg 536). Perhaps. It is difficult to say in hindsight. But I would like to believe it too.

From the time Louis shifted to the US, accounts of his lifestyle there did not leave me with a good feeling. After that, the sale of New York and Paris branches did not surprise me. The writing was on the wall, in a sense. His last will and testament read, "Division in families creates ruin and misery. I command my heirs to maintain harmony among themselves and with their cousins " (pg 381). Unfortunately, Louis' caution could not prevent the sale of the New York Maison by his son, the first nail in the coffin.

Resilience

The book weaves through tumultuous events such as the World Wars, the sinking of the Titanic, and the great depression, where unforeseen circumstances and personal emotions intertwined with the fate of the business. Their united front and complementary talents fuelled their resilience through trying times.

I shared the family's despair as the war raged, with Jean Jacques on military service, Louis and Jacques not keeping well, important clients fleeing from London, Paris, and as America joined the war. I watched in horror as Milton Heath was bombed.

This period seemed so much like the Covid times. Family members worrying about each other, and businesses shut down completely. I would probably not have understood or related to what the Cartiers were going through if I had not lived through the Covid era.

The Cartiers survived these periods and came out stronger each time due to their vision, passion, innovative strategies, and togetherness.

Innovation

From a humble beginning in Paris to the global prominence of the brand, the Cartiers built an empire, one gemstone at a time. The Cartiers' unwavering dedication to craftsmanship and their innate ability to cater to the desires of royalty and celebrities alike are portrayed with such vividness that it's almost palpable. Their creations become more than just jewelry; they transform into symbols of love, power, and human emotion.

Louis's "Never copy, only create" mantra ran through the entire organization, irrespective of the location and the brother handling the business. The Cartiers' devotion to their craft and innovative spirit is encapsulated in their iconic creations, such as the Trinity ring and the Tank watch, which symbolize enduring love and timeless elegance.

While change is the only constant, and the Cartiers kept adapting to the changing customer preferences, the Cartier style remained a constant.

Other stakeholders

Brickell's attention to detail illuminates the family's commitment to their craft, evident in their unwavering focus on quality and customer relationships. I traveled alongside the Cartiers and witnessed their interactions with esteemed clients. These accounts underscore the importance of nurturing relationships with customers and the role of exceptional service in elevating a family business to new heights.

The book also delves into the profound impact of dedicated employees, showcasing how their passion and loyalty contributed to Cartier's reputation for unparalleled craftsmanship. The Cartiers' commitment to nurturing a talented and loyal workforce exemplifies the "Family Human Capital" concept, where family members' and employees' shared values and dedication contribute to the company's sustainable growth.

All three brothers relied heavily on their loyal employees, entrusting them with substantial responsibilities and giving them a free hand to run the business. The Cartier brothers empowered their team and nurtured a culture of excellence. Allowing them to excel in their roles and contribute to the company's growth was instrumental in building long-term success for the family firm. I deeply appreciated the role of employees like Toussaint, Jacqueau, Muffat, Glaezner, Hasey, Bellenger, Devaux, and many more in keeping the Cartier flag flying high in war and peace, in times of family unity and otherwise.

At one time during my journey with Pierre Cartier, I asked him incredulously if Jules Glaezner actually arranged for the stars of a hotly anticipated play to wear Cartier jewels on stage during their performance, then invited "several carefully selected clients, to attend the performance in a special box with him"? Glaenzer had actually selected the jewels for the actors with these clients' tastes in mind. After the show, he went backstage with his guests to meet the actors and collect the necklaces, bandeaux, and bracelets. He then announced that carrying such a huge amount of valuable jewelry would be too risky. Instead, he proposed that each of his female guests select an item to wear for the remainder of the evening and that he would collect it from each of them the following morning. He then took his guests out to a nightclub, where, as intended, their jewels were much admired. The next day, a Cartier delivery boy called at the guests' homes for the jewelry only to find that each woman had decided to buy what she had been wearing the previous evening (pg 253-254).

It was usual for multiple generations of the same family to work at Cartier. Many Cartier employees in all three branches worked for them for decades.

