Mumbai: Breaking away from the traditional Indian way of passing family wealth or promoter-owned companies to the next generation, Chennai-based Shriram Group, the country’s largest used-truck financier with interests in brokerage, life and general insurance business, will offer profits and equity to employees who helped the group to build its different businesses.
“We have set up a trust—Shriram Employees Welfare Trust—that owns Shriram Capital Ltd, the holding company for financial services that owns 24% stake in Shriram Transport Finance Co. Ltd,” said Shriram group chairman R. Thyagarajan in a phone interview with Mint.
All the executives who have participated in the growth of the group business will be beneficiaries of this trust, said the 74-year-old Thyagarajan, one of the three promoters of the group. “This is one way of making executives own their group.”
Some 33 of 20,000 employees of Shriram Transport Finance are now beneficiaries of the trust. These employees more or less own stakes equal to the 2.5% owned by Thyagarajan. The trust will expand by inducting more employees selected by a panel of experts comprising of Shriram Transport Finance chairman Arun Duggal and D.A. Prasanna, chief executive of Manipal Enterprises.
Rewarding employees: Shriram Group chairman R. Thyagarajan.
Executives at the decision-making level, such as Shriram Transport Finance Co. managing director R. Sridhar, who spent 15 years with the group, will own a 2.5% stake while operating-level executives will own 1.5%.
The group has set up similar holding companies—non-operating companies that own stake in group companies—in both life and general insurance business and for properties and construction and engineering business.
Thyagarajan left his job with United India Assurance some three decade ago to start truck finance along with his two friends.
Shriram Transport Finance reported a net profit of Rs398.82 crore in the year ended 31 March and paid dividends of Rs102.95 crore.
“Our ownership structure is unique,” notes Sridhar. “We have a committee of outsiders that select employees once in few years to become a member of the trust. These employees who own shares in the trust can either take their wealth at the time of their retirement with full benefits or will have to take a cut if they resign before they retire.”
“Creators of wealth should be part owners,” says Thyagarajan, who is not on the board of many of his 10 listed and unlisted companies, explaining his rationale in offering wealth to his employees.
The company also has a distinct approach to succession planning.
“We don’t think of succession,” says Thyagarajan. “We don’t think in terms of one person as a successor. It is like a partnership. People will have to work to earn their share, a single person cannot own everything.”
His family members will not be part of the management or ownership, says Thyagarajan who has two sons. The eldest, T. Shivaraman, a 42-year-old engineer from the Indian Institute of Technology, is employed in an unrelated engineering and procurement business while T. Vijay, 31, a chartered accountant, is employed in the Shriram Group’s insurance broking business.