tag:blogger.com,1999:blog-68117099515896423362024-03-18T15:34:35.085+05:30RoobarooThis page is a collection of reflections, contemplations, thoughts; about life, about death, about people, about stock markets, about science, about scientists, about economy, about economists, about art, about artists, about books and authors...Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.comBlogger317125tag:blogger.com,1999:blog-6811709951589642336.post-26170618229690448832024-03-11T14:58:00.002+05:302024-03-18T15:33:50.319+05:30Navigating Succession Storms: A Mediation Odyssey in Family Business<p><span style="font-family: "Times New Roman", serif; font-size: 10pt; line-height: 107%; text-align: justify;">This
article was first published in the </span><i style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-bidi-font-weight: bold; mso-bidi-theme-font: minor-bidi;">Financial Express</span></i><span style="font-family: "Times New Roman", serif; font-size: 10pt; line-height: 107%; text-align: justify;">, March 11, 2024; Co-authors: Ray,
Sougata & Ollapally, </span><span style="font-family: "Times New Roman", serif; font-size: 10pt; line-height: 107%; text-align: justify;">Tara; <a href="https://www.financialexpress.com/opinion/navigating-succession-storms-a-mediation-odyssey-in-family-business/3421424/">https://www.financialexpress.com/opinion/navigating-succession-storms-a-mediation-odyssey-in-family-business/3421424/</a></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">The
Genesis of Conflict:</span></u><span style="font-family: "Times New Roman",serif;">
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<span style="background: white; color: #0d0d0d;">—two daughters and
two sons—</span>set the stage for contrasting expectations and interpretations
of their roles in the family business.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">The
Unforeseen Downturn:</span></u><span style="font-family: "Times New Roman",serif;">
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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">The
Catalyst:</span></u><span style="font-family: "Times New Roman",serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">Mediation
Dynamics:</span></u><span style="font-family: "Times New Roman",serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">Post-Mediation
Journey:</span></u><span style="font-family: "Times New Roman",serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">Focus
of the Mediator:</span></u><span style="font-family: "Times New Roman",serif;">
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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">Mediation
vs. Legal Battles:</span></u><span style="font-family: "Times New Roman",serif;">
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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="font-family: "Times New Roman",serif;">Observations
and Ripple Effects:</span></u><span style="font-family: "Times New Roman",serif;">
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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;">Conclusion:<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;">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.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.406498 78.477243899999991-14.513554110226874 43.320993899999991 49.326550110226876 113.63349389999999tag:blogger.com,1999:blog-6811709951589642336.post-7007475679380098792024-03-03T14:56:00.002+05:302024-03-18T14:58:10.724+05:30Mediation in Family Business Disputes: A Holistic Approach Beyond Failed Negotiations<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-bidi-font-weight: bold; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman";">This article was first published in the </span><i><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-bidi-font-weight: bold; mso-bidi-theme-font: minor-bidi;">Financial Express</span></i><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-bidi-font-weight: bold; mso-bidi-theme-font: minor-bidi;">, March 03, 2024; Co-authors: Ollapally,
Tara & Ray, Sougata; <a href="https://www.financialexpress.com/opinion/mediation-in-family-business-disputes-a-holistic-approach-beyond-failed-negotiations/3411920/">https://www.financialexpress.com/opinion/mediation-in-family-business-disputes-a-holistic-approach-beyond-failed-negotiations/3411920/</a><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; mso-background-themecolor: background1; text-align: justify;"><span style="font-family: "Times New Roman", serif; font-size: 12pt; letter-spacing: -0.5pt; line-height: 115%;">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. </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;"><o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; mso-background-themecolor: background1; text-align: justify;"><span style="font-family: "Times New Roman", serif; font-size: 12pt; letter-spacing: -0.5pt; line-height: 115%;">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.</span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;"><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">Conclusion<o:p></o:p></span></b></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.5pt; line-height: 115%; mso-fareast-font-family: "MS Gothic"; mso-fareast-theme-font: major-fareast; mso-font-kerning: 14.0pt;">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.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.406498 78.477243899999991-10.903735836178846 43.320993899999991 45.716731836178845 113.63349389999999tag:blogger.com,1999:blog-6811709951589642336.post-33674768510439471312024-01-24T13:04:00.002+05:302024-01-29T13:26:31.284+05:30India’s cherished “joint families” system is under threat. What can be done to preserve its values?<p> <i>This article was originally published in Family Capital,
January 24, 2024;</i></p>
<p class="MsoNormal"><a href="https://www.famcap.com/2024/01/indias-cherished-joint-families-system-is-under-threat-what-can-be-done-to-preserve-its-values/">https://www.famcap.com/2024/01/indias-cherished-joint-families-system-is-under-threat-what-can-be-done-to-preserve-its-values/</a><o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">The “joint families” concept is based on the idea of living
together of and shared business responsibilities among <span style="background: white; color: #202122; font-family: "Arial",sans-serif; font-size: 10.5pt; line-height: 107%; mso-fareast-font-family: Arial; mso-highlight: white;">grandfather, father,
sons, their sons, and other family members or close relatives. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="background: white; color: #202122; font-family: "Arial",sans-serif; font-size: 10.5pt; line-height: 107%; mso-fareast-font-family: Arial; mso-highlight: white;">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.<o:p></o:p></span></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">"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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">“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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">Basant Hetamsaria's insights underscore the importance of a
universal head, prudence, fairness, transparency, and commitment in maintaining
the resilience of joint families. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.406498 78.477243899999991-10.903735836178846 43.320993899999991 45.716731836178845 113.63349389999999tag:blogger.com,1999:blog-6811709951589642336.post-26676246569479423182023-12-24T15:15:00.002+05:302023-12-28T15:18:28.176+05:30Nurturing diversity and women’s leadership in family enterprises: A call to action<p><i>This article was first published in the Economic Times,
December 24, 2023; Co-author: Sougata Ray; <a href="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">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</a></i><b style="text-align: center;"> </b></p>
<p class="MsoNormal" style="text-align: justify;"><b>Introduction<o:p></o:p></b></p>
<p class="MsoNormal" style="text-align: justify;">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. <o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;"><b>Conclusion<o:p></o:p></b></p>
<p class="MsoNormal" style="text-align: justify;">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.<o:p></o:p></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.406498 78.477243899999991-10.903735836178846 43.320993899999991 45.716731836178845 113.63349389999999tag:blogger.com,1999:blog-6811709951589642336.post-26394078305667712952023-09-30T15:58:00.002+05:302023-10-03T16:04:27.726+05:30Pledging of Shares by Promoters of Family Firms in India: Regulatory Concerns and Recommendations<p><span style="font-family: "Times New Roman", serif; text-align: justify;">This article was first published in the <i>The Prime Directory 2023</i>,
Prime Database Group, September 2023. Co-aurthors: with </span><span style="font-family: "Times New Roman", serif; text-align: justify;">Ray, Sougata & </span><span style="font-family: "Times New Roman", serif; text-align: justify;">Ramachandran, Kavil; </span><span lang="EN-US" style="font-family: "Times New Roman", serif; text-align: justify;"><a href="https://www.primedatabase.com/article/2023/Article-Nupur_Pavan_Bang.pdf"><span lang="EN-IN">https://www.primedatabase.com/article/2023/Article-Nupur_Pavan_Bang.pdf</span></a></span><b style="text-align: center;"><span lang="EN-US" style="font-family: "Times New Roman",serif;"> </span></b></p>
<p class="MsoNormal"><b><span lang="EN-US" style="font-family: "Times New Roman",serif;">Introduction<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman", serif;">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. </span><span lang="EN-US" style="color: #c00000; font-family: "Times New Roman",serif;"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman", serif;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><b><span lang="EN-US" style="font-family: "Times New Roman", serif;">Concerns<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman", serif;">Health
of the financial system: </span></i><span lang="EN-US" style="font-family: "Times New Roman", serif;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman", serif;">Loss
of control of the firm for controlling shareholders:</span></i><span lang="EN-US" style="font-family: "Times New Roman", serif;"> 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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-GB" style="font-family: "Times New Roman", serif;">Underinvestment in innovation</span></i><i><span lang="EN-US" style="font-family: "Times New Roman", serif;"> and risk-aversion: </span></i><span lang="EN-US" style="font-family: "Times New Roman", serif;">While innovation is a strategic driver of
long-term growth and firm value, investment in innovation is much riskier than
the firm’s <i>business-as-usual</i> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman", serif;">Impact on accounting practices:</span></i><span lang="EN-US" style="font-family: "Times New Roman", serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman", serif;">Decline
in Firm Value:</span></i><span lang="EN-US" style="font-family: "Times New Roman", serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman", serif;">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.</span><span lang="EN-US" style="font-family: "Times New Roman", serif;"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><b><span lang="EN-US" style="font-family: "Times New Roman",serif;">Recommendations<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">Awareness and information dissemination:</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;"> 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). <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">Integration and standardization:</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;"> 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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">End-use of pledging capital:</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;"> 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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">Control and cash flows:</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">Guidance to the board:</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;"> 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">Guidance to promoters</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;">: 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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><i><span lang="EN-US" style="font-family: "Times New Roman",serif;">Compliance</span></i><span lang="EN-US" style="font-family: "Times New Roman",serif;">: 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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><b><span lang="EN-US" style="font-family: "Times New Roman",serif;">Conclusion<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman", serif;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 6.0pt; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman", serif;">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.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Gachibowli, Hyderabad, Telangana 500111, India17.4351337 78.3406751-10.875100136178844 43.1844251 45.745367536178847 113.4969251tag:blogger.com,1999:blog-6811709951589642336.post-19085633867998718042023-09-29T15:55:00.002+05:302023-10-03T15:57:56.014+05:30Overcoming Barriers and Unlocking Potential<p>This article was first published in the Economic Times on September
29, 2023. Co-author: Sougata Ray.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>Women in Family Businesses<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal"><u>Preparing Women for Family Business Roles<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>Systemic Changes for Gender Diversity<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Gachibowli, Hyderabad, Telangana 500111, India17.4351337 78.3406751-10.875100136178844 43.1844251 45.745367536178847 113.4969251tag:blogger.com,1999:blog-6811709951589642336.post-77079375241486805182023-08-23T13:33:00.004+05:302023-08-23T13:33:46.801+05:30 An Unmissable Journey For Family Business Owners & Scholars<p>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</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><b>About the book: <o:p></o:p></b></p>
<p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEw3ZdX1qt7Z0vfopd6JA7k7sQ2zw9G5ahrgMyNBo3-s3xI3A3105SIFo6P7IxIQe6W50owzywTzCkDB8Tq_f4ju6_PeAemnTyRnF1pvWrMSxIQNWy1EW4vxpm--nwEaNqsdYsZeJH98X7hOR6A4g-kdT-5FoiN7-jqbwjE01guevcFHIhlEIwqTy-_iJB/s500/0525621636.01._SCLZZZZZZZ_SX500_.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="328" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEw3ZdX1qt7Z0vfopd6JA7k7sQ2zw9G5ahrgMyNBo3-s3xI3A3105SIFo6P7IxIQe6W50owzywTzCkDB8Tq_f4ju6_PeAemnTyRnF1pvWrMSxIQNWy1EW4vxpm--nwEaNqsdYsZeJH98X7hOR6A4g-kdT-5FoiN7-jqbwjE01guevcFHIhlEIwqTy-_iJB/s320/0525621636.01._SCLZZZZZZZ_SX500_.jpg" width="210" /></a></div>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.<o:p></o:p><p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><b>Review:<o:p></o:p></b></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal;"><u>Traveling back in time<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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).<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>Adapting on the go<o:p></o:p></u></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal"><u>Expression of feelings and archiving<o:p></o:p></u></p>
<p class="MsoNormal">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."<o:p></o:p></p>
<p class="MsoNormal">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 21<sup>st</sup> 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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>Familiness and Resources<o:p></o:p></u></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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).<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal"><u>Family governance and togetherness<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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). <o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>Resilience<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">The Cartiers survived these periods and came out stronger
each time due to their vision, passion, innovative strategies, and
togetherness.<o:p></o:p></p>
<p class="MsoNormal"><u>Innovation<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">While change is the only constant, and the Cartiers kept
adapting to the changing customer preferences, the Cartier style remained a
constant.<o:p></o:p></p>
<p class="MsoNormal"><u>Other stakeholders<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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).<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal"><u>Indian connection<o:p></o:p></u></p>
<p class="MsoNormal">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? <o:p></o:p></p>
<p class="MsoNormal">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!<o:p></o:p></p>
<p class="MsoNormal">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! <o:p></o:p></p>
<p class="MsoNormal"><u>Conclusion<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal;">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!</p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Gachibowli, Hyderabad, Telangana 500111, India17.4351337 78.3406751-10.875100136178844 43.1844251 45.745367536178847 113.4969251tag:blogger.com,1999:blog-6811709951589642336.post-15964047069542374372023-08-01T11:01:00.002+05:302023-08-02T11:03:35.683+05:30When a Corporation Traverses 100 Years Sans a Formula<p>This article was first published in Outlook Business, August
1, 2023; <a href="https://www.outlookbusiness.com/the-big-story-1/lead-story-8/when-a-corporation-traverses-100-years-sans-a-formula-6810">https://www.outlookbusiness.com/the-big-story-1/lead-story-8/when-a-corporation-traverses-100-years-sans-a-formula-6810</a></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>The Great Family Sagas<o:p></o:p></u></p>
<p class="MsoNormal">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. <o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>Going Public<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><u>The Shape-Shifters<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">Each of these activities impacts control, shareholding
structure, and governance, reshaping the companies' landscape.<o:p></o:p></p>
<p class="MsoNormal"><u>Shareholder Activism<o:p></o:p></u></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal"><b>Making Their Own Stories<o:p></o:p></b></p>
<p class="MsoNormal">The evolution of ownership patterns in long-lasting Indian
companies is a captivating case study with important implications for the broader
business landscape.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0CASA ROUGE, Rd Number 8, Jubilee Garden, Kondapur, Hyderabad, Telangana 500084, India17.4626737 78.3704928-10.847560136178846 43.214242799999994 45.772907536178849 113.5267428tag:blogger.com,1999:blog-6811709951589642336.post-66304542730700108202023-06-02T15:31:00.006+05:302023-06-02T15:31:32.703+05:30Of Sultan, Succession, and Family Businesses<p class="MsoNormal"><span lang="EN-US">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)!<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">"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.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">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.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">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.</span></p><p class="MsoNormal"><span lang="EN-US"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEga0Uet-Ra3wbtu5q7KhY6y4G89K4RdG5fsa1xWoHdWj8LkaM4NooYbtd49HZRBFYb916b6vDhVT912ZsGtZ0b47ek0tSZYHanHEfEB0TUjXFUWrSh0ls8b-pYJk9odROy8YWsAPHX5z0wocUhS21cPhaS0ZeFoeAVyOIaVwM-qJSuI89FB_sA62d5cHQ" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" data-original-height="167" data-original-width="301" height="178" src="https://blogger.googleusercontent.com/img/a/AVvXsEga0Uet-Ra3wbtu5q7KhY6y4G89K4RdG5fsa1xWoHdWj8LkaM4NooYbtd49HZRBFYb916b6vDhVT912ZsGtZ0b47ek0tSZYHanHEfEB0TUjXFUWrSh0ls8b-pYJk9odROy8YWsAPHX5z0wocUhS21cPhaS0ZeFoeAVyOIaVwM-qJSuI89FB_sA62d5cHQ" width="320" /></a></div>Back to
Sultan. It is a conversation between the father and the son in the Pro-Takedown
arena.<p></p>
<p class="MsoNormal"><span lang="EN-US">Aakash tells
his father, "<i>Dad, you were right. This sport has no future</i>."<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">[Lesson 1: The
older generation has the experience and should not be written off, even if they
do not have fancy degrees.]<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">Gyan
replies, "<i>There is a future. You just cannot see it</i>."<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">[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.]<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">In a
contemplative mood, Aakash replies, "<i>You know, this sport is a hit worldwide.
