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20 Nov 2014
Inspiration Series: Talk on Building Sustainable Family Businesses

G. M. Rao

The diamond industry was present in large numbers to hear G. M. Rao, Founder Chairman of the hugely successful GMR Group and two of his seniormost advisors, Tatwamasi Dixit and Prasad M Kumar, share the experiences of their pioneering work in developing a model for a sustainable family business with its own Family Constitution and a special Governance structure. The event was an External Speaker’s Talk under the Inspiration Series being held by Palanpur Samaj Kendra and Palanpur Online.

Welcoming the guests, Russell Mehta, facilitator of this segment, expressed the hope that the diamond and jewellery industry, which is predominantly made up of family run businesses would learn a lot from the unique experiences of the GMR Group and the special steps they had taken to ensure a structured future for both the family and its businesses.

The first talk of the evening was a presentation in two sections by Dixit and Kumar, both key advisors to G.M. Rao in the process of creating a structured environment for his family business to continue over future generations. While Dixit is Founder FABRIC (Family Business Research International Centre) and a specialist in working with business owning families, Kumar is Business Chairman – Institution Building & Governance, GMR Group.

The Q & A : (from l) Rao, Kumar, Dixit and Mehta

Dixit presented an overview of family businesses, tracing their defining characteristics and providing some startling insights, pointing out that they account for 47% of market cap among Sensex companies, and contribute 60% to the GDP in India. He discussed the positives as well as negative side of such businesses and some of their unique features, particularly how each member wears multiple hats depending on whether they interact at home or at work etc.

Stressing that a proper system of communication was the key to ensuring alignment of thought and business direction within the family, he said that transparency in financial and operational decisions was critical too.

“Family Succession should be a process, not an event,” he concluded, suggesting that it was imperative to institutionalise and codify a system and structure while the Founder of the Group was still able to play an active role.

Taking over from there, Kumar gave a brief background to the process by which the GMR Group moved towards codifying a Family Constitution and Governance Structure. He said that it was a protracted task, for even after G.M. Rao decided to take this step, he had to win the confidence and support of other members of the family.

This took nearly three and a half years, he said and involved 28 Family Meetings where every adult member, including the women in the family pariticpated. Finally, even after the broad approval had been given by the family in 2007, it took another four years to finalise a legal document.
Kumar emphasises that the whole process must be one of ‘communication’ with importance giving to making it participatory and democratic, not just in the present, but even for subsequent generations. “Future scenarios have to be thought about and plans drawn up and documented for different eventualities,” he said.

His advice was to achieve clarity in thought, so that every member reaches a certain comfort level, gains confidence and feels a sense of belonging. “Managing differences is also important,” he noted, suggesting that “potential conflicts must be spotted early and resolved in an atmosphere of trust”.

The audience

A critical aspect is the involvement of a panel of external faciiitators, who, among other things, also help managing differences and provide training in Conflict Management.
This presentation was the perfect backdrop for G.M. Rao to narrate his life experiences and the development ofa family business structure. Rao traced his journey from being the first graduate in his family, his early forays into the jute, liquor and other businesses, his unexpected entry into the world of finance when we was made a director of a community run bank and his gradual transition into the infrastructure business.

It was at a CII conference that he first began thinking about the future of his family run business, Rao said. He then explained the subsequent steps he took to bring in experts who would help him in developing a sustainable structure for the Group.

Rao recalled how he moved towards consolidation of his various businesses and why he eventually decided to concentrate on the infrastructure business, tracing the rapid development of the Group from its initial

Speaking from the heart, he described the many sessions he held with advisors and family members to understand different viewpoints, forge a common understanding and eventually guide the development of a unique Family Constitution and Governance Structure for both the business and the family.

He concluded by saying that when he retires from active involvement in the business he will devote his energies and wealth toward work with Parampara Foundation, a social initiative that would be fully focused on helping family run businesses develop their own models for a sustainable future.

The session concluded with a lively Q & A skilfully moderated By Russell Mehta.


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