Owners and managers

Swot

Years ago, when Manu Chhabria was battling the feisty S P Acharya for control of Shaw Wallace, a group of professional chief executives in Calcutta (the city's business community still counted for something then) had considered sending a delegation to New Delhi.

Their objective was to show support for Acharya, who was managing director, and petition the government against allowing the emerging predator from Dubai to take control of this hugely profitable and cash-rich liquor company.

The larger intention was driven not a little by self-interest of course "" to protect the interests of professional managers who were becoming an embattled species between the time the managing agency system was abolished and Indian family-managed businesses started reaping the benefits of a protectionist regime.

That move fizzled out as did Acharya's challenge when the financial institutions, after stringing him along, did their famous volte face and voted for Chhabria at a fateful EGM at the Birla Ice Skating Rink.

Why did Acharya, a mere professional manager, so vehemently oppose the change of ownership of majority share-holding from Sime Darby, a distant holding company, to Manohar Chhabria? There were many layers to that battle but the broad reason was that he was sure it would end his run as an independent chief executive in a board-managed company (he was right).

In many ways, the Chhabria versus Acharya battle, with all its drama and pathos, presaged a debate that was to surface in Indian management circles less than a decade later as economic liberalisation took effect: owner-managements versus professional managements.

There were two related issues here: should India's family businesses professionalise? And, following from that, do professional managements function more efficiently than owner-managers?

Everyone agreed that it was vital for a company to separate ownership and management. Yet strangely, no one was able to conclusively prove that professional managements are necessarily more efficient that owner-managers.

And it is telling that 12 years after economic reform lowered the barriers to domestic competition, the jury is still out on that question.

It was with some interest, therefore, that The Strategist, Business Standard's weekly management and marketing section, approached four corporate leaders to comment on the subject for July's 'Debate of the Month'.

All the responses, which were published on Tuesday, July 8, made compelling reading and at least two of them were surprises. One professional manager "" Milind Sarwate, chief financial officer, Marico Industries "" made a case for owner-managers, saying that an owner-managed firm run professionally can bring much more to the table than a company in which ownership is diffused.

On the other side of the argument was Harsh Goenka, chairman, RPG group. Goenka made the point that owners should basically limit their role to giving strategic direction and values to the organisation and leaving the day-to-day management to professionals.

He then went on to list the possible minuses of pure family-run organisations "" over-stressing the talent within, the promoters' overweening ambition, dominance of the patriarch and sibling conflicts (significant points, those last two).

The other two participants were R Gopalakrishnan, executive director, Tata Sons, who argued that the separation of ownership and management provides for an exit mechanism when a company's performance declines.

Arun Firodia, chairman, Kinetic group, was the fourth participant and thought owner-managements work best principally because owners groomed their children for management from an early age and had better business contacts.

So who is right? It's hard to say. If you judge India's large corporate groups pre-and post-reform there are plenty of examples of owner-managements that have seen splendid success "" Reliance, the Aditya Birla group. Equally, there have been groups that have found open competition tough going "" the Mafatlals, Essar, the C K Birla group.

This uneven track record needs to be offset against the performance for professionally-run groups "" the Tatas have, for instance, weathered liberalisation reasonably well. Several professionally-managed multinationals that pre-dated reform "" ITC, Britannia, Siemens "" all turned in impressive performances after reform (though several like Philips and Bata struggled).

It is clear, just as it is globally, that either form of management can deliver results "" or not. But in any case, the sheer pressures of growth and performance are making professional managers indispensable to corporations.

What the Indian business groups have yet to do is infuse this culture into their organisations for real. Few corporations have done this "" the exceptions being Thermax, whose owners, the Aga family, set new standards in separating ownership and management, just as Infosys has set new standards in owner-management.

Post-reform, many family businesses started stocking their senior echelons with non-family executives. The trouble is that this is often for token value "" the professionals are to be mere executors; the entrepreneurship impulse was to continue to come from the promoters.

It will take at least another decade of unrelenting competition to change that. And when that happens, it won't be a Chhabria-Acharya takeover tussle that we'll see but something of the order of Carly Fiorina versus the Hewlett-Packard family.