The story of scions: From inheritance to competence

When family-managed businesses move into their second or third generation, they invariably end up confronting an overwhelming issue: That of succession and leadership. Most of the times, the families manage to deal with it without causing any damage to their businesses. Many other times, nasty splits take place that hurt their businesses, even if in the short run. That issue is set to become even more decisive for business families. When the economy was protected and entry barriers high, businesses could split without having to worry about things like economies of scale in everything from R&D to manufacturing to marketing. Product-starved consumers were more than willing to pay for their inefficiencies.

Over the last several years, the scenario has altered dramatically for India's family businesses. They must not only manage local competition, but also fend off global giants; they must globalise just like their competitors, and that means fighting global battles for m&as, setting up manufacturing facilities overseas, penetrating markets abroad and dealing with complex product and service liability issues, and IPR. In such a scenario, the issue of succession becomes even more significant. The first question that families need to ask themselves, of course, is whether ownership should be extended to day-to-day management. Should the son or sons succeed the father just because they have the right genes, but not necessarily the right competencies?

Some of the large family businesses that have had to deal with this issue in the recent past have managed it remarkably well. Take the case of the business family on our cover this issue. When the man who turned Ranbaxy into a pharma powerhouse, Parvinder Singh, died in July 1999, his two sons were relatively young: Malvinder was 27 and Shivinder, about two years younger. He wasn't about to risk the future of his fast-growing pharma company, which already had a clear vision of being a global player, by handing over the reins to a young Malvinder. Therefore, he handed over the baton to his able executive D.S. Brar. It wasn't until January this year that Malvinder was made MD and CEO, having proved himself in a variety of roles. The Bajajs of Bajaj Auto did something similar. Long before Chairman Rahul Bajaj made his elder son Rajiv the MD, he entrusted him with a staggering task: Of saving the scooters company from obsolescence by getting into motorbikes. A task that Rajiv has since accomplished admirably. Apart from proper succession planning, what helps is giving business scions first-rate education (For instance, Singh went to Duke Univeristy and Bajaj to Warwick). In a globalised world, global credentials is something else corporate stakeholders, and not just shareholders, will expect of their leaders.

Déjà vu

The random events are slowly falling into a pattern. And the trend seems rather alarming. Is India becoming a difficult place for multinational corporations to operate in? And is a subterranean MNC phobia creeping into the national discourse?

Before one dismisses this theory as a Don Quixotesque charge at the windmills, let's look at the facts. Six states have banned or restricted the sale of Coca-Cola and Pepsi Cola on the ground that they allegedly contain unacceptable levels of pesticides. The controversy has come in handy for the usual cabal of bleeding hearts, habitual MNC bashers and sections of the political class; they are now trying to whip up a 1970s-style campaign against the entire MNC fraternity.

Fortunately, the vast majority of Indians no longer have time for such rhetoric, and the motivated breast beating could have been dismissed as a random event sponsored by a fringe group. But analysts, typically, look for patterns and trends. And the Finance Ministry, the supposed engine of the globalisation process in India, has provided just that. The Income Tax Department has filed a Special Leave Petition in the Supreme Court challenging the decision of the Authority for Advance Ruling which exempted us investment bank Morgan Stanley's global profits-attributable to its operations here-from the purview of Indian tax laws. If the I-T department succeeds in its appeal, all captive business process outsourcing units in India will be liable to pay taxes on a portion of their global profits in India. And if this happens, there can be no doubt that most will prefer to wind up their operations here and head for more hospitable countries. Then, the Reserve Bank of India held back approval for Naina Lal Kidwai's appointment as head of HSBC India on the alleged grounds that her position as a director on the board of Nestle SA could create a potential conflict of interest. Several top industrialists are, or have been, members of RBI's Central Board of Directors. If this does not lead to any conflict of interest, it is difficult to justify the argument in Kidwai's case. Was the objection motivated by HSBC's MNC pedigree?

Greater FDI inflows are absolutely sine qua non for the country's economic future. The world has just begun to view India as a reliable business partner. But that can change in a matter of months. Global opinion is a very fragile thing. The last thing India needs is to be labelled MNC-phobic.

What's Next for Murthy?

Infosys' Murthy: What now?

When, for a first act, you have co-founded India's best-known and most respected it services firm, set new standards in financial reporting, corporate governance, and people management, and acquired a well-deserved reputation for adhering to the straight and the narrow (even if this meant making powerful enemies), what could possibly be in store as a second act? In the case of N.R. Narayana Murthy, who, on turning 60, stepped down from all executive positions (including that of Executive Chairman; he continues to be non-Executive Chairman), the short answer is that nothing he does from now on-even if he, to revive an old rumour about the presidency of India-will ever be as significant as what has come before (and knowing Murthy, he is probably extremely pleased at that).

Still, it would be a pity if the government, the rest of India Inc., and the world at large chooses not to use Murthy. True, the man has his failings (who doesn't?); he is self-admittedly impatient and some people find the fact that he has a view on everything mildly irritating; yet, he boasts a high-level of integrity, is a brand within the country and without, and is very very intelligent. He is also a man who does what he says he will: he stepped down from executive positions at 60, something that not too many other Indian execs and promoters would have done. Murthy will likely find something to do: he has always wanted to teach and the Infosys Leadership Centre at Mysore will be happy to have him; the Confederation of Indian Industry, CII, and India's National Association of Software and Services Companies, NASSCOM, should be happy that there is now the chance that they will get more of his time; and as non-Executive Chairman he will probably continue to ask the same kind of penetrating questions about the running of Infosys that he did when he was Chairman.

The United States has a long history of picking current and former executives from the private sector for public posts. Will the government of India take Murthy, warts and all, and put him to work on something he is really good at (and the man is good at several things)?