Indian connection

Being an Indian, I cannot but devote a sub-section to the role the Indian Maharajas played in the Cartier's rise. Though, it's not without the realisation that it was the period when the struggle for independence from British rule was underway, and the grandeur of the Indian royalties seems misplaced. But then, really, who am I to judge?

The book's portrayal of the Indian Maharajas and their penchant for extravagant jewels adds a mesmerizing facet to the Cartiers' journey. I traversed the opulent durbars of the Gaekwads, the Nizam of Hyderabad, the Maharaja of Patiala, and the Maharaja of Nawanagar, alongside Jacques. Jacques's escapades to India seem like a dream. Imagine him bringing his Rolls Royce to India! I am thinking of his Rolls Royce on roads where there were no roads!

India was once called the "golden bird," and the intertwining of the Cartier's legacy with the wealth and grandeur of Indian royalties was, therefore, no surprise. Yet, the extent left me gaping in awe. When Muffat was summoned by the Maharaja of Patiala, Maharaja Bhupinder Singh, and he opened one gem after another from a trunk full of gems, Paul Muffat tried to hide his awe. I did not. I stood there with my mouth open!

Conclusion

I read the book with a childlike awe and wonder. I did not want the book to end. Francesca Cartier Brickell's extraordinary narrative has etched an indelible mark on my soul, allowing me to traverse time with the Cartiers, witnessing their triumphs and sharing their heartaches. When I stood alongside Brickell at the crypt, my eyes were wet. I felt the connection with the Cartier ancestors more deeply than she would have realised that any reader would.

For family business scholars, "The Cartiers" is a treasure trove of examples that compliments the theories. The book offers a rich tapestry of the Cartiers' experiences, exploring topics such as familiness, succession planning, intergenerational collaboration, the role of communication in maintaining family harmony, family constitution, and the intersection of family and business values. These lessons provide a unique opportunity for scholars to delve into the complexities of family enterprises and draw inspiration from a remarkable family business and the family that created and nurtured it.

For the family business owners, "The Cartiers" is a timeless journey that will speak directly to them, offering a profound understanding of the enduring power of unity, passion, and vision. They will find themselves nodding in recognition in many places as if looking into a mirror reflecting their experiences. It provides invaluable lessons, and a poignant reminder of the lasting impact a family's commitment can have on generations to come.

In conclusion, "The Cartiers" by Francesca Cartier Brickell is an exquisite literary gem that navigates the depths of family business dynamics with grace and insight. I have read numerous books on business families. But none is as exquisite, fascinating, and emotional as the journey of the renowned Cartier family through the ages!

Tuesday, August 1, 2023

When a Corporation Traverses 100 Years Sans a Formula

This article was first published in Outlook Business, August 1, 2023; https://www.outlookbusiness.com/the-big-story-1/lead-story-8/when-a-corporation-traverses-100-years-sans-a-formula-6810

Centennial companies have weathered the storms of time, evolving their ownership structures to adapt to the changing dynamics at the macro, meso, and micro levels- socio-economic-political-institutional, business and society, and family levels. A few factors include the institutional framework of the country, industry-specific dynamics, profitability and earnings trends, corporate governance practices, family, state, or foreign multinational company ownership, and mergers and acquisitions.

The evolution of the ownership structure is essential to navigate the challenges thrown by the dynamic environment, and its implications extend beyond financial performance. It influences firm strategies, value, dividend policy, corporate governance, corporate social responsibility, environmental sustainability, and industry dynamics. This article looks at some factors that have transformed ownership structures in long-lasting companies.

The Great Family Sagas

Family ownership has been a prevalent characteristic of many long-standing Indian companies. Many of them have surpassed the century mark and, yet, have retained family ownership, symbolizing their resilience and commitment to legacy, despite the challenges faced during inter-generational ownership and succession transitions.

The ownership structure has evolved from individual ownership to a holding company or trust for reasons such as separating ownership and management, facilitating succession planning, protecting family assets, optimizing taxes, and enabling business expansion. These transitions are driven by a desire to ensure long-term sustainability, enhance governance practices, and secure the family's wealth and legacy in the evolving business landscape.

