The history of Indian enterprise, much like in many countries globally, is a journey traversed by family-led businesses. The preponderance of family control in the economy and in the business arena is as true in India as in Europe, Japan, the United States, or in the rest of Asia. Family businesses, after all, make up over 90 percent of the world’s companies. From Walmart to Wall Street Journal, Ferrari to Ferrero Rocher, Ambani to Adani, Birla to Bajaj and Piramal to Paragon. Most of the companies listed on the Indian bourses are all family-led or family-managed.
The story of family businesses is not just about major corporates. It is the Micro, Small and Medium Enterprises or the MSMEs that play a dominant part. Be it the omnipresent mom-and-pop stores, and traditional textile-making to some even in the sophisticated realms of the economy. These are mostly proprietary firms constantly in need of policy enablers, growth, and funding opportunities. Some within this space, in a bid to seek attention from the Modi government, prefer that they rather be named NAMO (Nano and Micro) enterprises.
Crucial to the enduring presence of these and other family businesses are the threads of trust and loyalty that stem from faith in a relative over a hired hand. But then, those who stay wedded to these elements without an eye on expansion or an urge to preserve the perpetuity of business over generations, do not necessarily get the best talent that could drive the enterprises into higher growth orbits.
Tied to the element of the ability to adapt and change, inherent in any growth story, is not just a response to the external environment but the flexibility to change from within. Many were put through a real test after the liberalisation of the Indian economy in 1991.
Why The Big Matter
How the large businesses responded then or even earlier matters because there is much at stake in each case. The number of people that large corporates employ, the repercussion, and the ripple effect that the collapse of any of these could have on the spaces in which they operate tend to matter. Imagine a bank or a large equipment manufacturer employing hundreds of thousands of people going down – family-owned or otherwise. According to a Dun & Bradstreet study, the market capitalisation of India’s top 500 companies has grown 29 times from 1997 to 2022 and currently accounts for nearly 91 percent of the market capitalisation of the Bombay Stock Exchange. Besides, these top 500 companies of India contribute to nearly 16 percent of its GDP and account for around 46 percent of the nation’s foreign exchange earnings and approximately 23 percent of its tax revenues.
In a paper looking at the first 25 years since 1990 and covering some 4,809 firms listed on the Bombay Stock Exchange and the National Stock Exchange of India, the family business experts (Nupur Pavan Bang, Sougata Ray and Kavil Ramachandran) at the Thomas Schmidheiny Centre for Family Enterprise, The Indian School of Business, make significant observations.
They point out that post the defining 1991 reforms, “the firms that had little or no need to innovate now had to compete with new entrepreneurial ventures and foreign firms. The families that had learnt to manoeuver the state bureaucracy to get licences did not know how to focus on the customer or to market their products. Family business groups such as the Thapar, Mafatlal, Lalbhai, Shriram (DCM) and Shah (Mukund) which were amongst the top 50 business houses in the country at the beginning of the 1990s lost out to the new entrepreneurial ventures of families like Adani, Dr Reddy’s, Mittals (Bharti) and Shanghvi (Sun Pharma). Other top business houses like Tata, Birla, Ambani (RIL), Bajaj and Mahindra had to reinvent themselves to stay relevant and on top.”
Lazy Incumbents & Family feuds
Neither has the adaptability been easy nor the journey smooth. This is without even considering the inevitable hurdles some may have had to encounter along the way, either due to lazy incumbents or family feuds. From the interventionist decades of the licence raj that the family businesses had to deal with between 1947 to almost 1991, the path was a mix of high tariff rates with curbs on imports, restrictions on foreign exchange, investments (both domestic and foreign), emergence and dominance of state-run monopolies and that too in crucial areas of energy, power, and minerals.
A lot of business response was linked to laws like the Industries (Development and Regulations) Act of 1951 and the Monopolies and Restrictive Trade Practices Act (or the MRTP) of 1969.
Era Of Digitisation
Post the advent of the era of digitisation and IT in the early 2000s, family-led businesses began taking roots and gaining dominance in the modern services sector. Be it in telecom, IT, healthcare, and technology, and have been outshining several state-owned enterprises while also competing against global players.
As journalists reporting developments from the peak pandemic months to now, there is little doubt that it is a less globalised, less equal, and more digitised world today with even more demands to reinvent to survive and grow.
