Next-gen family members are now keen to start independent entities, and not carry forward past legacies
With fewer members from next generation showing interest in the family business, a host of other issues also arise
Mumbai/New Delhi: So what? Kavin Bharti Mittal, co-founder of Hike messenger and son of Sunil Bharti Mittal, chairman of Bharti Airtel, shot back when he was asked about carrying forward his father’s name and legacy. Kavin has chosen not to join his family business and ventured out on his own to set up Hike, a messaging platform, and in doing so, he is trying to create a name and legacy for himself distinct from his father’s. Yet, there is an element of risk—the risk of Hike’s failure, the risk of his own failure and the risk of letting down the family name, if at all.
“These thoughts cross my mind once in a while," Kavin said, adding that he reminds himself everyday about his reasons for not joining Airtel. “I really believed that the world is changing so fast that I would like to understand the world with my two eyes and not through the eyes of others or some pre-defined lens and I am happy to work a million hours a day to have that freedom." Kavin is firm that he does not see himself being a part of his father’s business in the foreseeable future. He does not think it is in the DNA of telecom operators to disrupt the ecosystem the way disruptions are caused by the tech firms.
In Bengaluru, 2,150 kilometres away from Kavin’s office in Delhi, Rohan Murty has set up a firm called Soroco that is busy disrupting a business that his father N.R. Narayana Murthy created at Infosys.
While Infosys deploys engineers to work on technology requirements for companies, across industries, globally, Rohan’s firm, Soroco offers the same companies products or software platforms which can do away with human intervention. This is by using algorithms, Big Data, artificial intelligence to make enterprises and people and processes far more productive.
There are many stories like those of Kavin and Rohan’s, which put out a narrative that is as much about new generation family members pursuing new areas of growth to seek an independent identity as they are about bringing new dimension to business families in the country.
Family rules the roost
Rahul and Abhimanyu, sons of late Raman Munjal who co-founded the then Hero Honda Motors Ltd along with his father late Brijmohan Lall Munjal, have diversified into renewable energy and financial services. Anuvrat, the only son of Hero MotoCorp’s current chairman and managing director Pawan Munjal, wants to build something of his own in the tech space even as he is finishing his studies. Akash and Isha Ambani, the children of India’s richest man Mukesh Ambani, have disrupted the telecom market with their venture Jio and now plan to amalgamate Reliance Industries Ltd’s technology and retail platforms to build what their father calls “new commerce". The children of Kumar Mangalam Birla, Ananya and Aryaman, are pursuing their interests in microfinance and cricket respectively.
These are just a few examples in a corporate India, which for now is largely controlled by families running their business. An overwhelming 69 of the BSE-100 companies are family-run businesses. Almost all of them still have a family member on the board, either as fruits of ownership or by playing a role in the operational decisions of a firm.
Yet, there are examples like Noida-based HCL Technologies Ltd. India’s third-largest information technology (IT) services firm was founded by Shiv Nadar in 1976. Nadar’s only child, Roshni Nadar, has said in the past that she does not see herself running the business and she would work in philanthropy through Shiv Nadar Foundation. Although Roshni was appointed as vice-chairman of the company last year, HCL clarified that she will not play a role in the operational decisions of the company.
In doing what they want to do, these next-gen family members are in a way also shaping up the new outlook for Indian family businesses. Such businesses are increasingly looking for ways to redefine how business is conducted, are seeking better solutions to address disputes and enforce governance, and, of course, smarter ways to divide family wealth.
With fewer members from next generation showing interest in the family business, a host of other issues also arise. Whose bloodline takes over? Who is the next chairman? Who is the next leader in the business? Will women from the family be involved? If yes, should they just share the wealth or also have a say in business affairs.
A matter of bloodlines
In earlier times, it was given that the next generation will come into the business. What has changed now? “Second generation or third generation of a family no longer interested in running their family’s business just reinforces what I’ve said for sometime: Haveli ki umar saath saal (which means the life of a business house is 60 years)," said Gurcharan Das, author and former chief executive officer of Procter & Gamble India.
“Deep down, critics of capitalism have got it terribly wrong when they say capitalism is driven by greed. Of course, money is an incentive. But when you see the second generation examples like Rohan (Murty) or Kavin (Mittal), you’ll realize that they want something which is more than just money. The motivation is for recognition."