Examples include a) Bajaj Group, which transitioned from individual family ownership to a holding company structure with Bajaj Holdings & Investment Limited (BHIL) as the apex holding company. This restructuring facilitated a more streamlined approach to managing the diverse businesses and enhanced corporate governance; b) the Murugappa Group transitioned to a family trust structure, the Murugappa Chettiar Trust (MCT), to ensure seamless succession and preserve family values, and; c) the Godrej Group has utilized a combination of family trusts and holding companies to optimize tax efficiency and facilitate estate planning. This structure allows for efficient wealth management and seamless intergenerational transfers.

Going Public

Large, long-lasting companies do not need to go public. There are ample examples, such as Parle Products or the Serum Institute of India, that have chosen to remain privately held perhaps to a) retain control- by staying private, families can make strategic decisions with a long-term perspective without being influenced by short-term market pressures, and b) to avoid the regulatory requirements and public scrutiny that come with being a listed company- staying private offers greater flexibility and autonomy in decision-making, allowing companies to operate with fewer regulatory constraints and disclosures. This can be advantageous for companies that prioritize confidentiality or have unique business models that may not fit the public market's expectations.

However, as they grow in size and complexity, most companies venture into the realm of public listing, embracing the benefits of wider ownership, enhanced corporate governance, and often valuable insights from institutional investors. Public listing allows firms to access capital for fuelling expansion, streamlining systems, processes, and structure, adhering to stringent corporate governance standards, promoting transparent practices, and greater financial discipline. Bombay Stock Exchange (BSE), India's oldest stock exchange, transformed from a secretive club of brokers to a publicly listed company.

Going public may dilute the family's ownership and control over the company. However, some families view the benefits of accessing public capital, enhancing liquidity, and widening the shareholder base as a means to achieve their long-term vision for the business. Reliance and the Aditya Birla Group have used Initial and Follow-on Public Offerings to fuel expansion plans and fulfill the vision of becoming a global player across diverse businesses. While Infosys went public in 1993 to adopt best-in-class governance practices, enhance transparency, and build trust with investors and clients.

The Shape-Shifters

Mergers, acquisitions, corporate restructuring, and strategic alliances have significantly altered ownership structures and dynamics in the corporate world. Founded in 1892, Britannia Industries went from a humble bakery to a confectionery conqueror through strategic alliances and acquisitions, including a merger with the biscuit division of a British company. These strategic moves strengthened its market presence and transformed its ownership structure.

Similarly, Hindustan Unilever Limited, formed through the merger of Lever Brothers, the Indian company Hindustan Vanaspati Manufacturing Co., and United Traders Limited in 1956, exemplifies the impact of a merger on ownership structures. Tata Group's Indian Hotels Company Limited, established in 1903, in its 120 years of existence, has entered several partnerships, strategic alliances, and mergers and acquisitions to become the World's Strongest Hotel Brand and the largest hospitality group in South Asia.

Each of these activities impacts control, shareholding structure, and governance, reshaping the companies' landscape.

Shareholder Activism

Institutional investors and shareholder activism have become key players in the ownership narratives of Indian companies. In the case of Satyam Computers 2009, shareholder activism played a crucial role in exposing fraudulent activities and seeking justice for the shareholders. After the scandal came to light, several institutional and individual shareholders of Satyam, including mutual funds, pension funds, and retail investors, actively pursued legal action and sought remedies for the losses incurred due to the fraudulent practices of the company's management. They filed lawsuits against the company, its management, auditors, and other involved parties. As a result, the founder lost control of the company, and subsequently, the company was acquired by the Mahindra Group through a competitive bidding process.

Making Their Own Stories

The evolution of ownership patterns in long-lasting Indian companies is a captivating case study with important implications for the broader business landscape.

The ownership journey of these companies teaches us that there is no one-size-fits-all formula for success. The enduring family-owned businesses remind us of the power of tradition and the importance of nurturing strong family bonds. The public listings highlight the advantages of opening up to the world, attracting diverse shareholders, and embracing corporate governance principles. The shape-shifters prove that strategic alliances and acquisitions can rewrite a company's destiny. And shareholder activism reminds us that no company is safe from the demands of its shareholders, regardless of its age or legacy.

The evolving ownership patterns in Indian centenarian companies are a testament to their resilience, adaptability, and ability to thrive in an ever-changing business landscape. Their stories provide valuable insights and inspiration for companies of all ages, urging them to embrace change, write scripts, and captivate audiences with ownership journeys.

