this ppt discusses about the constitution led by GMR group to govern their family business

1. GMR GROUP

2.  G.M.Rao‘s father was a successful dealer of jute, food
grains and gold.
 Division of Wealth – Each son received some property
and INR 3,00,000.
 G.M.RAO – Mechanical Engineer from Andhra University.
Worked in a Paper Mill and with PWD.
 The brothers joined together and opened a trading
venture, dealing in jute like their father.
 In 1988, the brothers separated as they had different
ideas. G.M.Rao wanted to reinvest the profits and expand
whereas his brothers were interested in profits.
 He received a jute mill as part of the settlement.
 Joined the board of Vysya Bank in 1985.
ORIGINS

3.  Largest shareholder of Vysya Bank and in 1993, decided to
run the bank himself.
 Brought Bank Brussels Lambert (BBL) into the project, giving
it a 5 per cent stake, and upgraded the bank‘s systems and
processes with the new partner‘s help.
 In late 2002, BBL was acquired by ING, with Vysya Bank
included as part of the deal, and Rao received INR5.6 billion
for his stake.
 Retired as its Director and Chairman in 2006.
 Learning's from the bank venture –
• Exposed to the modern world of finance and broadened my
outlook on business.
• Good businesses crashing due to conflicting family interests
on business matters and lack of governance mechanisms in
the family.

4.  Ferro-alloy manufacturing (1991-92)
 Sugar production (1995)
 Breweries (1998)
 A 200-megawatt (MW) power project in Chennai (mid-1990s)
 A barge-mounted power plant, the world‘s first and largest, in
Mangalore in late 2001.
 Highways and Urban Infrastructure.
 Airports
 Manufacturing (agri-business, mainly sugar)
 Net revenue of INR 45.67 billion in 2009-10 as compared to
INR10.62 billion in 2005-06
 Growth rate (CAGR) of 44 per cent.
 Company‘s assets were valued at INR149.34 billion in 2010.
DIVERSIFICATION OF GMR GROUP

5. FAMILY TREE

8.  In 1991, motivated to serve those in need, especially in rural areas,
Rao established the GMR Varalakshmi Foundation (GMRVF).
 Run as an entrepreneurial enterprise focused on developing education,
healthcare, vocational and other programs for local communities. 3 to
5 per cent of the group‘s profit after tax (PAT) went into the
Foundation.
 Aimed at making high-quality educational institutions accessible to
India‘s poorest segments, partly through collaborations with the
government.
 Healthcare initiatives also included partnerships, such as collaboration
with Helpage India to operate mobile medical units that serve nearly
100 villages weekly.
 Established five institutes for self-empowerment and vocational
training for unemployed youth and women. These institutes trained
unemployed youth in a variety of skills (e.g., repair of household
appliances and simple electronic products) and
 Facilitated bank loans for aspiring micro-entrepreneurs. GMRVF worked
intensively with five disadvantaged communities in Rajam, providing
addiction counseling, creating health awareness,
 Providing mentorship to youth clubs, developing village libraries and
facilitating participatory rural development.
CSR

9.  Mission - To build entrepreneurial organizations that
make a difference to society through creation of value.
 GMRVF was headed by a non-family chief executive
officer (CEO), with a board of directors consisting of
family and non-family independent executive directors.
 First- and second-generation females of the Rao family
served on the board and took part in multiple Foundation
activities.
 Rao said, ―By committing more and more time to the
Foundation, women of the family could develop an
identity for themselves beyond deriving satisfaction from
such initiatives.‖

10.  GMR Holdings Pvt. Ltd. Is the holding company with 2
subsidiary companies- GMR Infrastructure Ltd. &
GMR Industries(Airports) Ltd.
 Ownership structures has remained consistent with
equity proposed to be distributed equally among
Rao, his sons and his son-in-law.
 Decision making Council – Rao, Raju, Kiran, S.B & 2
independent non-family executives.
 Due to the rapid expansion of the group, Rao in 2006
hired strategy consultants Mckinsey & Company, so
as to assign roles and responsibilities to each family
member.
BUSINESS PROFILE

11. FAMILY CONSTITUTION AND OTHER
GOVERNANCE INITIATIVES
keeping the
family
together, from
generation to
generation.
leveraging the
family’s special
strengths
Anticipating and
mitigating
significant risks
associated with
family business
“infant mortality” Fostering
stewardship among
family members to
promote the Group’s
long-term success
and sustainability.

12. New focus on
family governance
form a family
council, comprising
the four male
members working at
GMR and their
wives, to begin
discussing the
values, mission, visio
n and key policies that
should go into a
family constitution.
invited an
internationally
renowned family-
business
advisor, Peter
Leach, to assess
the family’s
situation and
make governance-
related and other
recommendations
at a two-day
retreat.
In 2002, the family
council generated a
long-term agenda and
roadmap for
navigating future
family governance.
Over the next year, the
family spent
considerable time
refining the roadmap,
fixing an agenda of
top priorities and
other key tasks, again,
with the help of
external experts.
The family discovered
that the largest
challenge involved
managing individual
aspirations. For
instance, both Raju
and Kiran expressed
the desire to have
more operational
freedom under the
GMR umbrella.
Throughout the
process, the family
kept focus on
maintaining harmony.

