CURRENT ISSUE AUGUST 02, 2004  
cover story BIRLA LEGACY

Empire In Turmoil

The house that G.D. Birla built has braved the tremors of a will that bequeathed family wealth to an outsider. While there is no threat as yet to group companies the Birlas are in battle gear.

By Shankkar Aiyar

Solace comes in strange colours. Even as the Birlas were recovering from the shock of July 12, the heads of the remaining six families that comprise the Birla Empire must have silently and collectively heaved a sigh of relief. At least in their groups there was no immediate threat of transfer of family wealth to an outsider. It would seem that the line of legacy outlined, even if not well defined, in the house that G.D. Birla built was to remain unbroken.

THE BIRLAS: (top row, l to r) Basant Kumar, late Aditya, Siddharth, Sudershan, Ganga Prasad; (middle row) Krishna Kumar, late Lakshmi Niwas, late Madhav Prasad; (bottom row) late Ashok, Chandrakant

Coming up ahead is a series of legacy transfers. But predictably the roadmaps are well laid out. For instance, in the KK Birla Group functional controls are already in three separate hands of Nandini Nopany, Jyotsna Poddar and Shobhana Bhartia. As for the BK Birla Group it is more or less certain that grandson Kumar Mangalam Birla would be the inheritor not just because of the bloodline but also because economic rationale demands so. There is at least on the face of it no room for confusion or an R.S. Lodha. And that must be a comforting thought.

Nevertheless, the house of Birlas is in turmoil. In the 100 years of the family, since it migrated from Rajasthan there has never been a similar situation. Three generations of Birlas have created and bequeathed wealth in a predictable fashion. Sure there have and must have been issues on the syntax of the divisions created or distribution of wealth among families. There was some heartburn when G.D. Birla favoured Aditya Vikram Birla and B.K. Birla when he carved out businesses. But the family lived with the inequities and inequalities bequeathed. If there were rumbles those were within the well-carpeted homes of the Birlas.

RISE OF A CLAN

1919 G.D. Birla sets up the first Birla jute mill. Enters the big league with Birla Corporation.

1924 Launches Hindustan Times, inaugurated by Mahatma Gandhi.

1928 Gets into shipping with India Steamship.

1932 Expands business with Oudh Sugarmills.

1942 Sets up Hindustan Motors.

1943 Birlas enter textile machinery and steel foundry sectors. Set up Cimmco Birla. Aditya Vikram born to Basant Kumar and Sarala Devi.

1946 Get into caustic soda production. Sets up Hyderabad Industries Ltd, now with CK Birla Group.

1947 Grasim is set up 10 days after independence.

1950 The Birla family gets into the production of railway wagons. Acquires Digvijaya Woollen Mills.

1954 Acquires ECE.

1958 Metal major Hindalco is established.

1966 Acquires Mysore Cement.

1967 Starts supplying defence and telecom equipment to the government. Zuari Industries, now with KK Birla Group enters the Birla empire. Kumar Mangalam is born to Aditya and Rajashree Birla. Yasho Vardhan is born to Ashok Birla.

1983 G.D. Birla passes away.

1986 They split into six groups: MP Birla, SK Birla, KK Birla, BK Birla-AV Birla, GP-CK Birla and Ashok Birla groups.

2004 The Birlas are shocked as Lodha is willed the MP Birla Group.

Even when G.D. Babu passed away there were hardly any tremors despite all the doubts expressed about the survival of the group without his stunning leadership. But the families have survived and grown albeit not in the breathtaking range and magnitude that he envisioned. The Birlas would like to believe that succession in the MP Birla Group too had been well-planned. After all, the house of Birlas was run on a well-oiled system of trusted lieutenants and confidants. From the venerable Durga Prasad Mandelia, who was once the second most powerful man in the group after G.D. Babu. Tarachand Saboo, M.C. Bagrodia, Askan Aggarwal, B.N. Puranmalkha were all significant contributors to the growth and sustenance of the group. Lodha was another such confidant. Except that the twist in the tail of this script was more in tune with a Hollywood thriller.

Part of the problem is the way the Birlas tend to manage their empires. Family businesses across the country and the globe have in the past few decades divorced themselves from the old retainer or the munshi-sethia concept. While family businesses like the Murugappa Group have totally divorced ownership from management others have integrated a professional cadre who not only execute the ideas of the owners but also bring ideas to the working table every day.

It would seem the animal spirits of entrepreneurship on which Ghanashyam Das Birla laid the foundation of the group in 1919 have petered out. He had fought the English colonial masters and at every turn matched his national fervour with an unflagging spirit for entrepreneurship, unrolling plans in shipping, sugar, textiles and even rail wagon construction. When he passed away in 1983, his legacy of 200 group companies controlled assets worth Rs 2,500 crore with sales of over Rs 3,000 crore. More importantly, 30 of the top 250 largest private-sector firms were from the house of the Birlas.

Today, the listed entities of the seven groups boast a combined turnover of Rs 30,882 crore while profits after tax are a shade over Rs 2,000 crore. Even if you factor the incomes of unlisted entities of the Birla family at around Rs 49,000 crore (only approximate figures are available) the trails the turnover of the listed entities of either the Tatas or the Ambanis. In fact, if there is a success story in the group it is the AV Birla Group. Take away the contribution of this one branch of the Birla tree and it would seem the giant has withered considerably.

The reason is partly the end of the licence era, which made Delhi the profit centre of most groups. While the Birlas did push their size in the commodity businesses they failed to embrace new challenges and ideas barring, of course, Aditya Babu who mirrored GD in his acceptance of chances to emerge as the first truly Indian multinational firm. His son's forays in acquisition of mines and units abroad are reminiscent of his father's ideas. In an open world companies need to match capability with circumstance. The Tatas turned around Telco with a daring gamble called Indica while Hindustan Motors (despite tie-ups with Mitsubishi) has lagged behind. While the Ambanis and Tatas churned businesses focusing more on technology and services, the Birlas seem to have been caught in the mire of commodity businesses. They also failed to recognise that commodity business is governed by the mantra of size. Take cement. If the families had so willed they could have combined their capacities to emerge as the biggest in India. But it was the Ambujas who tied up with ACC which called the shots until Kumar Mangalam took over L&T's capacity to emerge as the seventh largest producer of cement. In some sense the young Birla seems to have combined the old entrepreneurship style of GD with his father's modern methods. G.D. Birla once said, "Success and failure are what people understand by them."

Perhaps there is an emerging prototype for growth. Without growth there cannot be size. As with nations companies need size as an effective deterrent. To outsiders and insiders. In a sense, Lodha could well turn out to be the catalyst.

INTERVIEW | G.D. BIRLA
"In reality we are not one group"

In April 1979, Ghanashyam Das Birla, then 85, gave a rare interview to india today Editor-in-Chief Aroon Purie and Business Editor Jay Dubashi about the Birla family and his business philosophy. We reprint excerpts.

Q. Yours is the most successful business group in the country. What makes the Birla empire tick?

A. It is all nonsense. There is no such thing as an empire. You are forgetting I have three sons, grandsons. Take all the Birlas, it is such a big family that the business in reality is very small. As a matter of fact it is not one group.

Q. But most of the units are run by Birla family members?

A. No. We have a big family and I don't think all of us have the same ideas or same ambitions. Different education, different everything.

Q. What is the secret of your phenomenal success?

A. I don't know what you mean by success. You see, success and failure are what people understand by them. I don't take any pride in what has happened. Many things happen which are not governed by us.

Q. Do you think your success is accidental?

A. Accident is not the right word. According to our philosophy we say it is all because of God, nature. What you call success is sometimes judged as failure.

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