Friday, June 2, 2023

Of Sultan, Succession, and Family Businesses

It is no secret that I am a Bollywood aficionado. Until a few years ago, I claimed that I watched 95% of all released Hindi movies. That statement no longer holds as I have gotten busier, and the number of movies released yearly has also increased. Like many other things, I cannot keep up and often prioritise. Though, I make it a point not to miss any top releases. I even watched Lal Singh Chaddha on the big screen (please imagine the cringing emoji)!

"Kisi ka bhai kisi ki jaan" was released on Eid this year, as most of Salman Bhai's movies do. I had a serious conversation with myself. After much deliberation, I decided to give it a miss. I guess the decision itself was a no-brainer. The question troubling me was, "Will I still qualify as a Bollywood junkie if I gave it a miss?" Guess some questions are best left unanswered.

For old-time's sake and all the Salman Khan movies I have enjoyed, I decided to revisit Sultan. I must say that I thoroughly enjoyed watching it. I keep re-watching a few movies, especially when I am short of time and know precisely what I want to watch. Somehow, while Chak De and Dangal are top of the list of movies I have watched the maximum number of times, Sultan never made it to that list. I shall correct this miss now.

So, I started watching Sultan. The movie starts with a boardroom scene. Aakash Oberoi (Amit Sadh), son of billionaire industrialist Gyan Singh Oberoi (Parikshit Sahni), was struggling to convince investors to support him for another six months. Aakash was convinced about the potential of Pro-Takedown Wrestling. However, Cricket seemed to be the only sport that pulled the public in India. He had only six months to prove himself. Here, a scene caught my attention, which I missed in 2016, when I watched it in the theatre, as I missed the movie's first 10-15 minutes. Also, my family business antenna is much more sensitive now.

Back to Sultan. It is a conversation between the father and the son in the Pro-Takedown arena.

Aakash tells his father, "Dad, you were right. This sport has no future."

[Lesson 1: The older generation has the experience and should not be written off, even if they do not have fancy degrees.]

Gyan replies, "There is a future. You just cannot see it."

[Lesson 2: Once the next-gen admits their older generation was right, they are again proven wrong. At this point, the older generation comes all out to support the venture by the next-gen.]

In a contemplative mood, Aakash replies, "You know, this sport is a hit worldwide. Westerners are crazy for it."

Gyan counters, "We are not Westerners. This is the problem with your generation. Everything important seems 'cool' to you."

[Lesson 3: Understand the local market.]

A confused Aakash asks, "What are you trying to say, Dad?"

Gyan explains, "I am trying to say that this sport does have a future in India. But not in the hands of Westerners. India is a country with different values. It is a country where own people, relationships, and patriotism are valued. When an Indian really beats a white man in this stadium, that is when all your seats will fill up."

[Lesson 4: Appeal to the emotions of people.]

Of course, the rest of the movie is about how Sultan (Salman Khan) goes on to win the Pro-Takedown Wrestling championship. And how Gyan is proud of his son, Aakash.

The scene that I have narrated above seemed so natural. I could visualise family business leaders having such conversations with their scions. It is common for them to oppose an idea if they do not understand it. However, it is also common for parents in India to go all out to support their children once children have jumped into something. The investors come on board because of the family's reputation and connections. The next generation faces steep media scrutiny as they are constantly compared to their successful parents. The previous generation's experience is readily available and invaluable (Gyan suggested to Aakash that he should get Sultan to compete).

Furthermore, a peer group that can extend support when needed (like getting sponsorship for Sultan from Kukreja, a friend). In short, a rich resources basket. The movie also depicts how the next generation is conscious about losing money, living up to expectations, and making their own mark. It is not easy for them.

The reason the scene between Gyan and Aakash struck a chord and stayed with me long enough for me to write this piece is that I have been watching season 4 of the popular HBO series Succession. Even though the first three seasons were nowhere close to how Indian business families are, in my humble opinion. Watch out for another article on the series "Succession" and Indian business families. Coming soon!

As Gyan said, "We are not Westerners." It is time our producers, directors, and scriptwriters came up with an indigenous "Succession" series. I hope someone is listening. Bollywood!