When 24-year-old Shravin Mittal joins Bharti Airtel International Netherlands BV, which oversees the group?s overseas operations like the Zain acquisition, most newspapers put it on the front page; in the excitement some even got his salary (Rs 30 lakh per annum) wrong many times over. A day earlier, the front pages were dominated by the 33-year-old Rishad Premji getting appointed as Wipro?s chief strategy officer. In recent times, other groups that have seen GenNext coming in are Shiv Nadar?s HCL Technologies, Kishore Biyani?s Pantaloon, Venu Srinivasan?s TVS Group. While Harsh Goenka?s 29-year-old son is already part of Ceat, younger brother Sanjiv?s son is also expected to join the family business in another year or two. At the other end of the spectrum, Rahul Gandhi is already being put through his paces, to inherit India?s ruling party.
It?s almost natural to point fingers, to make fun of the babalog brigade (there are a fair number of women, but babalog has a better ring to it than babylog!), but how wrong is it for them to join the family business, and does it spell bad news for shareholders? It?s difficult to say since there?s no unequivocal answer. There are enough instances?the Modis come to mind immediately?of families that have been hurt badly by each member being part of the industrial group. There are examples, long before the Ambani brothers, of family splits helping grow the business?RP Goenka and his brother GP Goenka are one such example. But, the argument goes, businesses can be split just so many times. After all, families grow in geometric progression, businesses grow in arithmetic progression?you could call it the Malthusian law of businesses. Which is why groups like the Burmans of Dabur have come up with family councils?each member owns shares but their role in the business is kept to a minimum. Some chambers of commerce even have a family business unit for precisely this purpose.
A few things, however, are clear. With family-owned businesses accounting for over four-fifths of India Inc?s wealth, it?s unrealistic to expect the families to stay away. While the western model of divorcing ownership from management has positives, this may not work in a developing economy where the rules of the game aren?t as well-defined. Can a professional-CEO run firm, where the owners are not in control, bid for a telecom licence when the licensing regime is not certain and the revenue-share payments also unclear? Probably not. But the firms that bid have won handsomely. It?s like the western model of sticking to one?s knitting needles. A good dictum in mature markets, but when, like the wild west, large swathes of markets are waiting to be captured, it is not necessarily a great idea. It means, in the Indian context, Reliance should not have got into the oil business and ITC into hotels or FMCG. There?s no surety that shareholders will benefit from Shravin or Rishad, or even Rahul, joining the family firm, but it?s not certain the family firms will do better in the hands of only professional managers.