13. FAMILY PHILOSOPHY
aimed to create a long-term sustainable governance
structure and set policies to serve the family in the
current generation and beyond
The effort was to strengthen and
sustain bonding among family
members.
two separate, though overlapping,
sets of core values for the family and
the business.
The family constitution articulated
and elaborated on each set, as these
were considered pillars of the
business’s culture and continuity.
The aim was to ensure a smooth
transition of business from generation
to generation and enable professionals
to take on their rightful roles without
any interference from the family.
The family believed that the business
should be run on a day-to-day basis by
highly qualified non-family executives,
while family members should retain
control over the high-level strategy, or
“destiny,” of the Group.
retaining entrepreneurship in the
family, while avoiding creation of silos
of activities, businesses in which each
family member might get trapped.
In line with this philosophy, family
members were to withdraw gradually
from operations and restrict themselves
to fulfilling investment needs and
providing strategic inputs and
counselling for the Group’s businesses
and activities.

14. KEY FEATURES OF CONSTITUTION
 A goal of the constitution was to emphasize family members‘
flexibility about joining the business. Thus, the document also
addressed how to handle family members opting out of the
business to pursue independent careers.
 Rao decided to set up a separate fund for such individuals.
―Instead of setting up just one trust where all the family
members have a stake, which leads to disputes, we set up
four trusts (known as ‗column trusts‘) for each of the two
sons, the daughter and myself, so there is clarity,‖ Rao said.
 Family members in future generations who wanted to enter
the business could not expect easy advancement — they would
have to earn promotions through hard work and impressive
achievements.

15.  Members of future generations wishing to join the Group would be required
to sign an agreement for adherence to the constitution and their
performance would be appraised through the same system as for non-
family professionals. Appraisers would include non-family members of the
board but as the third generation was still far from working age, a formal
process had not yet been determined.
 There was also an induction process that every newcomer to the business
was required to undergo. Family members were not directly appointed to
senior positions nor did they report to other family members. They were
required to work outside the family firm for approximately three years
before joining the business.
 An internship of twelve months was compulsory, which could be completed
during undergraduate years (e.g., a series of two-month summer stints).
 Assignments associated with these internships would help familiarize
family members with GMR‘s business practices, work culture and the
founder‘s and other leaders‘ passion for building the Group, as well as
engendering a sense of pride and belonging in the entrant.
 The minimum level at which a future-generation family member could join
was set as assistant general manager.

16.  Like any other employee, future-generation members were
also to be remunerated based on merit and performance.
 Women of the first and second generations (i.e., the wives of
the four male members now working in the Group) had chosen
not to work in the business in order to take care of their
children.
 The constitution indicated that they and future female family
members could take up external part-time jobs or start their
own businesses, provided such work did not interfere with
their care-giving responsibilities.

17.  Ownership of holding by Rao, who held nearly 100 per cent,
was being settled in four family trusts, with the husband, wife
and Rao holding equal voting rights within each.
 Succeeding Rao would be anyone selected by the husband and
wife. If they could not agree then the third trustee would be the
oldest direct descendant member of the family.
 The second-generation husband and wife would select their own
successor trustees. The three trustees of each trust would
select the voting trustee for the voting trust.
 There was also a clearly defined process for leadership
succession: Raju, Kiran and S.B. were to select a successor
unanimously from amongst themselves upon the announcement
of Rao‘s pending retirement. If they could reach no unanimous
decision, then a family appointment board consisting of two
independent directors and a facilitator (i.e., deadlock
facilitator) would interview all three and make a final, binding
decision.

18.  Further stipulations were that Rao would retire by age 70 at the
latest, with a successor chosen three years before his actual
retirement date. Until that date, the successor would be appointed
deputy chairman or a similar designation, with the leadership
transition conducted in a phased manner.
 The successor would serve for five years and then offer himself for re -
election. The future family directors were to retire at 65 years of age.
 To make his mantra of ―keeping the family together‖ work in practice,
Rao also included several formal organizational structures in the
constitution. These included the family council, the family business
forum, the non-business family forum and the founders business
office .
 The constitution also provided a family code of conduct to ensure
effective family governance. The family agreed that the constitution
would undergo a formal review in every generation and once every 10
years. Constitution-related proposals from at least two members
belonging to different units would go to the family business forum for
comments before the proposals were submitted for approval by the
family council

19. THE ROLE OF NON-FAMILY EXPERTS
 P.M. Kumar (P.M.) was hired in 2003 to assist the family in drawing a
family governance structure, family mission, vision and values. P.M. was
a well-known process consultant in human behavior, with many years of
experience of working with family businesses.
 He was actively involved in strengthening family bonds and teaching the
Rao family skills for managing interpersonal differences.
 During meetings among the family members, he would sometimes push
them to answer uncomfortable questions, such as: ―Which comes first:
business or family?‖
 His role was to collaborate with P.M. in fostering family governance, as
well as establishing the family office.
 According to Sastry, ―Wealth management for the family was still not very
well-organized. It needed to be streamlined and all the functions of
family office needed to be brought under one roof.‖

