OCTOBER 10, 2004
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 Personal Finance
 BT Special
 Back of the Book

Q&A: Montek Singh Ahluwalia
The celebrated Deputy Chairman of the Planning Commission speaks to BT Online on the shape of post-liberalisation planning to come. What prompted his return to India, what exactly is the Commission up to, what panchayats mean to India's future, and yes, the relevance of Planning in the market era.

Of Mice...
Mouse-click yourself any which way in cyberspace; why net-surfing plans are such a drag.

More Net Specials
Business Today,  September 26, 2004
"The Owner-Manager Era Hasn't Come To An End"

Since the dawn of enterprise, one thing has survived the relentless transformation of businesses: It's the business family. Even as the economy moved from cattle and plough to steam and machines to now computers and telecommunications, the constant driver of these changes has been the enterprising family. Even today, more than 80 per cent of the businesses worldwide are owned by families, and a large number of them are also family managed. That's more or less the case in India too. While all businesses are prone to conflicting pressures of the changing market environment, the family business must also contend with challenges from within. For instance, balancing the interests of the various members of the family, separating ownership from management and, most importantly, to ensure acceptable standards of corporate governance.

One man who's been tracking these issues for more than three decades now is Ram Charan, a US-based advisor and coach to CEOs of Fortune 100 companies. An alumnus of the Harvard Business School and winner of the Best Teacher Award at Wharton and Northwestern (Kellogg), Charan was recently brought to India by international search firm, Egon Zehnder, to talk about corporate governance in family-owned businesses. In an exclusive round table, BT brought together Charan with Thermax's Anu Aga, Marico Industries' Harsh Mariwala, and Egon Zehnder's Rajeev Vasudeva to talk about the future of family-owned businesses and succession planning. The round table was moderated by BT's . Excerpts:

BT: Welcome to all of you. Let me start by asking Ms. Aga a sacrilegious question. Is the era of owner-managers coming to an end?

"The automatic right of an owner to be a manager is not there any more"
Anu Aga/Chairperson/ Thermax

Anu Aga: No, but the automatic right of an owner to be a manager is not there any more. That does not mean that an owner who's qualified, like my husband (Rohinton Aga) was, shouldn't join business. I think he was the most qualified person to head the company, even though we happened to own it. That was not relevant. If through merit you are the best, then there is no problem. But if you want to manage the company just because you are the owner, it's a recipe for disaster.

Harsh Mariwala: I don't think there's one answer to whether the era of owner-managers is coming to an end. As Anu was saying, you need the right person for the responsibility, whether it's from the family or outside the family, it doesn't matter. I think as much as businesses are getting complex, families are getting complex too because of the fact that newer generations are coming in and aspiration levels are rising. So how complex is the family is also important. From generation to generation, there are different levels of aspirations and ambitions.

BT: Dr. Charan, what are the trends globally, particularly in a mature market like the US?

Ram Charan: You're going to find that a very significant portion of phase one companies don't make it. These are the smaller owner-managed companies. And the major reason is that when you begin to go to the second phase, the skills of many of these people don't make a good fit with what is required. So the question is one of fit-what is required and how well the talent of the person matches it. The word professional does not necessarily imply that this professional's talent at this stage matches the requirements of the company at this stage. Neither does it mean that the owner has the talent that cannot grow. Look at Sam Walton. He started with one store, but today that company is the world's largest company.

"A burning desire to win is very critical. That's most important to us at Marico"
Harsh Mariwala/ CMD/Marico Industries

Rajeev Vasudeva: I agree. I don't think the forces at play out here (in India) are any different from those at play in family-owned companies in the rest of the world. And I don't agree that the owner-manager era has come to an end. You can be a global company even if you're family-run or family-managed. I think the issue that every family company needs to deal with is really managing three constituencies: there's a group that's going to be family managers, then there's a group that's going to be professional managers, and there's a group that's going to be family, not as managers but as shareholders. To my mind, the success of whether you're owner-managed or not is this: have you been able to divorce the family issues from the business issues? And I think that's the key challenge facing most Indian family companies, especially in the second generation.

