SUCCESION PLANNING IN FAMILY BUSINESS THE GENDER ANGLE“THE CASE OF MEHTA STEEL”PRESENTEDBYRANJIT ACHARYVARTIKA SHRIVASTAVASACHIN OJHA
CASE SUMMARY About Rakesh Mehta About Company Group Structure The Future The Probable Successors The dilemma
RAKESH MEHTA From Uttar Prdesh Came to Mumbai in 1971 First job in Iron and Steel as a helper-cum-clerk Learned about inportant traders and consumers of steel market 1975, a broker in steel market 1977, started Mehta Steel Corporation
Mehta Steel Corporation 1977, started fuctioning 1986, Own office 1989, mehta traders was established 1995, got into manufacturing 1996, mehta steel PVT Ltd. As of 2003-04, two steel manufacturing units , capacity of 20000 tons per annum 30 crores sales in 2004-05
COMPANY STRUCTURE• Wife and a friend are directors• Centralized decision making• Need based – lean structure
The Probable Successors Daughters: 3 Oldest married, no interest Youngest in college Second Daughter, interested and pursuing MBA Nephew : with company since 1998, looks after purchase, not professionally qualified nor modern in outlook A technical sound manager from outside
Future of Mehta Co. Rakesh mehta is not preparing any succession plan He is open to discussion He has no gender bias, and is happy if his daughter wants to help him in business activities. But for the moment concentrating on day to day activities… But what if ….???
Various FactorsFavourable Unfavourable Education Stress factor Modern outlook After marriage Support system Male Dominance
FACTS AND FIGURES 11% of 240 all large companies - have women CEOs, according to a EMA Partners. In comparison, only 3% of the Fortune 500 companies have women CEOs. 35% of the women CEOs are also promoters of their companies including 1. Rajshree Pathy – “Rajshree Sugars and Chemicals” 2. Meher Pudumjee -“Thermax”. The other 65 percent are professional CEOs.
SECTOR WISE 54% , in financial services. 1. Chanda Kochhar is the Managing Director and CEO of ICICI Bank, 2. Shikha Sharma heads Axis Bank and 3. Kalpana Morparia is the Country Head of JPMorgan 4. Naina Lal Kidwai occupies the corner office at HSBC Meera Sanyal at ABN Amro. 5. Manisha Girotra heads UBS, Ashu Suyash Fidelity. In the Fortune 500 list, only 7 percent women CEOs are from financial services.
Contd… 11% of the Indian women CEOs are in the MEDIA 11 % IN PHARMACEUTICALS. 1. Kiran Mazumdar-Shaw is the Chairman and Managing Director of Biocon . 2. Villoo Morawala Patel is the Founder, Chairman and Managing Director of Avesthagen. 8% In Consulting 8% In FMCG and Consumer Durables. The big names here are 1. Vinita Bali of Britannia 2. Nadia Chauhan of Parle Agro. 4% In Manufacturing and 4% In It And It-enabled Services. 1. Hewlett-Packard, is headed by Neelam Dhawan.
Women In top position Akhila Srinivasan, Managing Director, Shriram Investments Ltd Chanda Kocchar, Executive Director, ICICI Bank Ekta Kapoor , Creative Director, Balaji Telefilms Jyoit Naik, President, Lijjat Papad Kiran Mazumdar-Shaw, Chairman and Managing Director, Biocon Lalita D Gupte, Joint Managing Director, ICICI Bank Naina Lal Kidwai Deputy CEO, HSBC Preetha Reddy, Managing Director, Apollo Hospitals Priya Paul, Chairman, Apeejay Park Hotels Rajshree Pathy, Chairman, Rajshree Sugars and Chemicals Ltd Ranjana Kumar ,Chairman, NABARD Ravina Raj Kohli, Media personality and ex-President, STAR News
Contd… Renuka Ramnath, CEO, ICICI Ventures Ritu Kumar Fashion Designer Ritu Nanda, CEO, Escolife Shahnaz Hussain, CEO, Shahnaz Herbals Sharan Apparao, Proprietor, Apparao Galleries Simone Tata, Chairman, Trent Ltd Sulajja Firodia Motwani, Joint MD, Kinetic Engineering Tarjani Vakil, former Chairman and Managing Director, EXIM Bank Zia Mody, Senior Partner, AZB & Partners Women CEO’s in india nearly 4 times more than that of the US.
THE DILEMMA INDIA is full of family run businesses – reliance, birla, godrej, tata, hcl, etc… Wrong CEOs have virtually drove companies to bankruptcy. When Rohinton Aga, MD, Thermax passed away in 1996, Abhay Nalawade was appointed his successor. Indian business houses like The Murugappa Group The Eicher Group have demonstrated a high degree of professionalism in this regard.
Companies which have faced Companies currently facing difficulties difficultiesprominent family-owned Tata business houses that got Infosys afflicted by “messy succession issue” include L&T Reliance, Godrej Birla and ITC Ranbaxy groups.
Few Facts In Family Run Business Only 13% of family-run businesses survive till the 3rd generation & only 4% go on to the 4th generation. Additionally, 1/3rd of the business families disintegrate because of generational conflict at the leadership levels. Family disputes and the lack of succession planning has triggered the decline in fortunes of many business families. Traditionally, succession planning has always been a hush-hush affair, clearly depending upon the life expectancy of the founding chairman or patriarch. Succession planning in family-run businesses is generally an intuitive process with the family patriarch taking the decision as to who will take charge of the business empire
PROBLEMS They forget the big picture and stay focused on day to day operations. They have an exaggerated sense of self importance and begin to think they are indispensable. They are poor in building a second layer of management because of an unwillingness to tolerate good people or to delegate. They try to avoid conflict and hesitate to send a clear message who the successor is going to be. They continue to play a role in the company even after the new CEO has been put in place.
THOUGHT PROCESS Is leadership growth keeping pace with business growth? Is leadership development keeping pace with the strategic needs of the organization? Are vacancies in senior management positions being filled up smoothly through internal promotions? Are objective plans in place to identify and develop future leaders?
SOLUTIONS Identify the key leadership criteria and provide support to potential leaders to meet these criteria. Select a few high potential leaders and concentrate the resources available on their development. Monitor the results of the succession planning process at all levels of the organization regularly
Why Go Outside Change of strategy, business models or nature of business that require a significant change from the way the organization ran earlier; No one successor clearly identified; Identified successor not ready; As part of good governance, looking for the best person rather than only from within; and For enhancing the image of the organization by hiring a well-known CEO from outside.
Success The Rahul Bajaj Group headed by Mr. Rahul Bajaj has already divided responsibilties for the group amongst his two sons. The GMR Group has in place a family constitution that details the role of each member in the business. On the basis of performance. From amongst them, the family board, which comprises his two sons and one daughter and their spouses, will elect the successor through a majority vote. The Chennai-based Murugappa group has instituted a rule specifying the retirement age of the group’s chairman, after which he compulsarily retires, making way for his successor. HCL group too saw Ms Roshni Nadar, the daughter of the founder Mr Shiv Nadar, take over as the chief executive officer of HCL Corp, the group’s holding company, in 2009.
Solution 54 – should start planning if not identify. Seek out strengths of all potential successors Have trust and cooperation of board Chalk out a rough draft of succession plan in case of any unfortunate event In case of choosing a successor Involve in day to day activities. Diversify Increase the company market Bring in new talents Make sure successor knows all stages of company divisions