Functional Families

One the surface, there8217;s hardly any similarity between the Chennai-headquartered Murugappa Group and the Delhi-based Dabur Group. The p...

One the surface, there8217;s hardly any similarity between the Chennai-headquartered Murugappa Group and the Delhi-based Dabur Group. The physical distance apart, the first is a Rs 5,000 crore giant with 27 companies in areas as diverse as bicycles, industrial tubes, coffee plantations, fertilisers, sugar, and even sanitaryware. The second, a fourth its size, is tightly focussed on ayurveda-based healthcare, and just about foraying into consumer goods like juices.

Yet, both are currently being managed by the fourth generation of the entrepreneur Dewan Bahadur Murugappa was born in 1884, the year S.K. Burman began selling his herbal cures through direct mail to villages. In both cases, the friction between family members is, well, managed. The Murugappa Group, in fact, won the IMD Laussanne award in 2001 for being the best-managed business family in the world 8212; IMD, one of the world8217;s top five business schools, does a lot of advisory work with family businesses.

What8217;s their secret? Both families have worked out, and are still refining, strategies to separate family from the direct management of firms they own. In the case of the Murugappa Group, for instance, says A. Vellayan Generation 4 who is marketing director for certain group firms, virtually no family member is involved in day-to-day running of firms. The Group Corporate Board, for instance, has 5 family members. And most individual firms then have 2 family members on their boards one from Generation 3 and one from 4. The companies themselves are managed by professionals.

Everyone retires at the age of 65, and younger members are encouraged to work outside first 8212; one of Gen 5 works at GE Caps and another with McKinsey. And, when they enter the family business, it8217;s in some small division 8212; Vellayan himself began as the marketing service manager of a tube manufacturing family firm, then the general manager of an import firm. A cousin, just inducted, heads the sales of spares in a firm. All senior members get the same salary there8217;s a 25 percent incentive salary for performance, and everyone is rotated across the boards of different firms every three years. And now, an outside consultant is engaged in making a Competence Profile of family members, and along with the independent directors, this will decide which member gets to be on the board of which company.

Sisters don8217;t have a role in this functioning patriarchy, they8217;re married off. And the wives get to look after 5 schools with 15,000 students and 3 hospitals.

The Daburs, they admit, were wary about 8216;outsiders8217; when they first went public in 1993, but still remained in charge till 1998, when they realised it was difficult to recruit professional managers beyond a point. By then, it was also obvious that there were not enough executive positions for each family member. They then hired McKinsey and Co as a consultant, and out went the family. A.C. Burman Generation 4 relinquished his chairmanship in favour of his brother to set an example, and even moved out of the company headquarters 8212; several family members have followed suit, moving to a family office complex. Right now, only six family members are on the board, with professionals running the business. They have created a Family Council, to keep members informed of what8217;s happening, to allow for an exchange of views between the managers and family, and help family broadly have a voice in where the group is headed in the long run.

Managing the Family is the first thing successful families do.