Family owned biz? Learn from Malvinder

A friend commented that it must be nice for Malvinder Singh of Ranbaxy to pocket Rs 10,000 crore (Rs 100 billion) and also get nice things said about him by the media. Perhaps, but it is instructive to look at all the families that did not sell out when the going was good.

Many of them are still in control of their companies and groups, but these are pale shadows of what they used to be at the height of their glory - and many of them live and work in the same city as the Ranbaxy chief executive.

There are the Nandas, for instance: two brothers who have had their differences, who have parted ways, and whose companies are a far cry from their father's Escorts that Swraj Paul raided a quarter century ago because it was (among other things) the country's leading tractor manufacturer and also its leading motor-cycle company.

Escorts no longer makes motor-cycles. It has got into a series of other businesses, none of which have done particularly well, and it finally resorted to converting a charitable trust (which ran the Escorts hospital) into a company in order to sell it and make some money.

There is the other company that Paul raided: DCM. The brothers who ran it had squabbled for years, and the company was split into many parts, some of which have done quite well and others have not; one even defaulted big-time on deposits taken from the public.

The combined sum of the parts today is a far cry from the DCM that used to be the country's fourth or fifth largest company. At its core, the company's decline was a failure to recognise that all the members of the third generation were not equally endowed and therefore fit for business responsibility.

There is also the saga of the Modis, nine brothers and cousins who once moved ambitiously into an impressive array of businesses, most of which have fallen by the wayside.

Modi Rubber used to be the king of the truck tyre business, Xerox was a Modi partner in India and so was Blue Circle, once the world's leading cement manufacturer. You don't hear much about the Modi businesses any more, other than for BK Modi wanting to sell his stake in Spice and Lalit Modi organizing cricket's Indian Premier League.

These Delhi examples can be multiplied in other parts of the country, almost ad infinitum. Ahmedabad's Sarabhais, for instance, were among the country's premier business families, so were Mumbai's Mafatlal and many of Kolkata's Marwari clans. None of this is to argue that there is something wrong with family-run businesses, because the evidence is that they often do better than the 'professionally' managed companies.

The issue therefore is to recognize that the interests of a business and those of its controlling family are not identical. Also, whose interests do you put first: that of the family, or of the business that has other stake-holders?

If the operating principle is that all members of a family must be given an equal role in the business and that they will not make way for better managers who are not members of the family (in other words, the feudal principle), it is hard to see such a company prospering for long in a competitive market.

The vindication of Malvinder Singh's action is that the new owner of Ranbaxy wants him to continue as the chief executive. If all the businessmen who have presided over the decline of their companies had asked themselves whether they would be able to retain their corner suites even if the company passed into other hands, the history of Corporate India would have been different.