20.  Throughout this process, family members never felt that they had done
enough collective development to emotional bonding, togetherness,
healthy relationships and conflict resolution.
 The founders business office team had identified training programs and
mentoring sessions for the third generation and suggested courses and
programs they could undertake as they matured, keeping in mind
emerging leadership requirements for the business and family.
 In April 2007, the counselors included an American-based leadership
expert and coach, an organizational psychologist, an emotional
intelligence expert and a spiritual-behavioral coach.
 All were engaged to help the family maintain mature and positive
perspectives and develop emotional intelligence, openness and
constructive communication skills in order to foster bonding in
relationships, which was crucial to practising the values specified by the
constitution.

21.  the family‘s male members felt that outside help would benefit
the family because all four of them were aggressively pursuing
business growth and spent very little time together or with the
family.
 The facilitators drew up individual development plans with
emphasis on developing competencies, behavioral skills and
spiritual intelligence.
 The family focused on team-building, cohesiveness and personal
development plans.
 The family had clearly benefited yet Rao planned to reduce the
family‘s dependence on such experts.
 In 2008, the family was planning to organize a series of training
programs on managing differences or conflicts of interest, with
the implication that the family members would become more
skilled in engaging in a meaningful dialogue without outside
help.

22. As a final thought, Rao added:
My journey over the last 35 years has been one of continuous learning
experiences based on family values and beliefs:
• as a student, I was a student leader;
• as a trader I learned the basics of the business;
• as a banker I learned the importance of cash management;
• as an industrialist I discovered the importance of managing
relationships with my stakeholders, delivering on promises and
building teams.

23. THE FUTURE OF GMR
 Rao stated, ―Writing the family constitution was an arduous
challenge, but practicing it in its entirety would be the real
test.‖
 He had instituted clear governance practices and had
completed the constitution during his lifetime, but whether
or not Rao‘s children and grandchildren would uphold the
family‘s values and remain as committed to the constitution.

24.  The speed and intensity with which Rao had created structures and
systems in the family were considered, several new concerns emerged.
 For example, maintaining role clarity for individual members was not an
easy task.
 The family planned to move out of operations and restrict themselves to
strategy-making in the long run
 Their desire for growth and the external pressure to sustain their track
record of performance would require all the male members of the family to
continue to be deeply involved in business, leaving limited time for family
governance matters.
 Would they be able to find a true balance between work and family life?
 Would all of them deliver value equally as per the expectations of other
stakeholders, without creating any sense of division between sons and son -
in-law?
 Overarching these concerns was Rao‘s wish that GMR would continue its
strong performance fueled by a happy and collaborative family well into
future generations, even as India‘s economy became increasingly complex
and competitive.

25. ELEMENTS OF THE
FAMILY GOVERNANCE
SYSTEM

26. FAMILY COUNCIL
 At GMR the family council composed of the four male
members and their wives.
 Primarily responsibility of the council was to develop
responsible business stewardship among shareholders.
 The council met very two months.
 The council appointed family advisors.

27. FAMILY BUSINESS FORUM
 The FBF served as bridge between the business and the family.
 In 2010, the FBF included only the male family members.
 The FBF met at least once in every two months.
 It also determined the dividend split between the family fund
and trusts.

28. NON-BUSINESS FAMILY FORUM
 The NBFF was run by the women of the GMR family.
 Its purpose was to strengthen family members relationships.
 It met every two months with pre-established agenda and
recorded minutes.
 All decisions made in this forum were consensus-based.

29. FAMILY VALUES
 The constitution indicated eight family values.
 Humility, entrepreneurship, trust and faith and managing
differences formed core values.
 While the remaining four values were viewed as operating
principles.
 The family also collectively established several principles to
be respected by all.

30. FAMILY CODE OF CONDUCT
 There were specified principles and procedures.
 All differences were to be resolved within 72hours of the
beginning of an incident.
 If the incident were not resolved, an internal/external
facilitator would assist the concerned parties.
 The GMR family had decided to separate the family leader‘s
role from that of the business leader.
 All meetings were recorded on video for prosperity.

31. FAMILY FUND AND RELATED
ENTITIES
 A family fund was to be established to maintain financial
equity among family members.
 The fund was aimed at meeting essential security and
development needs, with separate sub-funds for each.
 The family fund was to be funded by a certain percentage of
dividends of the holding company and income of certain family
assets.

32. SHARE OWNERSHIP AND DIVIDENDS
 It was decided that the holding would remain private.
 Four discretionary trusts were created for the four family
branched.
 Sale of shares outside the family was prohibited.

33. FAMILY RETREATS AND FAMILY
ASSEMBLY
 It was organized once or twice annually.
 The whole family was encouraged to gather to celebrate
various festivals.
 A family assembly was to be held once annually.
 The assembly was not instituted for the current generation.