Westerners are crazy for it</i>."<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">Gyan
counters, "<i>We are not Westerners. This is the problem with your
generation. Everything important seems 'cool' to you</i>."<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">[Lesson 3:
Understand the local market.]<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">A confused
Aakash asks, "<i>What are you trying to say, Dad</i>?"<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">Gyan
explains, "<i>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</i>."<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">[Lesson 4:
Appeal to the emotions of people.]<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">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. <o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">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).<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">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.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US">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! <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal;"><span lang="EN-US">As Gyan said, "<i>We are not Westerners</i>."
It is time our producers, directors, and scriptwriters came up with an
indigenous "Succession" series. I hope someone is listening.
Bollywood!</span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0CASA ROUGE, Hyderabad, Telangana 500084, India17.462542 78.3705344-10.847691836178846 43.2142844 45.772775836178845 113.5267844tag:blogger.com,1999:blog-6811709951589642336.post-33501668072350268872023-05-09T16:43:00.002+05:302023-06-02T16:46:28.951+05:30ESG and Stakeholder Capitalism: Seeking Value for All<p class="MsoNormal"><i><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Tahoma;">This article was first published in Outlook India on May 09,
2023. Co-authors: Moksh Garg, Sougata Ray; <a href="https://www.outlookindia.com/business/esg-and-stakeholder-capitalism-seeking-value-for-all-news-284879">https://www.outlookindia.com/business/esg-and-stakeholder-capitalism-seeking-value-for-all-news-284879</a></span></i></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Tahoma;">Nobel Laureate Milton Friedman, in his famous
essay "</span>The Social Responsibility of Business is to Increase its
Profits," published in the New York Times magazine in 1970, famously
wrote, "<i>There is <b>one and only one social responsibility of
business--to use its resources and engage in activities designed to increase
its profits</b>..</i>."<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;">Compare this with the Statement
on the Purpose of a Corporation adopted by 181 CEOs of America's largest
companies in 2019. The Statement declared, <b><i>"…companies should
deliver long-term value to all of their stakeholders – customers, employees,
suppliers, the communities in which they operate, and shareholders</i></b>."<o:p></o:p></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Tahoma;">Post the Covid19 pandemic, calls for "stakeholder
capitalism" has further picked up the pace. Gone are the days when
economic profits alone determined a firm's success. The for-profit entities are
being held responsible not only for the bottom line but also for the activities
through which they create shareholder value and the value they create for other
stakeholders. As a result, it is no longer surprising to see them getting mired
in controversies or even attacked by their shareholders over broad-ranging
social issues. This has led shareholders and the wider investor community to
take stock of businesses beyond traditional metrics. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><b><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Tahoma;">Measure accurately and improve<o:p></o:p></span></b></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Tahoma;">The method to measure economic profits has been
established and standardised for long. However, measuring stakeholders' value
creation is still in its infancy. And, what cannot be measured, cannot be
improved, managed, or controlled. Therefore, combined with changing social
dynamics and the issue's salience, many rating agencies and data providers
started providing ESG ratings for companies.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Tahoma;">At the most basic level, ESG ratings aid
investors in comprehensively evaluating a firm by analysing it across its three
major dimensions: environmental, social, and governance actions and impact. </span><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">While ESG, in spirit,
is a step in the right direction, it has been wrestling to drive a commensurate
impact worldwide. There are significant roadblocks impairing its overall uptake
and effectiveness. Two major hurdles are the lack of standardized disclosures
by corporate and inconsistent measurement criteria employed by the ESG rating
providers (ERPs).<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">Disclosure</span></u><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">: Our research at the Thomas Schmidheiny Centre
for Family Enterprise, Indian School of Business, suggests that less than 4% of
the total publicly listed Indian firms have been assigned ESG ratings between
2014 to 2021. We arrived at this figure by consolidating three different ERPs,
i.e., WRDS Sustainalytics, Thomson Reuters, and CRISIL. The reason for the low
coverage of companies by ERPs is that ERPs rely on publicly available data to
make assessments. However, most companies – especially the medium and small-sized
ones – do not track their ESG activities, let alone disclose them publicly. Even
companies that make complete disclosures do not follow any standard procedure,
making their interpretation subjective and comparisons across companies
challenging. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">Measurement</span></u><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">: While comparisons across companies are
difficult due to a lack of standardised disclosures, how information for the
same company is compiled, measured, and converted into an aggregate score
differs quite a bit from ERP to ERP. A study conducted by researchers from MIT,
published in the </span><i><span style="background: white; color: #222222; font-family: "Arial",sans-serif; font-size: 10.0pt; line-height: 107%;">Review of
Finance,</span></i><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;"> reported
steep inconsistencies in the ESG ratings assigned to a business by different
agencies (</span><span style="background: white; color: #222222; font-family: "Arial",sans-serif; font-size: 10.0pt; line-height: 107%;">Berg, Koelbel, &
Rigobon, 2022).</span><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;"> In many cases, firms are assigned highly inconsistent
ratings by different ERPs owing to differences in methodology, scope, or
weights (importance) assigned to attributes. The divergent estimates about the
same underlying entity add to the confusion and defeat the very purpose of
these ratings. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><u><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">Sample</span></u><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">: The number of firms assigned an ESG rating in
India (by the three ERPs cumulatively) is a minuscule percent of all listed
firms (4%). Further, because we cannot compare the ratings across ERPs,
research must be done using the data from just one ERP, reducing the number of
companies that can be studied even further. Additionally, the number of years
of data available for each ERP varies. In such a scenario, the reliability and
generalization of research become questionable. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">ESG ratings and their effectiveness are subject
to substantial political debate in the West. The opposition has openly attacked
ESG for its overly ambitious vision but deeply flawed implementation. Some
critics have even questioned the morality of ESG by calling it a fabricated
tool to legitimize greenwashing. However, in our opinion, although ESG is undoubtedly
far from perfect, it remains one of the most potent ways to reimagine
businesses in a society fraught with grand challenges. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #222222; font-family: "Gentium Basic"; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Arial;">In line with the old saying "<i>do not
throw the baby out with the bathwater</i>," we expect that in the Indian
context, SEBI's mandate for BSE Top 1000 companies to report their ESG
activities as part of the Business Responsibility and Sustainability Reporting
(BRSR) shall alleviate some of these concerns. However, it is time that
companies understand the spirit of ESG, and even those companies that do not
fall under the purview of BRSR voluntarily disclose the steps taken toward a
more sustainable future. Let us actively work towards addressing the pitfalls,
bringing more standardisation to disclosures and objectivity to measurement.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-25151183940500399262023-04-05T15:07:00.002+05:302023-04-06T15:08:40.784+05:30What Family and Non-Family Businesses Can Learn from Each Other<p align="center" class="MsoNormal" style="text-align: center;"><span lang="EN-US" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-US;">This
article was first published in the Economic Times on April 05, 2023,
Co-authors: <i>Navneet Bhatnagar, Sougata Ray; </i><a href="https://economictimes.indiatimes.com/news/company/corporate-trends/what-family-and-non-family-businesses-can-learn-from-each-other/articleshow/99276293.cms">https://economictimes.indiatimes.com/news/company/corporate-trends/what-family-and-non-family-businesses-can-learn-from-each-other/articleshow/99276293.cms</a></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Indian economy comprises
business organisations belonging to diverse ownership categories. On one hand,
these include the traditional family-owned firms, such as those owned by the
Tatas, Godrejs, or Birlas. While on the other hand, there are non-family businesses
that are owned by the state (ONGC or SAIL), or multi-national corporations (HUL
or BATA), or have diversified set of owners (L&T or Infosys). Both the
family and non-family businesses have had a track record of successes and
failures. There are significant learnings that each of these categories of
businesses can share with each other and benefit from. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Family-owned business is the
dominant form of business organisation in India. Ranging from large industrial
houses to medium and small enterprises, family businesses form the backbone of
the Indian economy. Over 90% of all listed firms in India are family-owned
businesses. There are several lessons that non-family businesses can learn from
their family-owned peers:<o:p></o:p></span></p>
<p class="MsoListParagraph" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; mso-add-space: auto; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">1.<b> Long-Term
Orientation and Patient Capitalism:</b> Known for their resilience, many Indian
family businesses such as, the Tatas, Birlas, Burmans, and Murugappas, have
survived for five generations or beyond. Their <i>long-term orientation</i> and
<i>patient capitalism</i> helps them assign greater significance to long-term
gains compared to short-term returns. Long-term orientation of family business
facilitates radical innovations which require longer time horizons to fructify
and earn profits. Globally, this phenomenon is observed in some of the most
innovative family firms in the pharmaceutical industry like, Merck of Germany
or the Swiss, Roche group. Patient capital investment provides for longer
gestation periods and enables a family business to outperform competition in
the long run, thereby helping it sustain longer. Businesses operating with a short-term
perspective react to the emerging trends to earn a fast buck, often </span><span style="font-family: "Times New Roman",serif; mso-ansi-language: EN-IN;">at the cost
of long-term gains</span><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">. On the other hand, research has shown that a family
business with long-term orientation in its vision and strategy conducts extensive
environmental scanning to anticipate long-term trends and prepares itself to
take quick actions when opportunities emerge.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">2. <b>Strong Stakeholder
Relationships:</b> A set of <i>strong stakeholder relationships</i> is another
characteristic that sets family businesses apart from their non-family peers. On
account of personal engagement of family owners, family firms often have
long-standing relationships with their suppliers, distributors, customers, and
employees. Family businesses are also known for their community embeddedness
and family identity. There is mutual trust and dependence on each of their
stakeholder communities, which helps family businesses overcome challenges
caused due to uncertainties in business environment. This strong stakeholder
cooperation was amply visible during the pandemic times when many family
businesses witnessed a quicker rebound to business operations and profits.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.55pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">3. <b>Family Values in
Practice:</b> Most important lesson that family businesses offer to their
non-family peers is their strong roots in family <i>values</i> of
custodianship. Being firmly rooted in family values helps family businesses
develop shared vision and goals, define clear and cohesive purpose for being in
the business, and values drive the policies and practices in the family
business. Values provide a moral compass, inspire exceptional performance, and
help family businesses achieve stability and maintain consistent behaviour. It helps
them overcome adversities and guides them through ethical dilemmas in a
constantly evolving business environment. For instance, in our qualitative
research on ‘<i>family values in practice,</i>’ the house of Tatas and the
Godrej group were found to command respect and committed stakeholders mainly
due to their conduct rooted in a strong value system, which was passed on from
one generation to another.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.55pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Family businesses can also
learn several things from effectively managed non-family businesses: <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.55pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">1. <b>Professionalism:</b> <i>Professionalism</i>
has two dimensions: organisational professionalism and occupational
professionalism. Effectively managed and organised non-family businesses
exhibit high levels of <i>organisational professionalism</i>, which entails
clear hierarchy of authority and decision-making, standardised procedures,
clear roles and responsibilities and assessment of executive performance. <i>Occupational
professionalism</i> entails managerial conduct that adheres to principles,
values, and ethics. While practicing occupational professionalism, managers of
non-family firms exhibit self-discipline and gain collegial authority. Professionalism
is intricately attached to an organisational culture of excellence and merit.