Sunil Munjal, chairman of Hero Enterprise, and former joint managing director of Hero MotoCorp Ltd has a slightly contrarian view. “This is not unusual. This is the way how things have worked. What is happening in family businesses is that you are trying not to get too many people focused on one business and energy of the rest can be used to tap other opportunities. Sometime they branch out on their own and sometime they are funded by the family itself," said Munjal, who first branched out of his family business in the 1980s to set up a spinning mill only to encounter the Great Bombay textile strike called by unionist Datta Samant in its first week of production. Munjal’s mill situated in Malerkotla near Ludhiana was subsequently shut due to the prolonged strike.
In the past, India did not allow accumulation of wealth as it levied as much as 85% state duty on the wealth generated in family businesses. After liberalization, these norms were relaxed and that resulted in rapid creation of wealth in late 1990s and early 2000s as the Indian economy opened up to new businesses.
“As families became wealthier and more prosperous, they encouraged their next generation to take up new challenges to keep spirit of entrepreneurship alive. The startup culture has just given a new dimension to the whole thing," Munjal said, adding that the other advantage of branching out early is that the next generation family members get a chance to learn tricks of the trade in a business environment that requires less investments and low risks.
Das, however, thinks that it is the technology (that drives the entire startup culture) that has a far-reaching impact on more business, across industries and the trend of next generation family members looking out for opportunities will only continue. “You should compare it with history. Pre-liberalized India was a time when there were not many opportunities. So a son of a trader or merchant would have at-best gone to some new location and done business. Now, because of technology, most businesses are also facing disruptions. So technology is again a big driving factor behind this change. And this trend is seen globally," Das said.
Munjal somewhat agrees with this view. “Next generation not being interested is completely possible because the prospect of doing things on your own gives you a different kick. No matter what you plan, it is hard to predict it beforehand. That you can make a choice that you don’t want to do your family business is a great luxury. It is a success of the system," Munjal said.
No stigma attached to failure
Most of the new ventures have had limited success but because of the family wealth the pressure to make profits isn’t so intense. Also, many from the next generation family members are branching out early because they have the comfort of knowing they can always fall back on the family business in the event of a failure. To that extent, there is no stigma attached to failure.
It is a story that’s being played out even more vividly in the small and medium segment where traditional businesses are anyway under pressure. “So, we have seen a lot of this trend in Gujarati-Marwari businesses, where the children may want to do something else and they come back if it fails. Now we are seeing women also being involved in these things," said Rishabh Shroff, partner, Cyril Amarchand Mangaldas.
These changes are redefining how business families across the country are now viewing strategic and succession issues. Mint on 16 January reported that 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 process at Bajaj is driven by 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," Shekhar Bajaj, chairman of Bajaj Electricals, had said.
Similarly, the TVS Group has initiated consultations aimed at a possible restructuring of ownership among the various members of the family that runs the $8 billion conglomerate.
At the New Delhi-based Bharti Enterprises, which owns Airtel, a system has been devised where a family member will have to choose between two different hats—one of a promoter another of a professional. “There is nothing against family members coming into the businesses as long as they choose between two hats—a separate hat for ownership and another as a professional. If they are coming as professional, there is no harm," said a person close to the family.
In Sunil Munjal’s case, his move to cash out of Hero Group’s flagship company Hero MotoCorp is seen as a step to keep intact the ethos of the group founded by his father as well as making sure his own personality does not get compromised under the shadow of his brother Pawan Munjal who is running the motorcycle company.
The earlier generation had few role models. Today, thanks to global exposure, the role models are men like Elon Musk or Mark Zuckerberg. In many cases, entrepreneurs want one of their children to start a different business for other reasons: either to create a hedge against the main business floundering or as a way to divide the family capital among two sons. In the latter case, one offspring gets to run the existing business and another is entrusted with the family’s seed capital. In this too, the family council’s decision is guided by their assessment of who is good at what task.
This has been a time-tested formula and has been the driving force behind the asset divisions in numerous families, said Shroff of Cyril Amarchand. “It is a great way to address a lot of issues that crop up in a family business. If you manage to create a new business, it gives you room to accommodate other family members," Shroff said.
Family businesses often face tough challenges during the transition phase, when the founders attempt to retire and hand over the reins of the business to their successors. The senior generations usually fail to realize the need to prepare their offspring to succeed them. Thus conflicts arise. Further, as families grow, this results in fragmentation of ownership of the business across family members and generations. “So, the reluctance of families to talk about (succession) is slowly fading away, which is a very good sign," said Shroff added.
Kavin, Rohan and an increasing number of next-gen businesspeople can take some credit for this change.
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