BT: Some family-owned businesses that handed over the reins to professionals seem to be worse off for that. Mr. Vasudeva, what do you think went wrong?

Vasudeva: The reason for that is really the aspirations of the family. What limits groups is a global aspiration or vision, whether or not they are family-run. Some of them are also in the third-generation situation, there are lots of cousins and lots of family-members involved in the business, and there isn't enough vision coming through from the family. What are the people around us doing? Am I at the cutting edge of technology? Have I got left behind? The family does bring a certain amount of entrepreneurship, there's no question about that, but at the same time, it also makes (the organisation) pretty insular at times.

"What limits groups is global vision and aspiration, not family ownership"
Rajeev Vasudeva/ Partner/Egon Zehnder

Aga: This is something that we often ask ourselves: does the family want growth? Because usually families are not so interested in growing fast, and I'm saying I'm very interested in growing fast. But I want to go slow to go fast. I want my basics to be in place: my quality, my costs, my customer satisfaction. Without it, I can do some things temporarily, but it will not be sustained. So I think sometimes people who are running it, and I'm not saying professionals or family, get excited by numbers. To me, being a global company is important. But not to ever compromise my brand is possibly even more important.

BT: Dr. Charan, how does a family ensure that it's not disconnected or insulated from what is happening outside?

Charan: There are two questions here: One is about the family's aspirations and continuity. What's going to happen is, as more money flows into India, you're going to see a huge change in less than 10 years, when family companies are going to decide about selling out. There are more ways than one to get some familiarity, education, ideas. All of it, in fact, can come from the board-that is, if they want to use the board. If they don't, however, it's a different story. You can have an advisory board. But that's not enough. The family person or whoever is driving it has to have some drive, motivation to understand what's happening.

Mariwala: Certain basic level of intelligence is required, but the burning desire to win is very, very critical. I don't know how to identify it. That commitment, that achievement, I think that's the most important thing for us at Marico.

"Matching skills with the challenges ahead is really the issue for firms"
Ram Charan/President/ Charan Associates Inc.

BT: How important is succession planning in this whole issue of continuity and vision?

Aga: Well, this is something I strongly believed in and advocated, and at 62, I think I've already overshot (my retirement) by two years. I think I've implemented the values I believe in. Personally speaking, if you don't move out at this age, you'll never be able to get anything meaningful out of yourself. I've seen people who stayed on till they were 75 or 80, because they thought nobody was good enough to take over from them. And for me, I want to leave when I want to, not when people are tired of me and say 'when will this woman leave?'.

BT: Mr. Mariwala, you are only in your early 50s, but do you have a succession plan in place?

Mariwala: Do I have a succession plan in place? The answer is no. Am I worried? The answer is yes. But sometimes I wonder when I should start planning. Even if I find a successor, will he be willing to wait for five or seven years? When should I begin my succession planning process, now or later? Frankly, I'm a little confused.

BT: Dr. Charan, would you say that's a usual situation?

Charan: No, it's not unusual. If I were to give Harsh any advice, I don't think succession planning begins when you are ready to leave the company. It's actually building the leadership pipeline, even 10 or 15 years before somebody is ready to take over. The ideal situation to my mind is, let's look at the top 20 guys that I have in my company and see who is the one who can assume my role 10 years from now. And that's the guy that I want to go after. If there's a situation where you can't do that, you start looking outside.

Vasudeva: If I can add to that, the first step before any company can actually get into a formal succession planning job is to recognise what is it that you have in the company. Sometimes you don't give it enough thought. The company has been run for many years, and you have a very top-level view, but it's not broken down into: this is what I want to be five years from now. What is it that I want my manager to look like if he's going to deliver on this objective five years from now? And then, on those particular competencies or whatever you want to call them, how does my organisation stack up? Do I have people who've got the required operational skills, and if I don't, let me find those two or three jewels who have those skills and bring them as change agents to the fore.

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