Thus, family firms can enhance routines, managerial outcomes, control, and
productivity if they imbibe professionalism.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">2. <b>Capability and Resource
Orchestration:</b> Another aspect that family businesses can learn from
non-family peers is ‘<i>capability orchestration for scalability</i>.’ A firm's
ability to orchestrate appropriate capabilities and resources required to
achieve certain strategic objectives is critical to its success. Non-family
firms are known to have effective capability orchestration because of a diverse
and qualified workforce comprising professionals that come from different
backgrounds. They can quickly garner resources and tap capabilities to create
value for the customers and owners. Owing to their capabilities and resource
orchestration skills, non-family firms can also quickly scale-up their
operations. Family businesses that aim for growth can learn these from their
non-family peers.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">3. <b>Decisiveness and
Accountability:</b> Well structured decision-making process, high quality of
professional employees, clear evaluation rubric for key business problems and
professional approach to dealing with management situations enhance the <i>decisiveness</i>
of non-family businesses. They also have high levels of <i>accountability</i>
for the targeted outcomes of executive decisions. If the desired outcomes are
not achieved, they immediately adopt corrective measures. This ensures that
they stay on course to achieve their strategic objectives. Family firms are
often blamed for being indecisive and for poor accountability norms and
practice. They can considerably benefit from adopting the decisiveness and
accountability norms followed by non-family businesses. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Thus, both the family and
non-family businesses can enhance their performance outcomes through their
constant effort towards mutual learning. <o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-46896625243998892522023-03-14T16:25:00.002+05:302023-03-23T16:27:05.703+05:30Leveraging the power of an independent board<p><span style="font-family: "Times New Roman", serif; text-align: center;">This
article was first published in the Financial Express on March 14, 2023,
Co-authors: </span><i style="font-family: "Times New Roman", serif; text-align: center;">Navneet Bhatnagar, Sougata Ray; </i><span style="font-family: "Times New Roman", serif; text-align: center;">https://www.financialexpress.com/industry/leveraging-the-power-of-an-independent-board/3008998/</span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Governance failures often
jeopardise businesses, including family-owned firms. Family businesses are
often blamed for poor corporate governance and oversight. In India, well known
and established family firms have come under the regulatory scanner for opacity
in financial dealings, related party transactions, and appropriation of
minority shareholders’ wealth. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">For corporate governance and
monitoring issues, the buck stops at the apex governing body of the company,
that is, its board of directors. The board of directors of a company determines
its purpose, broad policies, and oversight mechanisms. An effective board
ensures that executive decisions are made in the company's best interest. It is
critical for the board oversight mechanism to assess the impact of executive
decisions on shareholders and other stakeholders. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Aimed at improving corporate
governance, the Companies Act 2013 stipulates the appointment of Independent
Directors as non-executive members who can objectively scrutinise executive
decisions and management performance. While monitoring the firm's reporting
mechanism, independent directors are expected to evaluate and check the
robustness of financial controls and risk management systems. They must uphold
high ethical standards, integrity, and probity. Independent directors are not
supposed to receive any monetary benefits except their fees. They are appointed
for a five-year term and can not hold more than two consecutive terms. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Corporate governance standards
were expected to be elevated through these legal provisions. However, various
corporate governance debacles continue to hit the headlines in India. In 2015,
Diageo alleged misappropriation of funds at United Spirits, which they had
acquired from Vijay Mallya. Malvinder and Shivender Singh's fraudulent loan
transactions at Religare and loan fraud at Gitanjali Gems were the other cases
that poorly reflected the governance in Indian family businesses. So was the
case of the Dhoot family-owned Videocon's loans obtained from ICICI Bank by
questionable means and alleged kickbacks. In all these cases, the role that independent
directors played as the custodians of stakeholder interest was wanting.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Our research on these cases of
corporate governance failures of independent directors reveals some key
insights. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Proximity to Promoters</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
One of the reasons why independent directors fail to discharge their fiduciary
duties is their proximity to the promoters. Due to this, they often do not hold
management to account and avoid asking tough questions. Independent directors
who continue to serve the companies for a long time develop an affinity with
key management personnel, making oversight difficult as the emotional costs of
a negative exchange escalate. Hence, independent directors impose
self-restraint. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Power equation</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
In several cases, we observed that the aura and assertiveness of the promoter
family's leader kept the independent directors constrained to voice concerns.
Board selections were made so that the independent directors could not
seriously challenge executive decisions.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Incentives</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
Another reason for this oversight was the lure of the incentives attached to
the board position. Independent directors follow what pleases the management or
postpone raising their concerns due to the significant monetary/non-monetary
incentives they gain from the company. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Overworked</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
In some other cases, we observed that the independent directors were so
occupied with multiple responsibilities across different companies that they
failed to devote sufficient time and attention to their oversight
responsibilities. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">As a result of the above
factors, independent directors are rendered “rubber stamps”, corporate
governance falters, and the respective businesses suffer a significant loss of
monetary and brand value.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">The need of our times is to
make independent directors “truly independent.” Several measures can be adopted
to empower independent directors with the authority to intervene through more
effective checks and control mechanisms. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Selection</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
First and foremost, it is vital to improve the independent directors' selection
process. They must be chosen on merit and have an impeccable value system. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Induction</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
They must be appropriately inducted and familiarized with the business and its
key challenges. They must be eager to learn and update their knowledge and
skills. They must be able to assess the internal and external environments in
which the business operates and be vigilant of the motives that drive executive
decisions. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Promoters' Buy-In</span></u><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">:
The most crucial factor that may make the role of independent directors more
effective is the promoters' realization of the genuine need to raise the corporate
governance standards of their company. If promoter families embrace good
corporate governance in its true spirit, they will see the value in fostering vocal,
expert, empowered, and truly independent directors.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Family firms and promoters
must realise that when boards fail to exercise effective oversight, deviations from
governance norms go unchecked. Ineffective governance eventually results in
bigger violations and the destruction of value. Therefore, the boards must be diligent
in objectively assessing executive decisions and providing timely advice when
remedial measures are required, and they must be 'allowed' to do it. <o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-92045522665093504662023-03-08T16:27:00.002+05:302023-03-23T16:29:07.678+05:30Managing Differences in the Family to Prevent Destruction of Business and Wealth<p><span lang="EN-US" style="font-family: "Times New Roman", serif;">This article was first published in the Economic Times
on March 08, 2023, Co-authors: <i>Navneet Bhatnagar, Sougata Ray; </i></span><span lang="EN-GB"><a href="https://economictimes.indiatimes.com/news/company/corporate-trends/managing-differences-in-the-family-to-prevent-destruction-of-business-and-wealth/articleshow/98481901.cms?from=mdr"><span lang="EN-US" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-US;">https://economictimes.indiatimes.com/news/company/corporate-trends/managing-differences-in-the-family-to-prevent-destruction-of-business-and-wealth/articleshow/98481901.cms?from=mdr</span></a></span><span style="font-family: "Times New Roman", serif; text-align: center;"> </span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Recently, the Hinduja brothers
decided to put an end to their long-standing dispute over family wealth. The
Singhanias, owners of Raymond, have also shown signs of a reconciliation after
a bitter dispute between the father and son. Managing a family business is
often more challenging than steering a non-family enterprise. This is because
family businesses are an amalgam of two inherently distinct subsystems. While
business is an economic system, the family is a social system. In the initial
phase both the family and business are simple systems. As time passes by both
grow to become complex and complicated. While businesses expand in size and
enter new segments and markets, families increase in size, extend into branches,
or forge new relationships (in-laws). New generations emerge, often with
distinct ways of thinking and analysing than the previous generations.
Therefore, it is very natural for differences to emerge within the family. If
these differences are not addressed properly, they turn into deep discontent
and surface later as full-blown conflicts. Repeatedly, Indian family businesses
have seen bitter feuds in the past, which has ruined large business groups and
their legacy- the Modis, the Mafatlals, and the Singhs of Ranbaxy group- to
name a few. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Many a times, the roots of
such differences lie in the family sub-system. The socialist nature of the
family accords equal rights and status to all its members. However, business, rooted
in capitalism, rewards the more meritorious members. Differences arise when
some family members feel that they are not being equally rewarded, or their
opinions are not valued, or their needs remain unmet. Differences emerge when
the roles, rights, and responsibilities are not clearly understood by the
members. This happens due to lack of clear policies, that leads to decisions being
made in an ad-hoc and inconsistent manner. When left unaddressed, these
differences turn into a deep sense of ‘perceived’ injustice and bitterness.
Often, these pent-up emotions get triggered into outbursts at a tipping point
that ‘breaks the camel’s back’, leading to a cascading effect of deviations in
action, poor decisions, and destruction of wealth and family legacy.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Is there a way to avoid this <i>‘differences
to destruction’</i> trap? The answer lies in robust governance and clear
communication mechanisms. It is important to create effective governance
structures and mechanisms both for the business and family. Governance
mechanisms must be embraced in true spirit and not just to meet regulatory
requirements. High quality governance based on strong values can resolve most
issues right at their emergence. Some measures that could help family
businesses minimize the impact of family differences include:</span><span lang="EN-CA"> </span><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">adopting the policy of fair treatment to all family
members, clear and transparent communication within family and with all
stakeholders, decoupling critical business and family issues, establishing fora
for communication and raising concerns (such as a family council or forum),
adhering to policy-based family governance rooted in a family agreement,
charter or constitution and developing shared-clarity on ownership rights. A
well-defined conflict resolution mechanism can ensure that the differences are
resolved before they turn into a major problem and the business interest is not
affected. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Two examples that may be cited
here are: the structured succession planning initiated by Mukesh Ambani-led
Reliance group and the recent amicable restructuring of the TVS group. Reliance
is adopting a holding entity model that will own and control the family's
businesses-refining and petrochemicals, retail and e-commerce, telecom, and
green energy. The family members will own stakes in this entity and serve on
its board. However, operations will be managed by non-family professionals.
