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Gautam Thapar | Manner of decision making needs to be removed from firm’s owner

Gautam Thapar | Manner of decision making needs to be removed from firm’s owner
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First Published: Wed, Feb 16 2011. 12 41 AM IST
Updated: Fri, Feb 18 2011. 12 28 AM IST
New Delhi:Gautam Thapar was never expected to inherit the Thapar group that was run by his uncle L.M. Thapar and founded by his grandfather in 1919. His cousin Vikram was being groomed to take over. The chemical engineer, who studied at the Pratt Institute in New York, rose to the helm after successfully turning around two group companies—AP Rayons Ltd and Ballarpur Industries Ltd (BILT), then the group’s largest cash generator.
The death of his uncle left the group divided into four. Thapar has since not only consolidated the companies under the Avantha group, but also built it to become one of the 10 largest business groups in the country. The group has interests in myriad sectors from paper and pulp to power generation and related equipment, and a presence in 10 countries.
In an interview, the chairman and chief executive officer (CEO) of the Avantha group explains his idea of the role of a family owner in an enterprise and why he believes companies should be professionally managed. Edited excerpts:
You have managed to define a role for yourself and at the same time built a professional management for your company. What do you do in a day and how much of your role is actually hands-on?
I do very little. The companies have professional management. I see very different roles for myself. I mainly look at more the long-term issues in the organizations, including things like BILT’s available land bank after five-six years. Should we look for additional land bank, which geography, etc., there the (family) name and reputation comes very handy. That’s something that my CEOs are not going to be able to do.
In the case of CG (Crompton Greaves Ltd), we are a very good international organization, but we are not yet a global company. The transition from international to global is an area where I feel I have to take part. In five-seven years, what should this company look like?
All the companies have professional CEOs, but I might actively take part in the meetings—not in the day-to-day management, but much more in the execution of strategy and building of the organizations, compensation levels, recruitment, and also to ensure strict adherence to cash flow-based business management and strong operating features, regardless of which business you belong to.
With smaller companies, there has to be much more hand-holding and reassuring required on the capital side, on the execution side...
How involved are you in decisions on entering new businesses?
Looking into entering new business is also something that I would look at. I have not hired any consultant or economists to do the work for us... When you look at a new business, the first thing is scale and size. No. 2 is that it’s not necessary today that you want to enter into a new business where you will be No. 1 or No. 2. That is not a goal any more as far as we are concerned.
Third is, if it is regulated, what is the level of regulation—is it at the level of the market place or is it at the level of resource allocation. If it’s at the level of the latter, then it’s a complete disincentive. We stay away from businesses where it’s a resource allocation issue. If it’s a question of the market regulator, then we are happy to look at that because that cuts across the board.
The first thing that I put out there is: Gautam Thapar is dead and gone. So when he is dead and gone, how should this function? This has nothing to do with whether my children are involved or not involved. Even if they are involved, the manner of the decision making needs to be removed from the owner of the business. We are entrepreneurial today. But I doubt that we will be able to sustain that 25 years down the line. If everything goes as we would like it to go, this would be a huge sprawling enterprise, far more mature and professionally managed.
So, what are the mechanisms you start putting in place for that. The Avantha management board is there now. Initially, it consisted of insiders—the CEOs of the major companies, CFOs (chief financial officers). That’s my group executive office. Now, we are starting to think of outsiders who have nothing to do with the group but are just there from an involvement or intellectual point of view. We have a risk framework across the board now. We are far more geographically exposed today, both in asset and in geography, than we were five years ago. So you start thinking and building an organization to manage the group as opposed to managing the company.
Now, the question is how to go out and run a group and build the kind of capacity in that set up, where you remove the overhang of the fact that the owner is sitting there and it’s his final decision... Confidence building becomes very important. The CEOs must feel that this is a person that can be convinced. That’s a long-term exercise and is not going to happen in one-two years.
There is a certain stage in the lives of most owners when they say their companies are run by professionals, but later it becomes apparent their children will take over. How do you prevent something like this?
A lot of times, it is a matter of time. Time is very much in my favour as compared to most other owners. At the age of 47-48, I was thinking about things when I would be 70... It’s a sense sometimes whether an organization is ready to be without an owner as opposed to how much of the owner’s DNA is part of the organization... Every five-six years, you will come to an inflection point. And to get to the next level is becoming a crucial issue. Regardless of whichever way I look at it, I felt it very important that I had to start bringing those changes in the 1990s and 2006. And that’s when the whole exercise was embarked on, and that’s to say that tomorrow if I were not around I should leave behind a few things as a legacy: a completely professional management, both at the individual company level as well as at the decision-making level of what’s overall good for the group.
I need to define the relationship that the family would have with the management. I am not closing any route for my children to come up (in the group), but they need to work their way. My children need to be trained and educated into what is ownership and what is management.
Is there a model for you to follow?
I think the Tatas have done this well to some extent. But then, because you have a trust structure there, you are forced by the trust structure to do certain things. We don’t have a trust structure today, but it could be one. We have a holding company. We are exploring everything because trust structure means I need to put my shareholding in a trust, but, my children being the age they are, there is still time... It also depends on how my children develop. They may not be the right people to own something, and it may be a better idea to have a trust.
To me, providing stability to the management is equally important. They should know that within this framework of decision making and authority, we have the authority to go ahead and make decisions and are not going to be yo-yoed around by owners... It’s also important to make sure that your family has income streams to support their lives outside of the running of the businesses.
There isn’t a model and there never will be because many of these things are very individually driven... Then, a lot of things are related to the kind of tax laws you have in the country. So many things are done because it makes sense from a tax point of view. But that’s not a driver out here. We are trying to build something that will last a long time.
How much of this has to do with what happened in the 1990s? There was no clear succession plan, and companies were not doing very well.
There were two elements to what happened then. The first was the recognition that you may have professional management but they are liable to screw things up. So being a professional manager or family manager is the same. A lack of transparency, of systems, framework for decision making and a lack of rewarding merit is something that works against good management practice. A lot of what I am doing now comes from the learning I got then.
The second part is the lack of succession planning... If I go through my experience at that point of time, the amount of polarization that takes place inside the organization is enormous and very counter-productive... No organization is apolitical. But you can reduce the level of politics in an organization by being very clear and transparent of what you want to do.
How much of your thinking comes from the fact that you come from the outside?
The thinking comes mainly from the fact that being an outsider, even though you are a member of the family, you tend to kind of be anonymous to the employees because you are not in the line of succession. You get to hear and see a lot more. What is hidden and not hidden can be quite debilitating from a decision-making point of view. Being an outsider looking in was a good place to be for about 10-12 years.
Respond to this series at familybusiness@livemint.com
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First Published: Wed, Feb 16 2011. 12 41 AM IST