India’s feudal industrialists

Despite claims about the importance of separating ownership and management, Indian industrialists still control their fiefdoms through a complex web of investment firms, trusts and HUF entities, discovers Paranjoy Guha Thakurta

The unseemly squabble among members of the family that was once headed by the late Bhai Mohan Singh who founded the Ranbaxy corporate empire, one of India's biggest and best known manufacturers of pharmaceutical products - now also a group with an impressive international reputation—has highlighted an all-too-common phenomenon. A first generation entrepreneur struggles to build a business from scratch. His progeny, born with proverbial silver spoons in their mouths, quarrel and carve up the founder's assets.

This story is not just universal but almost as old as the hills. Also, in more ways than one, the story is rather paradoxical. A highly successful entrepreneur is invariably a person who is able to judge people with brilliant instinct; as a matter of fact, his ability to manage his human resources is an important contributor to his success. Yet, this same individual is invariably blind when it comes to evaluating his children. His fatherly feelings not only cloud his judgement and common sense, such entrepreneurs are usually unable to anticipate the consequences of what would happen to their diligently-built fortunes after they are dead and gone.

Is there something unique about Indian family-dominated businesses that makes them split after the death of the founding patriarch? Probably not. The world over, children of industrialists fight over ownership and control of properties to the detriment of the health and future prospects of the corporate organisations they are meant to oversee.
A question is often raised in one of the early chapters of most textbooks on economics: What are human wants? A man who does not possess a single shirt, first wants one. He then wants two ; after that, four and subsequently, perhaps, 10 shirts. There are, of course, some who fail to distinguish between need and greed. They become like Imelda Marcos or our own Jayalalithaa. If dynastic tussles in business families are all about greed and tussles over sharing assets bequeathed on children and relatives by one hard-working and motivated person, there is certainly no dearth of such examples from India's recent corporate history. Yet, to be fair, not all business families part ways after acrimonious battles.

The three sons of the late Keshav Prasad Goenka, Rama Prasad Goenka and his brothers, Jagdish Prasad and Gauri Prasad, parted ways amicably though at one stage, two of them vied with each other to acquire a company. The Kirloskar and Godrej families have lived together in relative harmony. The undivided Birla family had carefully reorganised its assets before Ghyanshyam Das Birla's death in 1983. However, the ongoing spat between Rajendra Singh Lodha and Birla family members after Priyamvada Birla—widow of the late Madho Prasad—did little to enhance their public image.

Examples of internecine family feuds include those that have taken place in the Chhabria, Modi and Bajaj groups. There are deep divisions among the Nandas of the Escorts group and the members of the family that was once led by Lala Shri Ram who established DCM. Often the real issue behind a family split is managerial control. After a much-publicised dispute, the Ambani brothers, Mukesh and Anil, set up their own groups barely two years after their father, Dhirubhai Ambani, died in July 2002. Like many promoters, the members of the Ambani family control their fiefdoms by holding shares through a complex web of investment firms, trusts and HUF entities. The Sarabhai family of Ahmedabad had floated some 1,400 trusts at one juncture to control its industrial empire.

It is not as if ego clashes and contrasting personalities do not have a role in families breaking up. Still, more often than not, there are substantive issues at stake. Despite a lot of claims made about the importance of separating ownership and management in capitalist enterprises, many industrialists in India tend to be feudal in their outlook.