This planned shift from operations to ownership and governance will keep the
next-gen family members focused on strategic issues. This decision will
minimise differences that may emerge in the family due to operational issues of
the business.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">In the TVS case, the four
family branches decided amicably to re-align the ownership of their group
companies. Earlier all the TVS group firms were grouped under three holding
firms and there were lot of cross holdings among the four family branches. The
family decided to merge all three holding firms and then demerge into four
holding companies, one for each family branch. Each resultant holding firm will
own the businesses managed by that branch. Besides this, the agreement also
envisaged to included clear terms of the use of TVS brand, and non-compete
agreements among the family members. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">In the Indian context, which
continues to witness fierce battles for rights over control of business and
family wealth, the proactive planning and implementation of structured
mechanisms adopted by both Reliance and TVS groups are inspiring examples of
ringfencing the business from potential family disputes.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-72939995588380333382023-01-06T20:59:00.000+05:302023-01-06T20:59:02.060+05:30Bridging the generational divide in family businesses through communication<p><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;">This article was first published in Outlook
India on January 05, 2023, Co-author: Simran Senani; </span><a href="https://www.outlookindia.com/business/bridging-generational-divide-in-family-businesses-through-communication-news-251014" style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;">https://www.outlookindia.com/business/bridging-generational-divide-in-family-businesses-through-communication-news-251014</a><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;"> </span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">It was a life of struggles for the family
when my grandfather died unexpectedly at a young age, my 85-year-old
grandmother recalls. “<i>Suddenly, we had nothing. However, we never spoke
about it outside. We did not ask anyone for anything. Our lifestyle did not
change when we had nothing. And, it has not changed now when we have everything
again</i>.”</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Those words, spoken casually while I watched
The Crown season 5 on Netflix and she went about her daily routine,
subconsciously made me feel connected to our lineage and family values. My mind
wandered to the challenge many family businesses face in the 21st century.
Myriad options, gadgets in the palm, shorter attention spans and intolerance
for listening to anything that may not seem of direct interest have caused a
divide between the younger and the older generation that seems insurmountable.</span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Many parents in family businesses pay little
attention to interaction with children in their formative years due to their
busy schedules and the business demands on their time. Soon, as the children
reach their teenage years, in many cases, they feel an emotional void and
disconnect from their parents. The older generation also finds it hard to cope
with the children’s needs, thoughts and desires. They realise there is little
to talk about except coordinating with them for their basic needs. In addition,
the widening gap between shared generational experiences also leads to
weakening intergenerational bonds.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">A second-generation family business leader
rued, “The way my brother and I see our business, the emotional connection that
we have with it, the desire to uphold the legacy of the business that our
father left for us, is simply lacking in our children. They see the business as
a money-making machine without wanting to nurture it adequately. We do not know
how and from where to start bridging the gap!”<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">How can the intergenerational gaps be
bridged? Here are a few practical solutions that may be considered.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><u><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Shared Spaces</span></u><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">: This should be the first step towards
understanding each other and communicating more. The senior generation can make
rules that evolve into traditions over time, such as having dinner together,
having a single television at home, eating breakfast together on Sundays with
extended family members and celebrating important days together. Sharing space,
time and experiences with each other results in better bonding and
communication.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><u><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Creating opportunities to share</span></u><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">: Whether a family lives in the same house or
not, communication opportunities need to be created if they do not happen
organically. The family must establish formal mechanisms to facilitate dialogue
among members on family and business issues in an environment of non-judgement,
trust and openness. Starting with a few planned meetings, the family can
eventually form a family council (FC). All members of the family become members
of the family council, including the children, as they reach their teenage
years.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Some families go a step ahead and form the
next-generation members’ young council (YC) to facilitate communication among
the next-generation members. They have monthly scheduled video calls where they
all connect informally and share their challenges and learnings in work and
personal life.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><u><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Championing communication</span></u><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">: When communication between family members
is not great, there is often a fear of saying something that might alienate
others further. Someone from the family needs to take the lead in understanding
how relationships between generations play a crucial role in building legacy,
harmony and business growth. A person with empathy, who is willing and able to
take everyone along, can champion the engagement and, if needed, engage an
advisor (or coach).<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Communication is not what is said or intended
but what the other person receives. We often underestimate the effort that must
be put into learning how to communicate effectively. Families sometimes engage
with a coach to learn and practise communicating effectively with the help of
communication tools. These sessions also allow the family members to connect
deeply.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><b><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Conclusion<o:p></o:p></span></b></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">The unconscious opportunities to interact,
bond and build a legacy gradually disappear. Bridging gaps between generations,
even intra-generational, is vital to perpetuating family businesses. Family
business guru John L. Ward writes in his book Perpetuating the Family Business:
50 Lessons Learned From Long Lasting, Successful Families in Business: When one
firm was sold to a large conglomerate amid a great deal of family turmoil, its
CEO was asked by a reporter why the family had failed to carry on with its
business, “Three reasons,” he answered, “Communication. Communication.
Communication.” What he meant, of course, was “Lack of communication. Lack of
communication. Lack of communication”.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Garamond;">Therefore, business families, do not take
communication for granted, or ignore it at your own peril. And, if you
(business families) have to take one resolution for the New Year, let it be to
communicate more! On that note, here’s wishing all the readers a very Happy and
Prosperous New Year.</span><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%;"><o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-6844119224235451742022-11-15T15:28:00.003+05:302022-11-17T15:45:25.581+05:30Tricks to ensure the next generation becomes capable to take over the family business<p><span lang="EN-CA" style="font-family: "Times New Roman", serif;">This article was first published by the Economic
Times, on November 15, 2022, Co-Authors:</span><i><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-US;"> </span></i><i><span lang="EN-US" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-US;">Sougata
Ray, Navneet Bhatnagar</span></i></p>
<p class="MsoNormal"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;"><a href="https://economictimes.indiatimes.com/news/company/corporate-trends/the-tricks-to-ensure-the-next-generation-become-capable-to-take-over-the-family-business/articleshow/95529582.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst">https://economictimes.indiatimes.com/news/company/corporate-trends/the-tricks-to-ensure-the-next-generation-become-capable-to-take-over-the-family-business/articleshow/95529582.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst</a></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.55pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Leadership succession is a
critical transition for family-controlled businesses. Successor selection is a crucial
decision that determines the future strategic direction of both the business
and promoter family. In practice, family businesses often do not realize the
need and importance to plan for succession. Some that do recognize it, continue
to postpone that decision. This happens primarily due to three reasons. First,
often the incumbent leaders are engrossed in operational aspects of the business
and do not feel an urgent need to plan for succession. Another reason, especially
with large promoter families, is that the complexity of family dynamics and tangled
interface with the business, render succession, a tough decision to make.
Third, and most critical, is the lack of preparedness of the next generation
leadership, which makes the incumbent leader hesitant to pass on the baton. This
is often reflected in our interactions with senior generation participants of
our executive education programmes for family business leaders. Senior family
business leaders express their reluctance to transfer leadership charge as they
lack confidence in the capabilities of their next generation members.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 4.55pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">It is important to note that succession
is not an event but a process which needs to be planned for years in advance. Promoters
of a few large family businesses in India have experimented with non-family
successors. However, successor choice for most family firms is often restricted
to the family talent pool, which is limited to the family size. While
non-family businesses can quickly replace a non-performing leader, for a family
business this is not so easy because of kinship ties and lack of alternatives.
For a next-generation family business successor, failure costs the survival of both
the business and family. Hence, given the high cost of a failure, an incumbent
family business leader must not only plan early for succession but also take
effective measures to groom the next generation members. This is the biggest
succession challenge family businesses face today.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">Next generation leadership
building takes time and careful planning. It requires diligent cultivation of
mentee-mentor relationship between the senior and younger generation leaders. Our
research studied 19 successful cases of inter-generational leadership
transitions since 2004 in large Indian family businesses. We traced these transformational
journeys to identify crucial leadership building measures adopted by these
family businesses. The study found that these next generation members followed
a systematic development pathway, which equipped them for the leadership role.
These leaders were exposed to the family business and its operational
challenges at an early age. After their graduation, they joined the family
business at middle management level. They gained experience in business
operations and developed an understanding of ground-level challenges. They also
learnt manpower management and interpersonal skills. In the subsequent phase,
they went to world-class institutions to obtain a business management degree,
which equipped them with knowledge of strategic frameworks and leadership
capabilities. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">A critical part of this
journey was the work experience they gained in large international
organisations after obtaining their business degrees. Working outside the
comfort-zone of their family business made these next-gen members independent
business decision-makers. It built their leadership strength as they had to
prove their capabilities and bear the consequences of their decisions. After
2-3 years of working outside, they joined the family business at senior
leadership level. During this phase, they worked closely with family and
non-family mentors. They understood the strategic and leadership challenges of
the business. They became effective change agents, improved legacy systems and practices,
and led their business to the next level of growth. Proving their leadership mantle
within and outside the family business, with diverse work experience in India
and abroad, these next-gen members earned respect and acceptance from internal
and external stakeholders. In a span of 5-8 years, they took complete
leadership charge. The senior generation leader stepped out of the executive
role and continued to provide strategic guidance. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 0cm; margin-right: 4.45pt; margin-top: 0cm; text-align: justify;"><span lang="EN-CA" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-CA;">For succession to be effective
the next-gen members must have the ability and willingness to take on
leadership responsibility. This can only happen when they are equipped with a
wide range of knowledge, experiences and capabilities. Structured training and
outside work experience play a very important role in leadership development.
Business families that plan early and take timely measures to groom their
next-gen members, can implement effective intergenerational leadership
succession. <o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-90662677627707197592022-11-14T14:59:00.004+05:302022-11-17T15:02:56.271+05:30Why the Rs 4.6 lakh crore pledged promoter shares matter for India Inc.,?<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">This
article was first published in the Financial Express, on November 14, 2022,
Co-author: Sougata Ray; </span><a href="https://www.financialexpress.com/industry/pledged-shares-valued-at-rs-4-6-trillion-the-good-and-the-bad/2812080/"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">https://www.financialexpress.com/industry/pledged-shares-valued-at-rs-4-6-trillion-the-good-and-the-bad/2812080/</span></a></p>
<p class="MsoNormal" style="mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Gautam
Adani, hailed as the richest Asian and the third richest person in the world in
October 2022, acquired 63.15% stake in Ambuja Cements and 56.69% in ACC in September
2022. Part of the acquisition was funded through pledging the entire acquired
stake in both the companies, worth $13 billion. It once again highlights the
popularity and importance of pledging as a financing tool for the Indian family
business owners who usually have the dominant or controlling stakes in the
companies.</span></p>
<p class="MsoNormal" style="mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-language: EN-US;">Pledging at a varied degree is quite widely
prevalent around the world. However, in countries where diversified ownership
is more common, such as the United States, pledging is generally done by owners,
directors, and executives to hedge and diversify their personal wealth or to
meet personal needs. However, in India, pledging by family promoters often
serves as a mechanism to generate financial capital for the firm or other
affiliate firms belonging to the same business group.</span><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Promoters of almost a quarter of all
companies listed on the National Stock Exchange (NSE) of India have pledged
their shares to some degree. The average being a staggering 44 percent of the
holdings of promoters in these companies. In the last quarter of financial year
2022 (January-March 2022), the value of shares pledged by promoters of NSE
listed companies stood at Rs 4.6 Trillion. In a country like India, </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-language: EN-US;">where more than 90% of the listed firms are family firms and
concentrated shareholding is the norm, </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">the exposure of investors and financial
institutions to pledging can result in a systemic risk. It may not be so in many
other countries where diversified firm is more of a norm when compared to
concentrated ownership.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">During the last couple of years, there
have been many instances where promoters have lost ownership control in
well-known large family firms. Of course, this outcome happened due to a
combination of over-ambitious or bad decisions. But in many of them, the
promoters had pledged their shares to financial institutions and when the share
prices started to fall, the institutions sold the pledged shares in the open
market. This resulted in the promoters losing ownership in their family firms.
The situation was exacerbated due to the pandemic when the share prices of most
companies took a hit.</span><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNormal" style="mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-language: EN-US;">Just like the mark-to-market concept in the case of
financial derivatives, when the share prices fall and the asset cover falls
below a predetermined value, the financial institution raises a margin call to
the pledging shareholder. Consequently, the shareholder is required to either
top-up the loan with more shares or pay off a portion of the loan’s principal
to increase the existing asset cover back to the pre-determined value. If the
shareholder answers the margin call in the stipulated time, they will continue
to own the shares. If the shareholder is unable to answer the margin call, the
financial institution has the right to sell the shares in the market. The news
of a margin call is generally perceived negatively by investors and the sale of
a block of shares of a company in the open market accentuates the negative sentiment
associated with the stock. Investors may indulge in panic selling of the stock.
