GMR scripts succession plan through a family constitution
May 28, 2007
The demerger of business families, with all the trauma and acrimony attached to it, is fairly common in India. But it was the bitter and ferocious war between the Ambani brothers and its continued after-shocks that jolted Indian businessmen to think seriously about succession planning. A question that came up repeatedly during those days was — why did Dhirubhai, with all his brilliance, fail to see that his sons would not be able to work together? Many believed that an Indian father, no matter how clever he is, refuses to contemplate a family break up.
That Ambani saga also pushed other fond fathers into facing reality — Rahul Bajaj was one of them. It is no secret that the Bajaj siblings — Rajiv and Sanjeev — do not see eye to eye and the differences between Rahul, his brother Shishir and especially Shishir’s son Kushagra frequently make headline news. Last week, Rahul Bajaj ensured that he does not repeat the mistake that Dhirubhai made and announced a mega demerger that separated the role and responsibilities of his two sons before their disagreements rancorously spilt into the open.
These big names apart, succession battles, power struggles and property disputes have destroyed or debilitated several business empires. In this scenario, G M Rao, the low profile, 56-year old founder-chairman of the GMR group has put in place an astonishingly detailed plan to avoid or settle all family differences in a business-like manner. Rao, a first generation industrialist, acquired nationwide recognition when GMR emerged as the only successful bidder for the prestigious Delhi and Mumbai airport development projects in a power packed field. Until then, he was perceived as a regional player despite the completion of several successful infrastructure projects in power and road development.
How exactly does the GMR group hope to avoid bitter succession battles? Rao quotes from an internal presentation, which says that there is only a 2 per cent chance of today’s founder driven family business remaining intact for 100 years when it is in its fourth generation. Rao firmly believes this. He also believes that no succession planning can be complete without involving the women in the family and setting up specific structures to resolve their differences. All business families know this for a fact, but rarely address it directly.
After several meetings, deliberations and presentations from top management consultants, the group draws up a clearly articulated set of rules and governance practices for dealing with every issue or dispute that may crop up within the family and create a mechanism to deal with it. These address issues such as management succession, ownership succession, control and power sharing.
P M Kumar a family advisor collated all these issues and Peter Leach, a London based family business advisor was asked to draft the Family Constitution, which each family member has reviewed and agreed to adhere to.
The starting point was a Family Business Board that worked upon a three-year strategic plan, which identified businesses the group should remain in, and which to exit. The entire family has committed to certain core values and a willingness to manage differences. It has also laid down policies on all family and business matters including consensus in decision making, media policy, code of conduct and the process of inducting family members into the business as well as providing for those who do not want to enter the business.
Another path breaking move was to separate ownership and control or family wealth from business wealth. The family corpus is held in an investment company called GMR Holding Pvt Ltd. The entire family holding will be distributed among four non-voting trusts that have been created for four branches of GMR’s family. The beneficiaries of these trusts will have economic benefit but no voting power. A separate voting trust has been created, where one representative from each of the non-voting trusts will take all business decisions. The voting trust will have power but no economic benefit.
On the succession front, G M Rao has decided that he will step down when he is around 70, giving him approximately 14 years more at the helm. The three (next generation) successors will decide who will be the next chairman and if they disagree a ‘dead lock trustee’ has been named with appropriate power to resolve the issue.
Family members who enter the business will be taken on merit and paid on par with other professionals employed by the organisation. The economic benefits arising out of their shareholding will be separate. The family has agreed to follow all corporate governance practices and professionalise operations so that the family members can move from running operations to strategic planning.
Interestingly, the GMR group has created a Family Council that meets regularly to ensure effective and continuous communication on all business issues to ensure that everybody “speaks with one voice”. The Council meets regularly and formally and records minutes of the meetings.
There is another Non Business forum for the spouses that also meets regularly to discuss issues, sort out differences and foster emotional bonds. The Rao family takes the emotional aspect of their relationship so seriously that they have all agreed to go on holiday together every year and make it a point to attend certain social and religious functions.
Will this enormous effort at fostering emotional bonds through a fairly rigid constitution and governance structure work? It is difficult to say. What GMR is attempting to do is a bold, unique and interesting experiment, which has a fighting chance of working for at least those generations that participated in framing the family constitution and its rules. Only time will tell whether a set of rules can control diversities in human nature and engender harmony and homogeneity in decisions.