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Business Commentary/Mahesh Nair

How Group of 77 got booted out of Corporate India's hall of fame

Recently, I asked a friend of mine who writes on cricket whether the Board of Cricket for Control in India has a plan for the 1999 World Cup. "World Cup?" he retorted, "They don't even have a plan for the next match!"

Most family-run Indian business promoters suffer from the same disease. Despite mouthing words like Vision 2000 and lining their designer bookcases with tomes on GE's Jack Welch, they have no plan to play their next match in the marketplace.

Like blind men they grope around often falling into professional potholes. When they crash into a lamp post they shriek that the government is building obstacles in their path. When they lose their way, fall sick and fail to make profits, they complain that they want protection and that the multinationals are taking over.

The truth hurts. Most Indian business promoters are blind as bat. They don't know where they are headed. They don't have a clue of what to do.

Let me explain why I sound so bitter. For the past couple of months I have been researching what Indian promoters need to do to fight an MNC takeover. I started with the popular presumption -- a favourite slogan of the BJP Fan Club -- that MNCs, like Godzilla, are crushing Indian firms and chewing them up for breakfast..

That was Falsehood No 1. As of date no Indian company has been forcibly taken over by a foreign firm. Of the 300 plus mergers and acquisitions that have taken place in Corporate India ever since liberalisation, not one has been a case of a hostile takeover by an MNC. Indian firms have, on the other hand, been making merry, launching hostile bids on other Indian firms, like India Cements did successfully on Raasi Cements. But then since it does not involve goras, who is complaining?

The closest Corporate India came to a hostile MNC takeover was when ICI Plc wanted to increase its stake in Asian Paints. One of Asian Paints' chief promoters Atul Choksey wanted to sell out to ICI. But the Foreign Investment Promotion Board, lustily cheered by the so-called nationalists lobby, puts its foot down and ruled that a foreign partner can increase its equity stake only if the Indian partner gives a no objection certificate. That, according to many experts, was the demise of the takeover code for an MNC.

So much for hostile takeovers. But let's get back to the utter lack of vision amongst most Indian promoters.

Until recently, private Indian industry was synonymous with big family-run business houses. If you were to identify corporate India's Who's Who in 1977 it was filled with the likes of the Tata, Wadia, Kirloskar, Godrej, Mafatlal, Shriram, Birla, Singhania, Bajaj, Thapar, Lalbhai, Piramal, Murugappa, Nanda, MA Chidambaram, Goenka, Mahindra, Mapilllai, Rai, Mallya, Raunaq Singh, Oswal, Lohia, Kalyani, Nambiar, Gupta, Munjal, Mehta, Ruia, Jhunjhunwala, Jindal, and Chhabria. Seven out of the top ten companies were run by one of these people.

In 1987 five of the above business families figured in the top ten Indian companies. They were joined by the Ambanis.

In 1997 only one from the Group of '77 made it -- the Tatas. But they too were trailing the Ambanis.

The truth is that post-1977 there has been no worthwhile industrial venture from most of India's traditional business families. New businesses have been grabbed by new players, like Infosys in software, Ranbaxy in pharmaceuticals, Bharati and Essar in telecom, etc. As one respected country head of one of the Big Six management consultant firms in India says bitterly, "Instead of consolidating business ventures and thinking of what to do, some of these traditional family business promoters have been busy fornicating and indulging in internecine affairs, letting their businesses rot."

Consider what a recent IIM-A study reveals. Who has given the investor higher returns in the last six years-the Indian family business corporations or the MNCs? According to the IIM-A research, during 1992-98, the return on the BSE Sensex was 10 per cent. Of the 54 companies that it studied, 10 of the 12 MNCs yielded a return higher then the BSE 10 per cent -- a company like Hindustan Lever yielded 45 per cent, and ITC 32 per cent!

In contrast, only eight of the 42 Indian companies generated more than 10 per cent. Worse, 24 of these companies showed negative returns with the Mafatlals, Shrirams, Singhanias and Birlas leading the pack of losers!

This is what most of India's biggest family businesses have been upto. They have been constantly eroding shareholder value. They have been driving themselves, their industrial units, and those who have faith in them, sick. This is the Great Indian Scam.

Why have they been doing this? Firstly, because they were the Lords of the License Raj. Having grabbed licences, they saw to it that nobody else could get them, even if it was to result in better shareholder returns, industrial growth or global competitiveness. On the other hand, whenever a competitive foreign player would try to enter, the jagirdars of the Indian industry would scream, "The MNCs are going to take us over. They are going to loot the country!"

Secondly most of them had -- and still have-- the mindset of property owners, and not managers. To them running a business basically meant, owning large amounts of land and assets, a big workforce, and flourishing in a demand-economy situation much like the public sector behemoths that Nehru built When market conditions changed, these owner-businessmen didn't. They could never for instance do what Arun Bharat Ram did with SRF Finance or Analjit Singh did with Max Hutchinson Telecom: sell their traditional business, and invest the money in new ventures.

This is why if you look at the Group of 77 industrialists, you will observe that most of their companies are making loses, and that like the dinosaurs they are slowly trudging towards extinction.

But then do you think these owner industrialists are personally suffering? No. They have made tons of money -- all at the shareholder's expenses -- and have crores of bad debt which nobody hauls them up for.

The only vision that these industrialists have is to save their own skin.

Which is why when they talk of what is good for India, I shudder.

When they say the MNCs are a threat, I am amused.

When they claim to know what is good for the Indian consumer, I wince.

Mahesh Nair