The increased supply of shares puts downward pressure on the stock price,
thereby warranting further sale of shares by the lending financial
institutions.</span><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNormal" style="mso-margin-bottom-alt: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-language: EN-US;">In research conducted by the Thomas Schmidheiny Centre for Family
Enterprise, Indian School of Business, the authors found </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">increased crash
risk, lower return on assets, increase risk aversion, and negative investor
reaction to the news of pledging. We observe that the potential loss of
ownership control faced by many firms that have pledged their shares is
overwhelming and would have significant impact on the promoting families and
the other stakeholders of those companies if the promoters were to lose the
pledged shares due to an unforeseen circumstance.<o:p></o:p></span></p>
<p class="MsoNormal" style="mso-margin-bottom-alt: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">However, we also
find many instances of family business promoters that have effectively used
pledging as a tool to finance strategic initiatives for expansion, new venture
creation, acquisition, etc., and to buy back shares in their own firms. Such promoters
have not only used pledging for growth, liquidity, market performance, and
ownership consolidation, but also reduced pledging thereafter in a systematic
way. Examples include firms such as Asian Paints, Apollo Hospitals, and
Granules India. Therefore, pledging <i>per se</i> is not bad – it is a
legitimate, legal, and effective tool to raise funds by the promoters. When
access to capital is limited either due to tight liquidity in the overall
economy or stretched bank limits and high debt-equity ratio of the firm, the
environment may not be conducive to raise equity or the promoters may not want
to dilute their stake, in all these situations, pledging comes in handy. <o:p></o:p></span></p>
<p class="MsoNormal" style="mso-margin-bottom-alt: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Pledging has been
around for decades in India. However, its impact has become more accentuated
now due to the VUCA world that we live in. Awareness about its possible
negative consequences has also gone up. It is amply clear that the promoters
need to be prudent and strategic in using pledging as a financing tool. A
decision to pledge must be associated with a clear plan for usage of funds,
returns from them, and a path to de-pledge the shares. The promoters should
avoid getting into a trap of excessive pledging, being overconfident about the
prospects of the firm and under preparing and underestimating the external
risks. The family business leaders taking the decision to pledge the shares must
consult the family members and keep them updated. The funds from pledging should
be used responsibly, with immense accountability and transparency. The Board
and particularly the independent directors have an important role to play in
this regard. Timely disclosures and effective communication will help calm the
nerves of the other investors. Financial institutions should closely monitor the
pledging situation in a firm, as well as that of the companies affiliated with
the same business group, when deciding to buy, hold or sell their investments
in a firm.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-61711276203044144232022-07-26T23:45:00.005+05:302022-07-27T07:05:17.927+05:30Resetting of Conscience, Priorities, and Emotions<p><span style="text-align: justify;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3DdxeIom3h3vltwDAHNHVbZlpLBFHFk-mzH1s6RaG0qlU2KQhZIuj6Q1nEAcHvYtk8tXpT3cbYjdDres9mWd3nSFf-Sdc40B3U0CrgAwbEBxSyU0QNb7WvRTDLBiQFrZKT_JfZdli3vAQijaPHoM8cMapSChuCFDdGdg5PHWsBnWnPzmAOx6wIRh18w/s445/51tx5QU3A2L._SX342_SY445_QL70_ML2_.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="445" data-original-width="297" height="279" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3DdxeIom3h3vltwDAHNHVbZlpLBFHFk-mzH1s6RaG0qlU2KQhZIuj6Q1nEAcHvYtk8tXpT3cbYjdDres9mWd3nSFf-Sdc40B3U0CrgAwbEBxSyU0QNb7WvRTDLBiQFrZKT_JfZdli3vAQijaPHoM8cMapSChuCFDdGdg5PHWsBnWnPzmAOx6wIRh18w/w186-h279/51tx5QU3A2L._SX342_SY445_QL70_ML2_.jpg" width="186" /></a></div>Book: <a name="_Hlk88295251" style="text-align: justify;">To Hell and
Back: Humans of COVID</a><p></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 0cm; text-align: justify;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Author: Barkha Dutt<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 0cm; text-align: justify;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Price: 699/- <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 0cm; text-align: justify;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Pages: 288<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 0cm; text-align: justify;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Year: 2022<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 115%; margin-bottom: 0cm; text-align: justify;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Publisher: Juggernaut Books, India<o:p></o:p></span></span></p>
<span style="mso-bookmark: _Hlk88295251;"></span>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US">Usually, I have a wisecrack to crack on every
occasion. Today, I have none. Even my posts post getting Covid in the second
wave in May 2021, were full of humour [</span><a href="https://npbang.blogspot.com/2021/05/up-close-and-personal.html"><span lang="EN-US">Post 1</span></a><span lang="EN-US"> </span><a href="https://npbang.blogspot.com/2021/05/we-dont-know-about-tomorrow-said-horse.html"><span lang="EN-US">Post 2</span></a><span lang="EN-US">]. I was able
to laugh at myself. Not today. My pain, my experiences, seem too small today.</span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Sometime in April 2022, I ordered and got Barkha
Dutt’s book, To Hell and Back: Humans of COVID. I was reluctant to start
reading it, even though I wanted to. I didn’t want to refresh the memories of
what I went through. But finally, I did start reading it last week [3<sup>rd</sup>
week of July, 2022].<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">There were a lot of things I reminisced while reading
the book. Like wondering, during the period that I was hospitalized, that how
would someone who doesn’t know someone get a bed like I had? What if the oxygen
supply ran out? What if I was taken to the hospital a couple of hours later?
And many such questions. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">During that period, I knew of a junior, who had a
two-year-old kid, not reaching the hospital on time, and then not even getting
a proper funeral. I knew of an uncle who was brilliant and taught me accounts
but did not get the right treatment. My thoughts lingered on an aunt who was
never diagnosed with Covid but had all the symptoms and passed away soon after.
I remember questioning that why did I deserve to live when they could not be
saved? <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Post Covid, suffering from Long Covid- chronic
insomnia, anxiety, hair loss, pain in the bones, palpitations- I constantly
battled my symptoms and tried to be normal and move on. Barkha Dutt describes
my conversation with her on the Mojo Story on page 255 of her book. She calls
me Nutan Banga. When I started reading the book, I realized that I had really
moved on.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Barkha Dutt’s book is a solemn reminder of what the
pandemic was and gives us a view that none of us could have had individually. The
experience of a migrant labourer was very different from the experiences of a
cow herder from that of a funeral service provider, to a doctor, and to a well-connected
upper-class person, like she herself is. The inequalities that she has
presented in her book, even in the way one faced death, are unimaginable to
people like us who live in urban bubbles, disconnected from the grassroots,
disconnected from our roots, and disconnected from how people outside such
bubbles live.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">I went to Kundli once and enjoyed the Murthal parathas
with white butter and daal makhana. But did I know about the toxic yellow water
that the people of this village got? No. The water that caused serious skin
diseases, how would they drink that water when even buying drinking water
became difficult?<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Or consider the corpses of 20 tribal migrant workers
who were so exhausted from all the walking that they went to sleep on the
railway tracks where “they thought they would not be noticed or disturbed by
the police. A goods train ran over them an hour later.” [Pg38] A chill went up
my spine. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Most of us were helpless in the case of covid deaths
to a large extent. Whether it was the availability of beds in the hospitals,
medicines, oxygen, testing, what could most of us do? How could I help the
migrants or those who lost their jobs? Sonu Sood did it. Many others did. But
let’s just say that I am a more ordinary person. At least it was a good excuse
to console myself. But I could not stop my tears for a long time when I read about
Aishwarya. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">The girl from Shadnagar, 50kms from Hyderabad,
Aishwarya, committed suicide. She committed suicide because her parents could
not afford to buy her a laptop or a smart phone to continue her education. “If
I can’t study, I can’t live”, she wrote in her suicide note [pg 233-234].
Probably because of the geographical proximity, probably because she got an
admission at the Lady Shri Ram College despite the poverty and circumstances,
probably because I feel strongly for the cause of girl education, my tears
would just not stop. Could I have helped if I knew what she was going through?
Would I have helped? The fact is that I did nothing. Not for her. Not for
anyone.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">I would gladly give away all my hair if I could save
Aishwarya.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">The pandemic was sudden, but not improbable. Bill
Gates warned against “the next outbreak” in 2014. National Geographic warned of
</span><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">how
deforestation was causing bats to have “<span style="color: black; letter-spacing: .1pt;">no other option than to fly elsewhere in search of food, carrying with
them a deadly disease” in a 2019 article. But the world at large was not
prepared for the Covid19.</span></span><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"> Some events
need to be prepared for due to the severity of their impact. The governments
must build their Afsluitdijks to prepare for such events. The quantum of
impact, the number of people impacted, the physical, emotional, economic, and
societal disruption is of catastrophic scale. Life cannot go back to normal. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">To understand the severity of the catastrophe that
Covid19 unleashed on humanity, each one of us should read the book. It will
make us realise that there is life beyond our bubbles. While everyone’s sorrow
and difficulties are exactly that- sorrows and difficulties- and thus, cannot
be undermined, different situations have very different impact on the different
strata of society. And in some cases, survival itself becomes a challenge. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Some books move you. Leave an indelible mark on you.
And this is one such book. I am not going to comment on the writing style, what
the government did or did not do, the organization of the chapters, etc.
Sometimes, the message is far too important, the story is so powerful and
compelling that how it is delivered doesn’t matter.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">I cried many a times while reading the book, choked many
times, sometimes just happy to be alive, while at the other times questioning
why I was alive? What was I doing? And what am I going to do now? These
questions are haunting me. Something in me changed after Covid. Something in me
has changed again after reading this book.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-71165028915775115912022-06-27T20:18:00.002+05:302022-06-30T20:19:36.492+05:30Efficiency is the name of the game<p><span lang="EN-US" style="text-align: justify;">This book review was first published in the
Financial Express on June 27, 2022, </span><a href="https://www.financialexpress.com/lifestyle/book-review-the-ambuja-story-how-a-group-of-ordinary-men-created-an-extraordinary-company-by-narotam-sekhsaria/2573658/" style="text-align: justify;"><span lang="EN-US">https://www.financialexpress.com/lifestyle/book-review-the-ambuja-story-how-a-group-of-ordinary-men-created-an-extraordinary-company-by-narotam-sekhsaria/2573658/</span></a></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Book: <a name="_Hlk88295251">The
Ambuja Story: How a Group of Ordinary Men Created an Extraordinary Company<o:p></o:p></a></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Author: Narotam Sekhsaria<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Price: 699/- <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Pages: 368<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Year: 2022<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Publisher: Harper Business, India</span></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Once upon a
time, there was a boy, named Narotam. He was born in a Marwari family in
Chirawa, Rajasthan. His family took him to Bombay (now Mumbai) when he was
three. There, he was adopted by his grandfather’s younger brother who did not
have a son of his own. This practice was a way to ensure the continuity of
lineage in a patrilineal society. Destiny had plans for him. This is his story
and the story of the company that he built. <o:p></o:p></span></p>
<p class="MsoNormal"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">Ordinary
is relative<o:p></o:p></span></b></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Narotam and
his family were ordinary. Ordinary compared to the Bajaj’s who were their
neighbors. But living in the same building as the Bajajs, who owned and managed
one of the biggest business houses in the country then and now, cannot be
ordinary for sure. Similarly, Narotam had an ordinary upbringing. A boy next
door. He struggled at school yet finished at the top of the class. Was aimless
and non-ambitious yet went on to study at some of the top colleges in Bombay. <o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Joining the
civil services or getting a job in a bank or a multinational company was the
dream career for those joining the workforce in the India of 1960s and 1970s.
Not so for a lad growing up in a Marwari household. Working for someone else
was unthinkable. So, he joined his family’s typical cotton trading business. He
proved his mettle in various ways. Whether it was getting orders from Finlay,
having the foresight to buy extra for his customer when prices started to rise
and the customer was holidaying, being fair even when he could have made much
more money, and making, maintaining, and tapping into social networks, were at
display in the way he functioned. <o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Nothing
that he did was extraordinary. Just ordinary things done well to achieve
extraordinary results.<o:p></o:p></span></p>
<p class="MsoNormal"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">Bigger shores
beckoned<o:p></o:p></span></b></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Narotam’s
“dil” wanted more. Forty years back, entrepreneurship was not a buzz word. Nor
was ease of doing business. The Ambuja Story is not the usual start-up story
that we are used to reading in the twenty first century. <o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Narotam
grew up in a family of traders. The DNA needed to manufacture is very different
from that for trading. After spending a decade being a trader himself, to set
up a manufacturing unit for a commodity product about which he knew nothing,
could not have been easy. And it was not.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">The book
brings out the vulnerabilities and the many uncertainties faced by the founder.
