Financial Daily from THE HINDU group of publications
Friday, Nov 26, 2004
Corporate - Corporate Disputes
Succession issues in business families
New Delhi , Nov. 25
THOUGH astute in business and entities to reckon with on the bourses, when it comes to sorting out matters of succession some of India's oldest business families may still need to do their homework.
Be it the Ambanis of Reliance Industries, the Bajajs of Bajaj Auto, the Nandas of Escorts, or the Modis of Modi Rubber each family has, in the recent past, faced succession and ownership issues and found them tough to resolve.
And while one can count several counter examples of family-run businesses that have resolved these issues amicably, the examples are few and far between. The Murugappa Group in the South, the Burmans of Dabur India and the Thapars have settled succession issues without coming into the public eye.
However, for most family-run businesses, the issue of defining a clear succession plan often leads to souring of personal relationships among family members. And invariably, in the case of large listed companies, this could lead to erosion in shareholder value something the businesses can ill-afford.
"A lot of people do not understand that family businesses are social organisations and need to be treated as such. We in India still have a feudal set up, with succession planning by the family patriarch being done too late in the life span of the business when such planning should actually happen in the first generation itself. Businesses are meant to create wealth and this wealth should be shared by all in the family," the Ballarpur Industries Managing Director, Mr Gautam Thapar, told Business Line.
While he declined to comment on the succession planning and business split in the case of the four older Thapar brothers, which was completed earlier this year, sources said the entire plan took 12-18 months to materialise. "The four older Thapar brothers and five younger siblings were clear that while they will try to maintain cordial family relations, business interests should be clearly demarcated and all cross-holdings removed," sources said. So, after lengthy negotiations, it was decided to split the group into four distinct businesses, each headed by one of the older brothers.
As of date, Mr L.M. Thapar controls BILT, Mr M.M. Thapar controls JCT (textiles and electronics), Mr I.M. Thapar controls coal and properties through KCT Coal Sales and Indian City Properties, whereas Mr B.M. Thapar controls Crompton Greaves.
Also, in almost all the recent cases of ownership disputes, the eldest male siblingsappear to have the upper hand in terms of assets under control.
Take the case of the Nandas of Escorts. Brothers Mr Rajan Nanda and Mr Anil Nanda wanted to separate business interests. Mr Rajan Nanda is the Chairman and Managing Director of group flagship the Rs 1,100-crore Escorts Ltd, while younger brother Mr Anil Nanda had to resign as Vice-Chairman of the company, with the condition that he would not seek reappointment. Mr Anil Nanda was given controlling stake in Goetze India Ltd.
However, relations between the two brothers were under strain because of the controversy over the attempted sell-off of a part of the stake Escorts Ltd held in group company, Escorts Heart Institute and Research Centre (EHIRC).
The Bajaj group too could not escape public attention, the bone of contention being the disposition of the stake held by one of the members of the promoter family in the Rs 5,200-crore Bajaj Auto. One of three Bajaj brothers, Mr Shishir Bajaj, had expressed a desire to go it alone, but has not yet been able to reach a settlement with elder brother Mr Rahul Bajaj on the valuation of his stake in the flagship Bajaj Auto.
The latest saga to hit the headlines involves the Rs 80,000-crore Reliance Group, where "ownership issues" have created differences between Chairman Mr Mukesh Ambani and younger brother Mr Anil Ambani. Even as the dust is yet to settle down on perhaps India Inc's biggest business family dispute, a pertinent point is that the corporate sector is more promoter-driven with professionals wielding less control. A professional can never become a Chairman unless the ownership is divested from management, said Mr U.K. Chaudhary, a senior Supreme Court advocate and a top corporate lawyer.
In fact, according to experts, in the absence of a will, under the Hindu Undivided Family law the shares of the individual are equally distributed among the immediate (first class) heirs such as the wife, sons and daughters, while the corporate shares remain parked wherever they are.
While the Reliance ownership issue has already started kicking up a storm on the bourses, succession may yet be the undoing factor for family-run businesses in India. Already there is speculation of another large north India-based manufacturing company having to face similar issues before long.
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