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Gmr group family business ppt

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

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Gmr group family business ppt

  1. 1. GMR GROUP
  2. 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. 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. 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. 5. FAMILY TREE
  6. 6.  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
  7. 7.  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.‖
  8. 8.  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
  9. 9. 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.
  10. 10. 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.
  11. 11. 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.
  12. 12. 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.
  13. 13.  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.
  14. 14.  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.
  15. 15.  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.
  16. 16.  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
  17. 17. 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.‖
  18. 18.  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.
  19. 19.  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.
  20. 20. 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.
  21. 21. 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.
  22. 22.  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.
  23. 23. ELEMENTS OF THE FAMILY GOVERNANCE SYSTEM
  24. 24. 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.
  25. 25. 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.
  26. 26. 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.
  27. 27. 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.
  28. 28. 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.
  29. 29. 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.
  30. 30. 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.
  31. 31. 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.

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