Sunday, April 28, 2002		Books

What Indian business needs
G.V. Gupta

Inheriting the Mantle: Management of Succession and Transition of Indian Family Business:
by D. Sampath: Sage, Delhi. Pages 218. Rs 195.

INDIAN business is essentially family business be it large Tata or Birla or Ambani or local Sharma, Verma or Gupta. The dominance of this model is a sign of a feudalism still persisting. Post-Independence "quota-permit" patrimonial system perpetuated it. It is, therefore, beset with the problem of succession. It is unable to de-link management from ownership and face modernisation and globalisation. This economic discourse in India tends to be dominated by the issue of ownership at the cost of issues of efficiency, productivity, employment and growth, whether in the matter of disposal of PSUs or mergers and acquisitions or globalisation or scale economies. Family interest dominates the economic interest. A defensive mindset prefers preservation over growth, control over scale-economies and protection over competition. An exception is the service sector, particularly in information technology, where professional competence is vital.

One paradigm of a holistic critique of Indian economy can be of dynamics of family business and its transition to modern and global business. Unfortunately it is a neglected area of study and Indian business has been successfully able to keep the spotlight away from the issue of management and have it concentrated on ownership linking it with national pride and national ownership.

The author thus deserves our thanks for the study under review even though its focus is very limited as a business consultant, he was retained by three small business houses to settle family business disputes of management arising out of succession/possibility of succession. He also advised on reorganisation and refocusing. The present book is to theorise the experience gained. The first part deals with the concept and the growth of this institution in the modern era with the growth of mercantilism.

The second part details the cases, and the third deals with the process of transition. Last but one chapter deals with globalisation and the book ends with the summary of the theory. The main conclusions are: family should work more as a board, discussions should focus on business issues rather than on family relationships, traditional rights should be given due weight, women should also be involved now, scope should be created for enterprise for younger members through a special fund and family needs should be met through another special fund etc. The approach is of preserving the family character of ownership with some democratisation of management kept within the family in a small medium business. Challenge of globalisation against a small competitive opening is met essentially through network relationship.

In large joint-stock companies, family control was possible due to state policy of non-interference by FDI’s even in favour of other small holders. Family occupies strategic points of control and surplus is appropriated through family network of procurement and distribution, charge of family expenses to the business and promotion of new business through family members etc. This creates monopolistic and restrictive tendencies promoting inefficiencies. Here succession can be resolved only by expansion of points of control. This necessarily subdivides the business. In case of G D Birla, his successors carved out small independent empires in true feudal tradition. They could not convert themselves into simple shareholders and jointly hand over the management to experts.

Further, control can be retained only through political goodwill granted through state-owned financial institutions as was seen in Swaraj Paul’s bid to take over Escorts. The company was saved from Swaraj Paul, but is in difficulties because of its own feudal inefficiency. Is it any wonder that even though India has some corporations of global size, none is a global corporation —their size is simply the product of domestic protection and not because of higher productivity. This has created powerful vested interests and the state seems to have lost all manoeuverability and is landed in a jam as far as reforms go. Mr Sampath has nothing to say on these issues.

The most important issue before small medium businesses in India is of their transformation into large-scale efficient corporations by amalgamation and mergers. We have no strategy for this. Therefore, they are sitting ducks. They will either be killed or taken over by larger external corporations. External takeover will be necessary to save Indian labour and land productivity. The appeal to nationalism can not work. We have the example of China where state encouraged amalgamation and involvement of MNCs has created Konka like corporations. However, Indian business only wants to follow China in terms of its still feudal labour policies but is totally silent on the issue of scale and delinking of control from ownership. Mr Sampath has covered a small area. More needs to be done.