The promoter returns

The conventional thinking used to be that ownership and management in enterprises are best divorced""until research began to throw up evidence that family-managed businesses were consistently doing better than those run by non-shareholding professionals. In India, the tendency has been (as might have been predictable) to take the middle path, with family-members heading top managements that mostly comprise professionals. Some took the process a step further, and allowed non-family managers to become chief executives, and some even stepped down as board chairmen. Now there seems to be an incipient trend in exactly the opposite direction, and one that is worth understanding.

Among all the groups where the promoter-family decided to take a back seat, none did it with as much forethought as the Rs 7,300-crore, Chennai-based Murugappa Group. So it has caused surprise in business circles that a senior member of the Murugappa family, M A Alagappan, is now in the saddle as chairman after a gap of five years. In 2001, M V Subbiah had stepped down as the chairman of the group, making way for the former Infosys joint managing director, N S Raghavan, as non-executive chairman. Mr Subbiah, who has extensively researched the issues facing business families, also formed the Murugappa Corporate Board (MCB), which reflected in some senses the German duality of a supervisory board that is separate from the management board, which in the Murugappa case had no family members any more. A year later, P S Pai, who had been Wipro vice-chairman, took over the reins. Now, with Mr Alagappan as the chairman, the group has come full circle and family leadership has been re-established in the group, though not in day-to-day management.

This reversal is striking, but it is not an isolated instance. Other enterprises that have demonstrated similar revisionist thought include Thermax, Ranbaxy and Eicher. However, there is no one reason that can be attributed to this trend, and the specifics of each case could even point to a succession of sui generis stories. In some, the family asserted its right to get back into the driver's seat following ineffective professional leadership. In others, there were conflicts between the professional chief executive and the members of the promoter family represented on the board. And in a case like Ranbaxy, it is possible that in part it was a case of professional leaders simply warming the chair before a younger-generation member of the promoter family was ready to take charge. Other than the greater commitment to the business that family members claim, family leadership is more likely to take a longer-term view of a business than a non-shareholding CEO""and this can sometimes be an advantage.

One reason that has facilitated family members in their bid to re-assert control is that professionals from the younger generation are well-educated and in some cases perfectly competent""something that may not always have been the case. Today, women from business families are also moving in to take control. However, the old problem remains: if you combine the functions of principal shareholder and chief executive, who will fire the boss for non-performance? If one family member is the chief executive and another is the chairman, family relationships can come in the way of decisions that are good for the business. Perhaps one solution lies in the fact that, as more and more companies get listed, the stock market spotlight and pressure from institutional shareholders exert powerful pressures on management to perform, so a non-performing CEO from the promoter-family has nowhere to hide.