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Should the top boss be from the family or outside?

Last updated on: May 30, 2011 12:53 IST

Should the top boss be from the family or outside?

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Bhupesh Bhandari in New Delhi

The Mohandas Pai affair has brought to life the age-old debate of promoter versus professional - who runs the company best. There are arguments on both the sides.

A professional is likely to play safe and not take the risks that can fetch huge rewards.

A promoter, on the other hand, may not have the managerial bandwidth to lead an enterprise.

Votaries of each viewpoint can inundate you with data to prove their point. The debate is unlikely to end in a hurry.

But are Indian promoters ready to give up control and hand over the company to their professional managers? What does experience tell us?

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Image: Mohandas Pai affair has ignited debate of promoter versus professional.

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Actually, such instances are few and the results have been a mixed bag. The first perhaps to professionalise was Deepak Lal of Eicher when he handed over the reins of the company to Subodh Bhargava.

Eicher came to be known as a nice place to work with high-quality people and processes. Some went a step further - they put professionals before family.

Lala Charat Ram had elevated Neelkanth Ratnakar Dongre from an employee to a business partner, much to the annoyance of his family.

The two together came to be known as the Charat Ram-Dongre group.

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Image: Eicher came to be known as a nice place for employees.

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Should the top boss be from the family or outside?

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Dongre was fiercely loyal. Workers had once laid siege to the Jay Engineering Works factory in Kolkata, which belonged to Charat Ram.

The situation was desperate. Dongre loaded all the important documents in a truck, smashed a wall with it and drove all the way to Delhi. Charat Ram, in turn, took good care of him. Then the inevitable happened.

Blood proved thicker than water.

Charat Ram made up with his son, Siddharth Shriram, and Dongre was isolated and finally ejected from the business.

Dongre fought hard to retain the companies he thought rightfully belonged to him - Shriram Rings & Pistons and Usha International - but lost in the boardroom as well as the courts.

He could never make a comeback.

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Image: Many lose battles in boardrooms.

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Should the top boss be from the family or outside?

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In the early-1990s, Bhai Mohan Singh and his son, Parvinder Singh, had fought a no-holds-barred battle, in the boardroom as well as outside it, over who should run Ranbaxy.

Parvinder Singh wanted to groom D S Brar as his successor. Bhai Mohan Singh was old-fashioned and couldn't bear the thought of an outsider at the helm.

After a fierce battle, Bhai Mohan Singh quit the board and Parvinder Singh had his way.

In the fight with his father, Parvinder Singh was supported by Brar and other key professionals who were enthused by the thought of one day running the company independently.

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Image: There was a battle over who should run Ranbaxy.

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Should the top boss be from the family or outside?

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When Parvinder Singh died of cancer in 1999, Bhai Mohan Singh began to lobby for board positions for his grandchildren, Malvinder and Shivinder.

The two put out a statement that they would abide by their father's philosophy of segregating ownership from management, and were, therefore, not interested in any board position.

Things happened swiftly thereafter. Malvinder rose quickly within Ranbaxy and was soon on the board.

Then Brar decided to exit, and the road was clear for Malvinder.

Let's admit it - most Indian CEOs are very smart people.

Brar has set up a nice business of his own, and the business model is far less risky than Ranbaxy's.

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Image: Malvinder and Shivinder are grandchildren of Ranbaxy's founder.

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While Ranbaxy has had to contend with legal issues in the United States, Brar is cruising along smoothly.

Or take the example of Pramod Bhasin of Genpact, who has been no less an entrepreneur than any businessman.

He took the company from just an idea in Jack Welch's mind to great heights.

Bhasin now wants to do something on his own, and possibly for himself.

Egos begin to clash when professionals begin to think they are indispensable to the business - this is more likely to happen in a family-controlled business than a company like Genpact, which is owned by private equity.

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Image: Genpact is a private equity-owned company.

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I have taken the company to where it is, so many times have I heard a CEO say in private, but I own nothing of it.

Disdain for the talents of the promoter is implicit in all such conversations.

It finally shows up in the interface with the promoter. Whatever else they may be accused of, businessmen are all very sharp people; they can sense it very well when their turfs are threatened.

That is when the axe falls on the CEO.

The boundary lines are sharply drawn - the CEO is paid to maximise the wealth of the shareholders.

The CEO is gone the moment he crosses it, however empowered he might have been.

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Image: CEO is gone the moment they cross the line.

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One smart Alec lost his job because he said in a party for all to hear that he had been hired to transform the business from a Lala company to a professional one.

His mistake was that the party had been thrown by the promoter to introduce him to his other employees and associates; his boast had left the promoter badly embarrassed.

I have so far talked about experiments that didn't work. The Burmans of Dabur have relinquished all executive roles in the company and are happy to be in minority on the company's board. Their interventions are minimal.

The executive team had done acquisitions, developed products, introduced brands and taken strategic initiatives.

And there is nothing to suggest that the company has lost its sting.


Image: Burmans of Dabur play a minority role.

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