Mumbai: Rahul Bajaj and his three cousins—Shekhar, Madhur and Niraj—have signed an agreement that outlines how the family will jointly own group companies and establishes formal processes to deal with issues related to succession, ownership and conflict resolution.
The move confers on the Bajaj group the rare distinction of being India’s only large business family that has stuck together for four generations while ensuring a smooth transition for the fifth generation family members.
“The whole thing has a long-term logic. We don’t know what happens to our children and grandchildren. But, we know we want to be together. We are trying to see how we can strengthen our relationship," said Shekhar Bajaj, chairman of Bajaj Electricals.
The agreement comes almost 18 years after a bitter family feud led to Rahul Bajaj’s younger brother, Shishir, carving out a part of the business empire. Shishir split in 2008 after a messy seven-year battle that was referred to India’s company law board to settle the dispute.
While details of the new family settlement agreement (FSA) have emerged only now, Rahul, Shekhar, Madhur and Niraj—who are third-generation Bajaj family members—signed the accord in June after a series of transactions held between August 2017 and April 2018 to establish each other’s ownership of companies such as Bajaj Holdings Ltd, Bajaj Electricals Ltd, Mukand Ltd, Hercules Hoists Ltd, Bajaj Auto Ltd and Bajaj FinServ. In the process, they spent close to ₹ 8,863 crore in trading as many as 52.8 million shares of various group firms.
Rahul Bajaj continues to be the leader of the group. His elder son Rajiv runs Bajaj Auto and younger one Sanjiv runs Bajaj FinServ. Shekhar’s only son, Anant, died in August. Niraj has one son, Nirav.
Family businesses the world over are known to split by the third generation. As much as 60-70% of family businesses don’t last the third generation and 94% of them don’t last the fourth generation, according to Sunil Munjal, chairman of Hero Enterprise. Interestingly, the 6% that do last the third generation seem to go on generation after generation, Munjal had said in an earlier interview.
That underlines the significance of the agreement.
“FSA is a totally confidential agreement. It lays out the concept for future and how the joint ownership of the group will look. (It deals) with simplification of group structure, succession planning, just in terms of control of companies, etc," Niraj Bajaj, chairman of Mukand Ltd, said in a phone interview. “We are already into the fourth generation. Nobody knows the future. It is about what can we do—what precautions need to be taken, what decisions need to be taken."
To put the group’s businesses in context, Bajaj Group became the fourth largest in the country, with a combined market value of ₹ 3.8 trillion in 2018, more than other family business giants such as Aditya Birla Group, the Wadias, the Godrejs, the Mahindras and the Adanis. Only HDFC group, the Tata group and Reliance Industries Ltd exceed Bajaj’s market cap.
FSA also expands an already existing family council and gives voice to members of the extended family, who will together decide on the leadership at its group companies.
The agreement also takes into account the next generation of family members.
In India, a huge chunk of businesses are family-owned. In earlier days, it was part of the tradition for families that they will work together and the patriarch or father would make the decisions, and if the brothers are together, then either the elder brother or the brother who is chosen as the one to lead the group would be taking decisions.
Over time, families have had two influences—one, that as the next generation comes in with its experiences, exposure and education are quite different. They also have the ability and desire to question the status quo. They want to know why certain things are being done in a certain manner. In the old days, whatever the elder used to say was accepted as the norm, whether you liked it or not.
At Bajaj, it’s the amalgamation of both.