It also shows how he adapted at each step of the way. He recruited the best,
treated them with respect, and retained them. Did not compromise on quality of
the plant, even though he placed his trust in newcomers, rather than well
established players. Financial management, credit policy, and high ethical
standards were all consciously made a part of setting up Ambuja. While there
are many learnings from the story, the three that I would like to highlight
here are efficiency, innovation, and brand building.<o:p></o:p></span></p>
<p class="MsoNormal"><u><span lang="EN-US" style="mso-ansi-language: EN-US;">Efficiency</span></u><span lang="EN-US" style="mso-ansi-language: EN-US;">: Cement is a commodity. There is
little scope to differentiate the product itself. But there is ample scope to
differentiate on efficiency. Efficiency in processes, tweaking the plants to
enhance productivity, dust management systems, and each person doing their job
well, are just a few examples. The company has efficiency written all over it.<o:p></o:p></span></p>
<p class="MsoNormal"><u><span lang="EN-US" style="mso-ansi-language: EN-US;">Innovation</span></u><span lang="EN-US" style="mso-ansi-language: EN-US;">: Innovation does not mean usage of
artificial intelligence and machine learning to solve problems with digital
solutions only. Innovating, doing things differently, to achieve better or
cost-efficient solutions such as transporting cement through sea when no one
else was doing it in India, and making small changes to the plants to achieve
big impact, played a big role in making Ambuja profitable from the very
beginning.<o:p></o:p></span></p>
<p class="MsoNormal"><u><span lang="EN-US" style="mso-ansi-language: EN-US;">Branding</span></u><span lang="EN-US" style="mso-ansi-language: EN-US;">: In a product where it was
difficult to charge a premium, the investment in brand building from the very
beginning, like it was a consumer product, helped Ambuja establish itself even
in the presence of existing giants. Ambuja kept building and improvising on its
branding as they grew. The results were all too visible. <o:p></o:p></span></p>
<p class="MsoNormal"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">Values
and responsibility<o:p></o:p></span></b></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Being born
in a Marwari family, I have often heard about and witnessed philanthropy
without anyone knowing about it. Left hand should not know if the right hand is
giving. Such beliefs leave an indelible mark on everyone around. It was no
different for Narotam. He writes of how the values and spirituality kept him
“calm and centred even in the most turbulent of times. The values of ethics and
compassion that he [his father] taught me steered me in everything that I did
in my career” (Pg. 134). The Ambuja Cement Foundation has been way ahead of its
times in adopting impactful corporate social responsibility projects and transforming
the lives of communities around which they operate and going beyond those
communities. <o:p></o:p></span></p>
<p class="MsoNormal"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">Resilience<o:p></o:p></span></b></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">An
entrepreneur starts when he spots an opportunity. But the time at which he/she
should exit is also important. Exit does not only mean selling the business. It
could also mean redefining the role of the founder to ensure continuity beyond
him/her. The confidence that the company would survive beyond the founder is
what makes them long-lasting. Even without planning for it, Narotam had built a
company that did not need him on a day-to-day basis when he had cancer. <o:p></o:p></span></p>
<p class="MsoNormal"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">Conclusion<o:p></o:p></span></b></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">There are
many books on industrialists and entrepreneurs. Not many of them go into so
much detailing regarding the thought process on each aspect of setting up and
running of the business. This book is focused on the building of Ambuja, easy
to read, comprehensive, and depicts the trials, turbulations, and triumphs at
each step. <o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Kondapur, Telangana, India17.4698577 78.3578246-10.840376136178847 43.2015746 45.780091536178844 113.5140746tag:blogger.com,1999:blog-6811709951589642336.post-15129447517278286372022-04-18T10:00:00.002+05:302022-04-19T10:03:54.434+05:30Shareholder capitalism to stakeholder capitalism: Are Indian family firms prepared?<p><i style="text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-bidi-font-weight: bold;">This article was first published in
moneycontrol.com, April 18, 2022, Co-authors: </span></i><i style="text-align: center;"><span style="background: rgb(252, 252, 252); font-family: "Times New Roman", serif; font-size: 12pt; line-height: 107%;">Sougata Ray & Navneet
Bhatnagar; </span></i><i style="text-align: center;"><span lang="EN-GB" style="background: rgb(252, 252, 252); font-family: "Times New Roman", serif; font-size: 12pt; line-height: 107%;">https://www.moneycontrol.com/news/business/shareholder-capitalism-to-stakeholder-capitalism-are-indian-family-firms-prepared-8371801.html</span></i></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">The debate whether
companies should be governed with the sole objective of maximising shareholder
value (shareholder capitalism as reflected in the shareholder primacy model
advocated by Prof. Milton Friedman) or balancing the interests of multiple
stakeholders (stakeholder capitalism as reflected in stakeholder primacy model
advocated by Prof. R. Edward Freeman), including shareholders, has been raging
for several decades.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Climate disasters, rapidly
rising inequalities and COVID-19 have perhaps put to rest the shareholder vs.
stakeholder primacy debate and tilted the balance firmly in favour of the
latter. Modern corporations, irrespective of ownership, have an obligation to
act in the interests of multiple constituents -- viz., ecology, environment,
society, and shareholders.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It has been argued in
literature, with some empirical validation across country contexts, that family
firms are generally more influenced by the ideals of stakeholder capitalism and
less by the idea of shareholder capitalism.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Anecdotal evidence in India
suggests so. Many times in the past, when there has been the need, family firms
in India have risen to the occasion and swiftly aided government and people, be
it during the Independence movement, wars, floods, famine or pandemics.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><b><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">How family firms fare</span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">To measure how family firms
fare with various stakeholders, we analysed them on various parameters and
found interesting results.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Using a sample of over
6,000 firms, over the last 30 years, we found that family firms underperformed
non-family firms in terms of return on assets. This indicates that family firms
are, in fact, not very focused on returns. This is congruent with the
socio-emotional wealth theory of family firms which suggests that they, at
times, compromise on economic gains for non-economic goals of the family. This
may not be something non-family shareholders want.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Pledging of shares by
family owners is an example. Here, the goals of the family and non-family
shareholders may deviate. Pledging of shares enables the family to raise funds
against shares as collateral. The funds can be used for the same firm whose
shares are pledged or for personal use. This results in a limited downside risk
for family shareholders as they have already got the funds, but the minority
shareholders risk losing a significant amount of their investments, if margin
calls are not met.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Such situations are
detrimental to minority shareholders. The behaviour of the dominant
shareholders may lead to loss of wealth for other shareholders, and ultimately
loss of wealth and control of the firm for dominant shareholders, too.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">In the recent past, there has
been a significant loss of wealth for all shareholders due to the misguided
ambitions and decisions, clubbed with the pledging of shares, by promoters of
family firms.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><b><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Low scores on social,
environment fronts</span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It is, therefore, not
surprising that the governance scores of family firms in the ESG (Environment,
Social and Governance) rating, as per Reuters and Sustainalytics data, were
found to be lower than those of other firms.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Family firms were also
found to have relatively low scores on environment and social categories as
well as consolidated ESG parameters. The low social score is somewhat puzzling
as family firms in India are known to care for the community in which they
operate.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">In fact, among a larger
sample of firms from a different database, we observed that the CSR spends of
family firms are higher than those of non-family firms, suggesting that family
firms are more compliant to CSR regulations.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It is important to note
that the debate around primacy to shareholders vs stakeholders is not about the
reaction of corporations to exigencies or CSR spends. It is not the primacy of
other stakeholders over shareholders, but about achieving balance on
sustainability principles.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It is not about one heroic
act catching media attention, but their every action, every day. It is also not
about one bottom line – profit. It is about the triple bottom line – people,
planet, profit -- and generating and sharing value for all constituents in a
fair and equitable manner.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-GB" style="background: white; color: #393939; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It is about being purposive
without losing focus on profit in day-to-day activities. Therefore, to be a
multi-stakeholder-friendly and sustainable organisation, family firms need to
adopt the principles of triple bottom line and make ESG their strategic ally.
It is no longer an option. It is needed for the long-term sustainability of the
firms as well as the business families in order to create and pass on the
wealth to the next generation and build and sustain the family legacy.</span></p>
<p class="MsoNormal" style="text-align: justify;"><i><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman";">The authors
are from the Thomas Schmidheiny Centre for Family Enterprise, Indian School of
Business.</span></i></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-26815433489449231862022-04-05T10:11:00.002+05:302022-04-19T10:13:23.708+05:30Family Firms in India: Performance and Relevance<p><i style="text-align: center;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-bidi-font-weight: bold;">This article was first published in
moneycontrol.com, April 05, 2022, Co-authors: </span></i><i style="text-align: center;"><span lang="EN-US" style="background: rgb(252, 252, 252); font-family: "Times New Roman", serif; font-size: 12pt;">Sougata Ray & Navneet Bhatnagar; </span></i><span lang="EN-US" style="text-align: center;"><a href="https://www.moneycontrol.com/news/business/family-firms-in-india-performance-and-relevance-8320491.html/amp?ajaxcall=yes"><i><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-bidi-font-weight: bold;">https://www.moneycontrol.com/news/business/family-firms-in-india-performance-and-relevance-8320491.html/amp?ajaxcall=yes</span></i></a></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Concentrated
ownership of a firm in the hands of a family presents unique opportunities and
challenges that impact its performance.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt;">In
India, family firms are a dominant force in the economy, contributing
significantly to nation-building, the exchequer, creation of jobs and asset
creation. Their footprints on the Indian economy are indelible. It is
imperative for family firms to perform well, grow profitably, create value and
contribute to economic progress if India has to realise its full potential.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">Researchers
have argued that family firms have better monitoring and lower agency costs
than non-family firms, have incentives to take long-term views of maximising
firm value, and are value-driven organisations. Yet, many of them are found to
be plagued by rent-seeking behaviour, succession issues, lack of transparency
and governance, lack of professionalisation, and family conflicts.
Understandably, therefore, there is mixed evidence globally on whether family
firms perform better than non-family firms.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">Using a
unique proprietary database of scientifically classified listed family and
non-family firms, the team at the Thomas Schmidheiny Centre for Family
Enterprise conducted a study on all listed firms in India over the past three
decades. The analyses overwhelmingly reveal that on an average, family firms
underperform non-family firms.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><strong><span style="color: black;">What
are the reasons?</span></strong><span style="color: black;"> Lapses in
overall strategic planning by family firms, conflicting intrinsic motivations
of family members, lack of professionalisation and governance, and opposing
utility functions of management (non-family professionals) and the promoting
family could be responsible. Many a time, maintaining control and influence
over the firm also pushes the family to take decisions independent of financial
considerations. These idiosyncratic strategies and irrational choices, mainly
due to the emotional ties that the family has with the firm, may overpower the
advantages of being a family firm. The analysis also reveals a negative impact
of family leadership on performance among family firms.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">While the
average trend is negative, there are family firms across industries that have
performed exceedingly well. They have withstood the licence raj as well as the
winds of change that swept the nation during the economic liberalisation in
1991. There had been widespread apprehensions about the capabilities of family
businesses to withstand the pressure of the newly created “freedom” that made
them vulnerable to competition for resources, markets and capital. However,
many family businesses transformed themselves by taking stock, restructuring
their operations, taking advantage of new opportunities, putting the right
governance systems in place, and professionalising.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">There is
much to learn from these businesses.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><strong><span style="color: black;">90%
of the listed world</span></strong><span style="color: black;"> <o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">Despite the
underperformance of family firms on an average, their dominance in India
continues. Ninety-one percent of all listed firms in India are family firms.