Elements of Change
Soumya Rajan, a family business expert and the founder and CEO of Waterfield Advisors, a family office and a financial titan that deals with over 100 business families and manages assets worth around $4 billion (over Rs 31,000 crore) says, “today, the family businesses have not just to operate in a competitive landscape that has established businesses seeking to be domain dons but also several niche startups mushrooming all over with some pushing the valuation boundaries as decacorns with specialised offerings and attracting investors. This, along with a changing face of the consumer with the largest purchasing power sitting with the millennial group who are largely digital natives, will keep triggering a need to constantly try and adapt and realign businesses to succeed in such an ecosystem.”
External Triggers, Internal Responses
Yusuf Khwaja Hamied learnt his lessons in adaptability and change early on. He was only 11 when India got its independence but still old enough to gather the weight of the narratives about the endeavours that his politically active entrepreneurial father K A Hamied had undertaken in the years leading to the independence. In response to a call by Mahatma Gandhi to combat snarled supplies of medicines from Europe during the second world war, Hamied senior had embarked upon a drive at self-reliance (atmanirbhar in the current parlance) to locally manufacture the medicines at the Chemical Industrial and Pharmaceutical Laboratories (just Cipla today) that he founded in 1935.
The young Yusuf Hamied, now in independent India gave his father’s self-reliance efforts a new colour and meaning when India allowed reverse engineering of innovator drugs. By then 36 and nearly as old as Cipla, it meant Hamied could finally fall back on his chemistry skills learnt at Cambridge under Nobel Laureate Alexander Todd. He leveraged the opportunity thrown up by the changed Indian Patent Act of 1972 that allowed Indian companies to manufacture any medicine and he took to reverse engineering with a vengeance. He attracted global attention when in 2001 Cipla supplied Africa with a cocktail of anti-AIDS drugs at 4 percent the price that the international drug makers were charging in Africa.
Fast forward to COVID months and you see Hamied busy collaborating with the Indian Institute of Chemical Technology (IICT) to make Favipiravir, an anti-viral deployed to combat COVID. Today, Cipla has one of the largest portfolios of drugs in India to cope with COVID. But then, for a company that fought the global MNCs and stood against monopolies with reverse engineered drugs, it made a huge business approach shift after India changed the patent Act yet again. Effective from 1995, India stopped allowing the manufacture of any drug under patent. Today, Cipla leverages its strong position in the Indian market to partner with global MNCs – the likes of Roche, Eli Lilly, and Boehringer Ingelheim either for emergency use authorization or to in-licence their drugs for sale in India.
Cipla is only one story of the changing face of Indian business mirrored by the trials, tribulations, course corrections, and strategy shifts that the families leading these businesses made over time.
Bajaj Auto and its journey under Rahul Bajaj and later his two sons Rajiv and Sanjiv is yet another celebrated story. From a company that enjoyed a 10-year waiting period for its scooters in pre-liberalised India, the company ventured into an alien domain of motorcycles and perfected it and even took to exports of motorcycles and the group expanded the business foothold into other areas such as insurance. The story is equally telling from South India evidenced by the path taken by groups like TVS, Murugappa, and others.
Getting Succession & Governance Right
Tied to the element of the ability to adapt and change is not just response to the external environment but the flexibility to change from within.
To this, Meher Pudumjee, Chairperson, Thermax, a leading energy and environmental engineering company, adds the components of succession planning and a robust governance mechanism that encompasses all levels starting with the governing board. These, she feels, are also crucial if businesses are to be run by the most competent people ensuring in the process business growth and its perpetuity.
“We, like a few other Indian family businesses, have let the family make way for non-family professionals with many of them taking key positions, including that of the CEO of the company.”Meher Pudumjee, Chairperson, Thermax
As you grow bigger and compete globally the professional demands get more and more challenging and that is when, she feels, “you need to have the best people driving these and the family needs to be open to anyone who is the best. It may happen you end up finding such a person from within the family members but if that is not the case, you need to keep your ego aside, which sometimes may be the most difficult thing to do, and let the non-family professional take a lead and give him or her the room to operate and even make mistakes.” However, she cautions that if you need the best talent then you also have to put in place good governance practices and be that family which does not keep interfering in all matters. “In this, I am happy that our company, like a few others in India, has managed this succession rather successfully.”
Recipe For Sustainability
On the ability to respond to changes, she also adds the component of the ability to read the tea leaves, if not read the writing on the wall. Here, she gives the example of staying alert on the issue of sustainability and getting the organisation internally realigned to the new demands.
“About 12 years ago, around 80 percent of our business was dependent on the use of fossil fuels (like coal-fired boilers) and today it is down to less than 20 percent. This is because we purposefully and proactively moved into biomass and renewable energy and into green steam. Unlike the wider acceptability of this today both by customers and credit agencies, it was not easy aligning all, even your own people, to this 10 or 12 years ago.”
