The Jindals did it. The Munjals followed. Now, the Goenkas are following suit.
Indian business families are amicably carving up their empires among the next generation, and yet retaining a common group identity -- which may provide them some leverage with lenders.
It isn't an easy process. Rama Prasad Goenka, India's first takeover tycoon, for instance, split his group between sons Harsh and Sanjiv.
The brothers are now snipping the complex web of shareholdings in each others' companies so that they have clear ownership of the businesses they manage.
In 2009, the OP Jindal Group did the same, untangling the shareholding threads of 30 investment firms to create four holding companies.
The promoters' stake in each new holding company was split five equal ways among the brothers -- Prithviraj, Sajjan, Ratan, and Naveen -- and their mother, Savitri Devi, who is chairperson of the group.
Each brother will control one holding company and eventually inherit Savitri Devi's stake, making him the largest shareholder with 40 per cent ownership.
Dwijendra Tripathi, a former professor at IIM-Ahmedabad and an eminent business historian, feels more splits are on the horizon as families realise it is better to divide assets amiably rather than wait for the acrimony that marked break-ups between 1979 and 1999.
"The days of the joint family are over. Families realise that if they can't manage jointly, it is better to split. The joint family structure of business management is outdated," he says.
Tripathi sees these amiable splits more as exercises in succession planning, which was missing earlier. Barring one (the Thapars), the 30-odd splits between 1979 and 1989 were all characterised by rancour. An obvious case in point: the Ambanis. ''Families now realise the value of succession planning,'' adds Tripathi.
In June, the Munjals disentangled their cross-holdings in more than 20 group companies in a manner that each faction of the family received ownership of the businesses they managed. Hero Honda Motors, the group's flagship, is owned and managed by the Brijmohan Lall Munjal family. Sons Pawan Kant, Sunil Kant, Suman Kant and the late Raman Kant's family will between them hold the group's 26 per cent stake in the joint venture with Japan's Honda.
Om Prakash Munjal and family now control and manage Hero Cycles. The sons of BM Munjal's brother Satyanand Munjal have Majestic Auto, Highway Cycle, Munjal Auto and Munjal Showa. Ashok Munjal, the son of late Dayanand Munjal, the eldest of the first generation, got Sunbeam Auto while his brother, Vijay, received Hero Exports. Sunil Kant Munjal, the group's spokesman, was not available for comment.
The Jindals, the Munjals and the Goenkas aren't the first to seek a united front by cordially carving up their business realms.
There are others like the Shrirams, the Thapars and the Burmans that have followed a similar course -- and successfully managed the transition.
Business historian Gita Piramal believes there are two aspects to this trend: cultural and legal. Some groups have had a culture of working this way: the Goenkas, Bajaj, Munjals, Muthiahs, and Mariwalas.
"There's an historical context to the legacy of cross-holdings, over which the business families had no control," says Piramal.
This has its genesis in important legislation. Hard though it may be to believe, by 1930, India was the world's tenth most industrious nation.
But India's capital markets were small. The year 1970 was a threshold year for Indian industry, when the managing agency system -- a crucial source of wealth for business families -- was abolished.
This considerably reduced the wealth that went to promoters. A year before that, the Monopolies and Restrictive Trade Practices Act was introduced.
The need for capital, and the MRTP Act, which forced companies with assets of Rs 100 crore (Rs 1 billion) to seek government permission to set up new units or expand existing ones, often forced promoters to set up multiple companies and control them through cross-holdings.
Groups like Reliance and Bharti, which started or grew in the 1980s, have a different structure and did not need complex cross-holdings.
That's why they have fared better than older business families, points out Piramal.
Family splits are a post-Independence phenomenon. Before that, a joint family was the norm and the only source of capital for the relatively small companies.
"Even if there was a split, people kept it secret as there was social stigma attached to it. But there was nothing like succession planning in Indian business families," says Tripathi.
The social, economic and legal forces of post-Independent India worked counter to the business families. When differences arose, they led to splits.
Take the MRTP Act. Several younger members of business families began to launch their own independent companies to skirt the MRTP Act.
When the managing agency system was abolished, companies needed to have salaried CMDs assisted by a board. But nothing really changed in practice: people that headed the erstwhile managing agency became the chairman and managing director. But social forces had become potent, and some families began to seek autonomy.
As differences came to the fore, it led to family splits. The Dalmia-Sahu Jain (early 1950s), Goenka (1958-60), Singhania (1979) and Mafatlal (1979) divisions were all acrimonious.
In several cases (such as the Dalmias), the splits were so acrimonious that nobody knows even today what happened or in which year the split actually took place, says Tripathi.
Up until 2000, the only case of structured succession planning was seen in the Thapar Group, when Karamchand Thapar in his lifetime identified one of his four sons, Lalit Mohan Thapar, to succeed him.
Experts feel the current spate of amiable splits is a welcome trend.
"The joint families had their virtues. They were largely anaemic to innovation, expansion, and rewarding merit. These amiable splits will induce managements to become more professional, even if a family member is still at the helm," says Tripathi.
