Every one knows business families feud amongst themselves more than others. Of course it is all about property. It simmers under the surface, and then occasionally breaks out into the open taking people by surprise. The Hinduja family too, with the split now in the open, has followed the same trajectory. The $11 billion group has made a mark in India with its three listed companies–Ashok Leyland, the second largest truck maker, IndusInd Bank and lubricant company Gulf Oil. The basis of the dispute goes back to 2014 when the 4 Hinduja brothers–Srichand, Gopichand, Prakash and Ashok–had signed a letter declaring the assets held by one brother would belong to all the others; and that each of them will appoint the others as their executors.
The dispute was triggered when three of the brothers tried to take control of a bank in Switzerland, the Hinduja Bank, promoted solely by Srichand, using the 2014 letter. In retaliation, Srichand Hinduja, and his daughter Vinoo, have moved a London court, seeking a declaration that the letter has no value and praying for it revocation. The next step will be separation of all group assets between the 4 brothers. There is almost a generic cycle in the separations of business families.
When they start as traders and small businessmen, they stick together like glue and are fiercely loyal in times of adversity. The separation usually comes with success and at the end of a cycle of growth when third and fourth generation family members demand a piece of the cake. In the case of the Hindujas, they were first generation traders and merchant bankers headquartered in Iran. The split has come on the agenda when the third and fourth generation has come into its own. The Switzerland-based Hinduja Bank has Shanu Hinduja, the other Srichand daughter as chairperson, and her son Karam has just been inducted as CEO.
Boom bust-ups
The last two decades of corporate history in India have seen a boom in these family separations. Some of them have been peaceful and planned. Others have been messy. Among the quieter and peaceful divisions of family assets was in the Essel (or Zee) Group, where the patriarch Subhash Chandra’s presence ensured a stabilizing role. When in 2014, the family separated, Subhash Chandra took the `4,000-crore flagship Zee Entertainment Enterprises (ZEE), while brother Jawahar got Dish TV and Siti Cable, the distribution arms of the group. Ashok Goyal took over theme park Essel World, and Laxmi Goyal’s family got Zee News and some other verticals. Some other separations have not been so cordial. Among the most bitter has been the handing over of the Kolkata-based M P Birla Group by Priyamvada Birla, via a will after she died in 2004, to her chief accountant and co-chairman R S Lodha.
More than the loss of assets, the Birlas are peeved seeing their family assets passed on outside the family. Then there is the genre of business houses which are all happy and well till the father and patriarch rules; but when he dies all hell breaks loose. Typified by the Ambani family battle triggered in 2002 after father Dhirubhai Ambani died, it was all about leaving without a clear succession plan for his two sons, Anil and Mukesh. The ‘ownership issues’ came into the open in 2004, but even after mother Kokilaben hammered a family truce in 2005, the fight for control over the vast Reliance assets continued for over a decade till Mukesh worsted Anil Ambani, and established a clear lead.
Succession plans
There’s something very ‘feudal’ about Indian capitalism. After years most companies are still ‘family run’ and have not evolved into the more efficient corporate capitalism where investment and ownership is independent of professional management. So while there are visionary entrepreneurs, the ability to build sustainable organizational structures has not been the best. A 2018 report by financial services company, Credit Suisse, revealed that India has the third-largest number of family-owned businesses in the world after Germany and China. Among these the larger 111 companies with a total market capitalization of $839 billion were family-owned. In this scenario, when family feuds break out, and division of assets is forced between family members, wealth built over decades is wiped out within weeks at the altar of greed.
Thus, crucial to the future of family-run businesses are wellconceived and ‘fair’ succession plans that chart the division of assets and handing over of management functions from one generation to another. Good succession planning ensures preservation of assets and ensures maximum returns for investors. It is also a bulwark against depleting court battles and hostile takeover attempts. Familyrun corporate groups have in recent years been investing time and money in developing succession plans. But repeated blow-ups, as we have seen in the Hinduja case, show they still have a long way to go.