Giving an example, she says, “about 12 years ago we started a build-own-operate business where we put up the boiler and we sell the steam and we could have sold either green steam (made using biomass) or black steam (made using coal). We could have made a lot more money 12 years ago if we had opted for the coal option, but we took a decision to only sell green steam made using biomass. Not everyone agreed internally to take that revenue hit but we let the long-term gain prevail over short-term return and today I am glad we stayed the course.”
Agrees a highly regarded business leader who prefers the shadows to the spotlight and did not wish to be named, finds core to the sustainability of businesses and its perpetuity, the ability to rope in non-family professionals, and sees good progress made on this front by the business families in India. “There are today so many professionally-run businesses in the country. And most of those that have survived the liberalisation phase have survived because they changed their style of management and brought in top quality professionals and blended it with a very nice mix of ownership role and the chief executive role,” he says.
Ask him about his approach when looking at ownership and management and he says, some business owners see themselves as hands-on till they are at least 70 or more but then “even for an owner being hands-on does not mean micro-managing the CEO. The model that I have followed is that the owner plays 25 percent of the CEO’s role and all of the owner’s role, which is eye on governance, safeguarding stakeholder interests, aligning the ESG, environmental and sustainability aspects with the overall business growth.” That 25 percent, he defines as a zone where “both the owner and the CEO jointly develop the annual and long-term plan and agree on some key strategies.” The CEO’s role, to him, is typically about directing the company in sync with the vision outlined by the board, partnering with the senior executive team of the company, maintaining accountability with the board, business and functional reviews, customer relations, crisis management, organisational culture and representing the company outside and in media interactions.
One industry leader with deep insights is Naushad Forbes, the co-chairman at Forbes Marshall, a leading provider of energy conservation and automation solutions for the process industry. Forbes who has also been the past president of the Confederation of Indian Industry (CII) and is a celebrated author with his book “The Struggle And The Promise: Restoring India’s Potential,” however likes to quote his brother Farhad Forbes, who apart from being the co-chairman at Forbes Marshall is the global chairman of the Family Business Network International, a global organization of family businesses. “Farhad often says family businesses manage contradictions very well.” They manage contradictions because you have constancy of values while the businesses themselves may undergo change and therefore have the capacity to manage contradictory objectives.
Naushad Forbes, who like Meher Pudumjee, also believes in the value of having a good succession process, both for family members and for non-family professionals, feels those business families that have sustained are the ones that could provide room for the best talent and dynamism with a frank expression of views blended with an ability to hear, understand leading to very innovative and resilient processes.
“Those family businesses that have thrived have a lot to do with getting into the right businesses and on the right basis meaning what you are going is based not on your family connections with the government of the day but is centred around making good products that people want to buy and at price ranges that are affordable.”Naushad Forbes, co-chairman, Forbes Marshall
On Forbes Marshall, where Naushad and Fahad are the second generation, some of the elements of the business, for example the focus on the customer, says Naushad Forbes, have stayed constant for the 75 years that the company has been in existence across three generations now. From a purely family-owned and family-managed, it is now seeing an increasing role of non-family professionals playing a crucial role and in the future, this element is only expected to gain greater ground in the months and years ahead.
The business itself, he says, has responded to both external triggers and some internal pressures. For instance, the expansion in the business footprint, both within India and abroad along with a greater push towards digitally enabled services was a response to external triggers while the need to build a research and innovation engine was in response to an internally felt need. It is beginning to see results with the company coming up with innovative energy-saving products with applications across industries and is able to sell them across several countries today. And this is just one example from the company.
One question that some may have in the Indian family business arena would be about where to place the Tatas. Its structure and its business lattice may not fit into the way family businesses are traditionally defined but it does have some elements of family business with a trust that controls a significant part of Tata Sons which then controls the other group companies and the fact that the trust has the same family business type ethos of long term perspective and values that have mattered across generations and the visions around long term development of people and getting non-family professionals and the best of minds to lead.
Leadership & Governance
Gopal Srinivasan, founder, chairman and managing director, TVS Capital Funds, and a third-generation member of the TVS family, feels those that sustain, adapt, and grow have a clear and enlightened leadership with a family matriarch or a patriarch who can align all with a good family business governance mechanism in place.
Finally, while adaptability and change may be crucial to stay the course and grow, Yusuf Hamied, who is today a non-executive chairman and has his niece Samina Hamied as the executive vice-chairperson, quotes Swami Vivekananda. In it he says lies a key message: “Wisdom lies not in the amount of knowledge acquired, but in the degree of its application.” Valuable input perhaps for the many first-generation entrepreneurs mushrooming across the country.