Large family firms and business groups have consolidated their positions even
more in recent years. As these business families and the firms owned by them
are firmly embedded in the society and institutional context and develop
patterns of trust and confidence among stakeholders, they have better access to
social and financial capital and are willing to embark on enterprises involving
considerable risk with a reasonable chance of success. This reinforces the
continued cultural, political and social importance of family firms in India,
which is not going to diminish any time soon.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">However, a
vast majority of family firms in India does not possess these constructive
characteristics exhibited by the more successful ones. These underperforming
family firms must be open to learning from the select others who have been
performing well, put in place family as well as business governance systems,
professionalise as they grow, delegate management and operating
responsibilities to the right persons outside the family, and change with time
to adapt and modernise. They need to be made aware of the enormous
opportunities and be nudged to overcome their challenges building on their
inherent strengths.<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 18.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black;">Policymakers
must be open to framing targeted interventions that are required to create
favourable conditions for improving the performance of family firms. Given the
importance and significance of family firms in an economy like India, more
family firms across industries have to undergo a transformation and start
pulling their punches to make India Aatmanirbhar.</span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-82759668258516562962022-03-29T10:11:00.001+05:302022-04-19T10:11:48.704+05:30Family firms: Preordained to be governed by passion and purpose<p align="center" class="MsoNormal" style="line-height: normal; text-align: center;"><i><span lang="EN" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-bidi-font-weight: bold;">This article was first published in moneycontrol.com, March 29, 2022,
Co-authors: </span></i><i><span lang="EN" style="background: #FCFCFC; color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-bidi-font-weight: bold; mso-color-alt: windowtext; mso-fareast-font-family: "Times New Roman";">Sougata
Ray & Navneet Bhatnagar; </span></i><span lang="EN"><a href="https://www.moneycontrol.com/news/business/family-firms-preordained-to-be-governed-by-passion-and-purpose-8283921.html"><i><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">https://www.moneycontrol.com/news/business/family-firms-preordained-to-be-governed-by-passion-and-purpose-8283921.html</span></i></a></span><i><span lang="EN" style="background: #FCFCFC; font-family: "Times New Roman",serif; font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";"><o:p> </o:p></span></i></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">In the face of the challenge posed by phenomena such
as global warming, climate change, poverty and inequality, and rapid depletion
of natural resources, calls have grown louder for putting stakeholder
capitalism over shareholder capitalism that has been practiced by companies for
ages.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Social and political unrest in many countries,
increased frequency of natural disasters, and finally the COVID-19 pandemic
have laid bare the fault lines on which the global economic order rests and
vulnerabilities of modern societies.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">These developments reinforce the urgent need for
companies to widen their canvas of responsibility, do more good, and do good
for more constituents by embracing the sustainable development goals (SDGs) of
the United Nations.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Corporations and family businesses in India, and
elsewhere, have little choice but to shift their focus from only increasing
profit to balancing profit with increasing net positive impact on the
Environment, Society, and Governance (ESG), marrying profit with purpose.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Corporate governance under shareholder capitalism has
traditionally been mandated and designed for maximizing shareholders’ wealth
and minimizing agency costs.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Empathy, sensitivity, perseverance and adaptability
have, however, emerged in recent years as key traits that board members
individually and the board collectively must possess to govern a company from a
multi-stakeholder point of view.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Interestingly, these are called feminine traits
because women across cultures are found to possess these qualities more than
men. Greater presence and participation of women is more likely help a board to
discharge its mandate in the new paradigm more effectively.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Reducing inequality and discrimination has also been
one of the most formidable social challenges, of which gender is the most
pervasive one. Greater gender inclusivity and diversity in every level of
corporate hierarchy is going to be a source of competitive advantage for some
time before it becomes sine qua non for modern corporations.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">In her article for the inaugural issue of the Family
Enterprise Quarterly, Dr. Sangita Reddy, joint managing director of Apollo
Hospitals, put it eloquently: “In today’s hypercompetitive marketplace, gender
diversity is good business.”</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">How well are family businesses in India positioned in
the emerging environment?</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Our research at the Thomas Schmidheiny Centre for
Family Enterprise, ISB, reveals that family businesses listed on the National
Stock Exchange of India showed a greater propensity to comply with the mandate
of the Companies Act, 2013, that certain public companies must appoint at least
one woman-director on their boards. This demonstrates the resolve of family-run
companies to embrace and adapt to changing regulatory requirements.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">The identity and image of the family is closely tied
to the functioning of the family business. We observe that family firms in
India, on average, have a greater than 50 percent stake in their firms, making
them personally invested in the reputation of the business, its longevity, and image
as a socially responsible, sustainable contributor to society. The ownership
control enables them to influence decisions and reorient the board-level
discourse towards better outcomes for all stakeholders.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Our research also shows that women directors in family
firms are mostly executives. And a family member is at the helm of affairs at
more than 90 percent of such firms. The combined effect of these two factors
provides business families the management control to implement required changes
at the strategy and operational level to adopt ESG-friendly practices.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Demographic changes in business families and at the
societal level in India, in recent years, have nudged many family-run companies
to adapt, discard primogeniture, promote gender equality and evolve with time
to be a responsible corporation.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">The enterprising one have defied “from shirtsleeves to
shirtsleeves in three generations” while the others have fallen to the adage.
It is time more family firms understand that what is good for the society is
good for business, and, therefore, good for them too!</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">Firms founded by enterprising business families are
preordained and wired to be long-term-oriented, driven by values, and led by
passion and purpose. In an era dominated by shareholder capitalism, family
firms, being more patient and not driven by quarter-on-quarter results, were
significantly disadvantaged compared to other companies barring state-owned
enterprises.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-GB" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-GB;">As the world of business swings towards stakeholder
capitalism by incorporating an ESG framework, family businesses in India and
elsewhere have the opportunity to leverage corporate governance as a
competitive advantage. It is time for them to recognize this and seize the
momentous opportunity.</span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-31120655898835017432022-03-08T10:06:00.002+05:302022-04-19T10:08:25.697+05:30Give Her Wings to Fly<p><i style="text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">This article was first published in the Times of
India, March 08, 2022</span></i></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Men are from Mars. Women are from Venus. There is no
denying the differences. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">There are obvious differences in size and anatomy. They
did matter when it was required that people went hunting to provide food for
their families. It also mattered, and still matters, when hard labour or
physical strength was/is required. But does the physical strength matter so
much when most of the work is automated, digitized, and brain power has become
more important than muscle power in most of the industries?<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Psychological differences also exist. Research has
consistently shown that women are more emotional, sensitive, anxious, and
friendlier. Men are more assertive and open to new ideas. This has been found
to be true across cultures, indicating that the difference is biological rather
than cultural. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">There have been women who transcended all biases,
disadvantages, and segued into territories reserved for men. This article is
about the norm. The norm is that the Gender Inequality Index shows vast
inequality between men and women. That many governments and organizations such
as the UN are taking steps to bring about gender equality. As a result, we have
come far from where we were a few decades ago. Yet, we are far from equality. Change
is happening. It’s just not happening at the speed we want it to. Why?<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><b><u><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Mindset</span></u></b><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">: We have come a long way from the days when most girls did not go to
school and formal school education for girls was a rarity rather than a norm. The
male-female literacy gap has consistently reduced from a peak of 26.62 per cent
in 1981 to 16.68 per cent in 2011. The Census 2021 data is awaited but this gap
is expected to have reduced further due to the enactment of the Right to
Education Act in 2009, ongoing efforts for hygiene, separate toilets for girls,
and slowly yet steadily changing cultural and societal norms. A good education
is the steppingstone to a good career. It gives one the foundation to think
creatively and the confidence to charge ahead.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Consequently, women are charging ahead. Though, the
gap remains huge. Many corporations are now starting to recognize the gap,
acknowledge it, talk about it, and pledge to narrow it. For example, HDFC Bank
published data on representation of women at different levels of management in
their annual report and set a target for improvement. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">All the above are
welcome improvements. But there are biases that keep many girls from pursuing
an aggressive career. Statements such as, “your place is at home”, “you must
come back home by 7pm”, “you must not travel”, impede growth at work and
prevent women from utilising their full potential. These are not things people
would say to a man. <o:p></o:p></span></p>
<p class="Default" style="text-align: justify;"><span style="color: #081a31; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">It is time the society realises that women are not a subset of men. They
are their own identities and have their own aspirations. Don’t weigh us down by
biases, expectations, and </span><span lang="EN-US" style="font-family: "Times New Roman",serif; mso-ansi-language: EN-US;">preconceived notions of what is appropriate for us to
do.</span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><b><u><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Mental Load</span></u></b><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">: It is a known fact that women take on greater burden of household
chores. Increasing levels of education, awareness, and changing demography has
also resulted in larger percent of women in managerial and senior management
roles. The gradual shift in mindset has made households more open to seeking
external help for chores, outsourcing day care of children, and technology is
aiding in reducing time taken to do many chores. Though none of this can be
generalized, there is certainly a positive shift in general.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Yet, the percent of women that reach the top
management teams in organizations remains dismal. Why? Even though many of us
manage to keep afloat when at relatively junior levels in the organization, at
senior levels of management, it becomes difficult to balance the requirements
of the job along with the expectations at home. Our hands are freer. Our minds
remain cluttered. Our load has changed its form, like energy. We may not be
doing a lot of work on our own, but we need to get it done. At senior management
levels also, most of the work entails getting work done, guiding, and crisis
management. Women do that at work, and also at home. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">The challenge is that it is difficult to explain
mental load. I get asked many times, “what do you do at home? You have help for
everything. What challenges?” At other times we are told to simply “ask for
help”. The assumption when we are told to ask for help is that we are
responsible for that task, not our partner. So, the burden of getting something
done remains with the woman. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Another challenge is that we women ourselves have
grown up seeing our mothers do more physical work at home, be physically
present, and a “Mother India” image of being an ideal parent. This notion
leaves us in a shroud of guilt for not being a “good parent”, for having fun,
for not sacrificing enough, and for being ambitious. This leads us to greater
anxiety, worrying, trying to compensate in different ways, and generally,
unhappy. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><b><u><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Men</span></u></b><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">: I asked a
few male friends to read Indira Nooyi’s book, “My Life in Full.” None of them
said No. But to the best of my knowledge, none of them did. On the other hand,
many of them did read Harsh Mariwala’s Harsh Realities. Why? This is a loaded
question and points to the unconscious bias that exists in the minds of men, as
well as women. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Discounting women and their achievements is the
biggest disservice that men, and even women, inflict on women. When men
succeed, and their career is their only job, most of the times, it is due to
their skills. When women succeed, despite taking on unreasonable share of
household responsibilities, it is “because” they have a supportive husband.
Family support is a must to be able to work uninhibitedly, for men, as well as
for women. Most husbands who help their wives at home make it sound as though they
are doing a favor to their wife. They are not. The house and the household
belong to the men as well and so must its responsibilities.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">While many of us try and create an external support
system of creches and daycares and nannies, it only helps us do a 9 to 6 job.
Not beyond that. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><b><u><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Last Word</span></u></b><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">: To bring about any meaningful change and achieve true gender equality,
mindset must change at the societal as well as individual level, mental load
should be acknowledged and shared, and men must equally involve in bringing
about change rather than treating it as a “women’s issue”.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">Educating a girl child is like giving her wings. But
then not supporting her to give her best, is like not giving her the sky to
fly, despite the wings.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Hyderabad, Telangana, India17.385044 78.486671-10.925189836178845 43.330421 45.695277836178846 113.642921tag:blogger.com,1999:blog-6811709951589642336.post-25963899417787707482021-11-20T10:12:00.001+05:302021-11-20T10:16:48.220+05:30Immersion in the Tata 'black box'<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><span lang="EN-US" style="mso-ansi-language: EN-US;">This book review was first published
in the Business Standard on November 19, 2021; <a href="https://www.business-standard.com/article/beyond-business/immersion-in-the-tata-black-box-121111801571_1.html">https://www.business-standard.com/article/beyond-business/immersion-in-the-tata-black-box-121111801571_1.html</a></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm;"><br /></p><div style="line-height: normal; margin-bottom: 0cm; text-align: left;"><span lang="EN-US" style="mso-ansi-language: EN-US;"><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-AqOowJDzpVs/YZh9DNNlNxI/AAAAAAAAF34/EhBTCSrmUio4sRSHu59c6WE-hgCKYMynwCLcBGAsYHQ/s1800/243508614_10227577511686824_4655411845031425150_n.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1800" data-original-width="1440" height="320" src="https://1.bp.blogspot.com/-AqOowJDzpVs/YZh9DNNlNxI/AAAAAAAAF34/EhBTCSrmUio4sRSHu59c6WE-hgCKYMynwCLcBGAsYHQ/s320/243508614_10227577511686824_4655411845031425150_n.jpg" width="256" /></a></div><a name="_Hlk88295251"><o:p></o:p></a></span><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;"><a name="_Hlk88295251"></a><div style="line-height: normal; margin-bottom: 0cm; text-align: left;"><a name="_Hlk88295251"></a><a name="_Hlk88295251">Book: TATA- The Global Corporation That Built Indian Capitalism</a></div></span></span></div><div style="line-height: normal; margin-bottom: 0cm; text-align: left;"><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Author: Mircea Raianu<br /></span></span><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Price: 699/-<br /> </span></span><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Pages: 304<br /></span></span><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Year: 2021<br /></span></span><span style="mso-bookmark: _Hlk88295251;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Publisher: Harvard University Press, Cambridge, Massachusetts</span></span></div>
<p class="MsoNormal" style="text-align: justify;">A long time ago, I wanted to read more about
Warren Buffett. There were a few biographies available in the library. For me,
a biography was a biography. I was confused about which one to pick. My
immediate boss, a man of books, scholarship, and impeccable manners, told me in
his soft and thoughtful voice, “There are biographies and there are authorized
biographies.” That got me thinking. I hadn’t known the difference until then.
Subsequently, I read the authorized biography of Buffett, <i>The Snowball:
Warren Buffett and the Business of Life</i> by Alice Schroeder, and then the
others. Having access to the man himself definitely made a difference to the
insights in Ms Schroeder’s book.</p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US;">This experience has helped me differentiate
between the latest book on the Tatas authored by a historian of global
capitalism and modern South Asia, Mircea Raianu, and other books on the group that
I have read over the years. Many of the popular books on the group are written
by Tata insiders, for example R.M. Lala, Mukund Rajan, and Harish Bhat. A few
others are written by the outsiders but are primarily internally focused.
