Indian CEOs must behave as if they hold their companies in trust
Management books advocate that there are some essentials for achieving competitiveness in business. Businesses must invest in research and development, brand building, nurturing human capital at all levels, paying attention to what employees have to say and focusing on cost improvement programmes. But the most important is to identify and appoint the most suitable persons to lead the company and to ensure that there are backups who can take over.
Most people assume that 'professionals' cannot include members of the controlling family. So, by definition, the Tatas, Ambanis, Singhanias, Wadias, Goenkas, and others belonging to the families of the founders of the business are not counted as professionals. This is a false argument. Family inheritors many times are as bright as outsiders. They can afford to take time and spend money to earn the best qualifications. They might even gain experience for some years in the best consultancy firms or other companies. Many second or third-generation inheritors today are highly educated, experienced and capable.
Many outsider recruits to family businesses are not satisfied with high-sounding designations and compensation packages. They want to run the whole company. So they leave when they find that the top slots are reserved for the family. Even the few family-run companies that place outsiders in top positions have a control mechanism. They do not for long tolerate performance slippages. All enterprises, whether businesses or non-governmental social organisations (even the business of politics!), are started by individuals. Each of them has a dream, a vision, and a passion to build something. With some businesses the individual has no choice but to start an enterprise. The refugee entrepreneurs after Partition left all their property and possessions behind, like Mahindra, Raunaq Singh of Apollo, Nanda of Escorts, Munjal of Hero and others. In the south, the Chettiar families similarly left property in Burma and Malaysia after the war and built again in India. Others like Dhirubhai Ambani were men driven by vision and passion to do something special and different. JN Tata, Narayana Murthy, Anji Reddi and others are in this group. Yet others started businesses that were a hotchpotch of enterprises that were put together because their contacts and connections got them the required licences and permits. Some have survived after drastic pruning; others have declined. In today's competitive world, enterprises are not created as much by contact and connection. But individuals build enterprises and fortunes, (equally so with political families) as inheritance for their near and dear ones and as their monuments for posterity. They think that the best people to grow the monuments are their kin. With controlling shareholdings in India vesting, in most companies, with promoter families, there is little challenge from other shareholders or regulators to control passing of ownership to family members. When Ratan Tata was chosen by his uncle to succeed him as the head of the Tata group, Tata's business experience had been in running a failing company called Nelco. No objective recruiter would have catapulted him into a position to succeed JRD Tata. But he was family and shareholders had to assent.