Heirs apparent

Rahul Bajaj has taken the first step towards dividing the business between his sons.

Blood may be thicker than water but when it comes to business, it's an eye for an eye. Indian business history is littered with examples of warring families and Bajaj Auto Chairman Rahul Bajaj knows what it's like to be battling one's own brother.

His fight with brother Shishir over the ownership of some group companies has been on for nearly five years now and it's only getting uglier. Understandably, the veteran businessman doesn't want history to repeat itself. That is possibly why he's taken the first step towards carving up the business between sons Rajiv and Sanjiv.

Of course, the senior Bajaj has simply allocated managerial responsibilities, there hasn't been any bequeathing of assets. As a result of a three-way split, Rajiv, who turned 40 last December, will steer the two wheeler business in one entity, while younger brother Sanjiv, 37, will nurture the financial services business in another entity that would house both the insurance ventures that Bajaj Auto has in partnership with Allianz. The third company will be a holding company which holds a 30 per cent stake in each of the other two.

The assigning of specific responsibilities, say experts, is just the starting point with ownership issues likely to be addressed at a much later stage.

Says Bharti Gupta Ramola, executive director, PricewaterhouseCoopers, "Typically, a family needs to think about both management succession as also ownership succession and the two need not necessarily be congruent. I believe the split is one step forward as far as management succession planning is concerned and it's good that there is a clarity on the issue at an early stage."

Agrees Narayanan Ramaswamy, director, advisory services, KPMG, "The absence of succession planning has been the bane of many family businesses in India, but more and more promoters today are realising its importance. And some, like Mr Bajaj, are trying to set things right to ensure that future generations live amicably."

Interestingly, according to the results of a study done by PricewaterhouseCoopers , even in Europe less than 50 per cent of family businesses consider succession planning , possibly because only half of them believe the business will actually pass on to the next generation(see table).

Bajaj senior claims that all is well in the family but says job responsibilities need to be defined. "There are no problems, no matter what people may say but work must be divided,"he said at a press conference last week.

However, those in the know say Sanjiv and Rajiv have had their differences for some time now. Which is why their father has decided to let the sons head different businesses. If nothing else, the companies and consequently shareholders should benefit from a sharper management focus.

Indeed, while it may not have been the case with the Bajajs, a trend is emerging by which promoters are turning more professional.

KPMG's Ramaswamy believes that several business families are bringing in more accountability because they understand that creating wealth and running a company are two entirely different things.

Says he, "There is a growing realisation that ownership needs to be earned rather than inherited. Moreover, allocating responsibility also ushers in healthy competition."

PwC's Ramola adds that with entrepreneurship in India growing, families need to think through these issues. "Not too many Indian families have a governance code like they do in the West where the rules and eligibility criteria, for family members who are running the business, are clearly spelt out. In the absence of any guidelines, problems can arise because everybody's expectations are not met," she points out.

Indeed, together with family members, minority shareholders too could suffer. To that extent, the demerger "� though not structured in a friendly manner because it is not a vertical split "� should definitely benefit shareholders in the long run with each of the businesses getting re-rated.

For one, there's a good chance that the huge amount of cash of Rs 6,000 crore, to be kept in the holding company, will be put to better use. Besides, single sector firms command better valuations than conglomerates. With the start they've got, the brothers should be able to earn ownership. And even if their father features prominently in the chapters written on family feuds, let's hope they don't find a mention.

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DEMERGER: TO EACH HIS OWN

30% of the stake held by minority investors will suffer from a holding company discount

Shareholders can opt for autos, financial services or stay with both

Rajiv to head two wheeler business

Sanjiv to take over financial services

By December, the international marketing for two wheelers will also be looked after by Rajiv

Sharper management focus should ensure better performance

Bulk of cash of Rs 8,000 crore plus to be in the holding company

FAMILY MATTERS IN EUROPE

50% of businesses expected to be passed on to the next generation

27% of businesses expected to be sold to another company

50% anticipate a change of ownership in their business

16% anticipate a change in the ownership in the next five years

47 % have considered management succession

Main causes of conflict: future strategy, performance appraisals, right to work in the business, remuneration and dividend vs re-investment

Source: PricewaterhouseCoopers