Examples include books by Girish Kuber, which chronicles the Tata family and
group, Shashak Shah, which provides an insight into the people practices and
culture at the Tata group, and Peter Casey, which is the work of a fanboy. Don’t
get me wrong. Each of these books have something unique to tell, for the Tata
group is such a giant that no one book can capture all aspects of the family
and the group.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US;">This is where Professor Raianu’s book makes a
unique contribution. His is a book by an outsider that extensively integrates
the activities of the group with the external environment, using internal
resources (archives), clubbed with his own research about the global and Indian
events and economies. The journey of the Tatas is immersed deeply in colonial,
socialist, and capitalist India and the confluence of politics, economics, and
society. On the one hand, the Tatas have challenged the Schumpeterian “creative
destruction” view by traversing salt, soap, and steel along with software and
sky (Tata sky as well as the group’s airlines), on the other, it has traversed
the corporation and the state mostly with aplomb, barring a few cases of resistance
and inadequate measures and slips. Raianu has been able to extract valuable
information from the Tata and other archives that throw light on how each of
these aspects played out in the group.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US;">At this point, it is important to mention about
the relevance of archiving for corporations. The book and the plethora of
information in it points towards the gold mine that archives are and can be if
maintained well. The archives should be impartial, accurate, and as far as
possible, complete. Corporate archives are often either poorly maintained, or
even if maintained well, are closed to scholars. The Tatas must be
congratulated and credited for leaving “behind a longer paper trail than any
other Indian business” and opening the archives to the public. Other large corporations
with long histories must follow suit.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US;">These archives have perhaps been used for the
first time for putting together a comprehensive academic history of the Tatas.
The 62 pages of references in the book are testimony to the monumental number
of records that the author has gone through. As often happens with a haystack
of information, organizing it can be daunting.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US;">In the words of the author, “This is not an
elite story of great leaders imposing their vision from above, nor a tale of
subaltern resistance that looks up at the corporation from below, but an
eye-level immersion in the “black-box” of information exchange within the group.”<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span lang="EN-US" style="mso-ansi-language: EN-US;">The challenges for the reader, and perhaps the
author himself, stems from these lines. As a historian, Professor Raianu, digs
into the meticulously preserved archives of the Tata group, and tries to
“reconstruct the conversations, deliberations, and decisions made by several
categories of actors…” As a reader, I am left feeling in a “black-box”
occasionally. Sometimes, the book is like an abstract painting, left to the
imagination of the reader. At other times, it is like what we in India call an
“art film”. There is information, sometimes too much of it. It is
intellectually stimulating. But too tiring to read for the average reader. Now
and again, though, it is good to denounce popularity (commercial cinema) for
reality (art movies), even as a reader. Isn’t this the real world? Too much
information. The good and the bad. Go make sense of it.<o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Kondapur, Telangana, India17.4698577 78.3578246-10.840376136178847 43.2015746 45.780091536178844 113.5140746tag:blogger.com,1999:blog-6811709951589642336.post-79737547066664069052021-10-06T11:16:00.001+05:302021-10-06T11:16:13.258+05:30Old Economy vs. New Economy – Indian family businesses adapt well to the digital world<p><span style="font-family: "Times New Roman", serif; text-align: justify;">This article was first published in Family
Capital on October 5, 2021, Co-author: Ramachandran, Kavil; </span><a href="https://www.famcap.com/2021/10/old-economy-vs-new-economy-indian-family-businesses-adapt-well-to-the-digital-world/" style="font-family: "Times New Roman", serif; text-align: justify;">https://www.famcap.com/2021/10/old-economy-vs-new-economy-indian-family-businesses-adapt-well-to-the-digital-world/</a><span style="font-family: "Times New Roman", serif; text-align: center;"> </span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Family businesses evoke the memories of a Bajaj
scooter or a Godrej lock, in India. Though now they dominate even the sunshine
industries like pharma, telecom, biotechnology and information technology with
firms like TCS, Wipro, Sun Pharma, Biocon and Airtel being the largest players
in their respective industries. Yet, when we talk of new age industries like
e-commerce and analytics, we often think of the Flipkarts, the Swiggys, and the
Microsofts, all of them either private equity backed startups or non-family
firms. Family firms are not yet known in a big way in e-commerce and the next
generation wave of technology viz. artificial intelligence, analytics and
machine learning.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Belying anecdotal worries about the potential of
family firms to withstand the rush of competitive forces in the economy post
liberalization in 1991, family firms registered remarkable growth. Removal of
restrictions and controls unleashed their entrepreneurial spirit. Taking
advantage of the changing business landscape through the 1980s and the big bang
reforms of 1991, family-firms built businesses in all industries including in
areas otherwise reserved for public sector and the upcoming industries.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Family firms now face another set of challenges
different from the ones they faced post-liberalization; that of disruptive
technologies and digital economy. The traditional business models are being
challenged and the speed of change is nerve wrecking. Some of the unique
advantages that family firms possess, like long-term orientation, loyal
employees and owners’ passion, may be deterrents to being agile and innovative
to cater to the changing market demands. So far, the family firms have been
laggards in the race. But will it be the story of the tortoise and the hare?
With slow and steady winning the race?</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Take the example of Tata CLiQ. In 2007, Flipkart
pioneered the e-commerce market in India, with Amazon foraying in in 2013. There
were many startups that tried to compete and then either shut shop,
consolidated or gave up the dream to become as big as either of them. Five
years back, in 2016, the Tata group made a silent entry into e-commerce with Tata
CLiQ. It has neither sprinted ahead of Flipkart and Amazon, nor is it the most
popular. Yet, it’s gaining ground slowly and steadily. They do not believe in
offering deep discounts like the other portals do and have strategies that they
know are sustainable. They have been adding more brands to their platforms,
have steep revenue growths, and have acquired some well-known existing
e-commerce platforms.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Would Tata CLiQ ever topple Flipkart and Amazon
to become the number one e-commerce portal in India? We do not know. But what
we do know is that Tata CLiQ is here to stay and will benefit from the
experience, the philosophy and the resources at its disposal as a part of the Tata
group. While Flipkart will have to rely on external funding, the Tata group
acts as the venture capitalists for CLiQ, saving them from the pressures of
finding funds. Even in the past, the Tatas started their information technology
business as a division of the group holding company Tata Sons, in 1968. The
company was listed only in the year 2004.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Similarly, many family firms have presence in
the new age businesses, albeit in a small and no-frills fashion. Owing to the
reputation of the family at stake, they may take them public only when the
venture achieves a respectable size. Many of these businesses are championed by
the next generation members of the family who are more exposed to the current
trends due to their education or interest. The trend has made it easier for the
next generation members of the family to do something of their own. It is
easier for the family to invest in a member of their own family rather than
trust their money with a 30 something youngster with a risky idea. Puneet
Dalmia, a third-generation member of the Dalmia Bharat group started the online
career portal, jobsahead.com, with funding from the family. It was later
acquired by Monster worldwide. Puneet then joined the core family business but
continues to act as a venture capitalist for other startups.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Like the Dalmia group, many family firms have
become active investors in the startup eco system, either in their own capacity
as a family or through the firm. Apart from investing in fields of online
education, e-commerce, agri-solutions, investments in emerging technologies and
digital space are also popular amongst the families who have been involved in
traditional businesses only so far. For example, Premji Invest, the personal
investment arm of Azim Premji family, has invested in wide ranging startups-
from food (iD fresh foods) to data management and analytics (Data Stax) to
e-commerce (Snapdeal). While the family firms may not have direct presence in
many of the new age economy businesses, they do have significant stake in many
of them through investments. These investments are typically in personal
capacity or through the family office, without disrupting the core family business.
Though being cautious about their reputation, family businesses monitor the
progress closely and may impose certain strategic restrictions.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US" style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">New ventures by next generation family members
and investment in startups by non-family members requires robust governance
mechanisms to approve the funding by the family. The buy-in from the investment
committee of the family or the family office is important. The venture must be
approved keeping in mind the long-term goals of the family. Professional help
from wealth managers and experts from financial institutions may be needed to
evaluate the financial viability of the proposed venture and subsequently to monitor
it. In many cases, the socio-political clout of the proposer within the family
influences the decision making, apart from the economics of the proposal.
Through sound governance systems and processes the subjectivity can be
minimized. <o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Gachibowli, Hyderabad, Telangana 500111, India17.4353586 78.3407469-10.874875236178845 43.1844969 45.745592436178846 113.4969969tag:blogger.com,1999:blog-6811709951589642336.post-84507290784715566322021-09-16T12:36:00.000+05:302021-09-16T12:36:01.775+05:30SHARE PLEDGING AND ITS CONSEQUENCES: A STUDY OF INDIAN FIRMS<p><b style="text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">“Policy
makers and investors need to take a more balanced and contextual view on share
pledging by family promoters rather than castigating the phenomenon.”</span></b></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">A
research study, authored by <b>Dr. Nupur Pavan Bang</b>, <b>Professor Sougata
Ray</b>, <b>Nandil Bhatia</b> and <b>Professor Kavil Ramachandran</b> of the
Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business
(ISB), highlights the prevalence of share pledging in the Indian context and
the possible implications that pledging may present for stakeholders,
especially in family firms.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Using data for 1,492
firms listed on the National Stock Exchange of India from 2009 to 2019, the
study finds a decline in firm value, higher crash risk and underinvestment in
innovation by firms where promoters of family firms pledge their shares. The
study also shows how some firms have utilized share pledging by family
promoters as a tool to raise capital for strategic projects and create value
for the stakeholders. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">The various scandals,
loss of control of the firm by family promoters, regulatory responses and
warnings led to the common perception that all share pledges by promoters are
bad. Existing empirical research around pledging of shares is sparse and does
not account for the heterogeneity among the possible use-cases of capital
obtained from pledging of shares. The study calls for more nuanced studies on
pledging to explore this anomaly contextually and to avoid painting all cases
with the same brush.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Co-author, Professor
Sougata Ray explains that “<i>the commonly peddled negative narrative on
pledging often dissuades fact based, informed, balanced, and nuanced debates on
its utility, causes and consequences, backed by rigorous research in spite of
its ubiquity in India and many other economies of the world. Along with large
sample data driven research, there is a need for case study based research on
pledging in order to understand the variations of the same.”<o:p></o:p></i></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">The study was released in
a webinar in the presence of Dr. Satyanayana Chava, Founder and CEO, Laurus
Labs; Professor Prasanna Tantri, Executive Director, Centre for Analytical
Finance, ISB; the authors of the study; and industry stakeholders. It has
important implications for investors, regulators, board of directors, and even
family members. Pledging of shares, coupled with bad decision-making and/or
over ambitious growth plans, resulted in complete destruction of family wealth
in many family firms. There is need to create awareness and build stronger
family governance processes that would put checks and balances with regards to
excessive pledging.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Speaking at the webinar,
Dr. Nupur Pavan Bang said, “<i>The study provides a clarion call for
acknowledging that pledging is an important tool to access financial capital
for family promoters. It is a legitimate way to raise entrepreneurial financing
amongst family businesses and a source of fund to turnaround the family firm if
it is in trouble. Policy makers and investors need to take a more balanced and
contextual view on share pledging by family promoters rather than castigating
the phenomenon</i>.”<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-bidi-font-weight: bold;">The
study lists important implications for stakeholders of family firms, such as,
promoters</span><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-fareast-font-family: Calibri;">, family members of the promoting family, investors, the firm’s board of
directors, and the regulators. A few of them include:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;"><!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">-<span style="font: 7.0pt "Times New Roman";"> <span> </span></span></span></span><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;">Over-optimistic
investment plans and over-pledging of shares by the promoters, without
pre-planned repayment strategies, are likely to lead to a crisis later. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;"><!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">-<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;">Investors must keep
a track of their portfolio and regularly evaluate if the controlling
shareholders of the firms in which they have invested have pledged their
shares. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;"><!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">-<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;">Board of directors
of firms must caution controlling shareholders from over pledging their stakes
and should shield the firm from such shareholders if they try to manage the
margin calls by taking hasty or short-term view decisions in the firm. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;"><!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">-<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;">The study also has
insights for the regulators such as the RBI and SEBI to take more balanced view
of pledging when making policies. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;"><!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">-<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;">Further, t</span><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman \(Body CS\)"; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;">here is need to create
awareness and build stronger family governance processes that would put checks
and balances with regards to excessive pledging. </span><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-fareast-font-family: Calibri;"><o:p></o:p></span></p>Nupur Pavan Banghttp://www.blogger.com/profile/05136646336140792321noreply@blogger.com0Kondapur, Telangana, India17.4698577 78.3578246-10.840376136178847 43.2015746 45.780091536178844 113.5140746