What the Godrej story means for family businesses

Mumbai’s corporate circles have been abuzz over the last few days ever since reports surfaced of apparent differences of opinion within the much-respected Godrej family, one of the best-known business groups in the country. What seems to have surprised India’s corporate sector is that the reports pertain to a family which is revered for the manner in which it conducts itself and is a reference point in good governance practices.

The reports pointed to the development of the large mass of land the group holds as an area where differences appear to have arisen between Jamshyd Godrej on the one side, and his cousins Adi Godrej and Nadir Godrej on the other. Jamshyd is the chairman of Godrej & Boyce, the family holding company, while Adi Godrej is the group chairman and Nadir is the chairman of group company Godrej Agrovet. Importantly, while the group uses a common logo, the managements of Godrej & Boyce and Godrej Consumer Products Ltd (which Adi and his side of the family runs) are distinct.

According to the reports in the media, Jamshyd is not in favour of the large-scale development of the land which Godrej & Boyce owns (around 3,400 acres in all) in Mumbai. However, Godrej Properties, the listed real estate arm run by Adi’s son Pirojsha has been developing the land and paying a portion of the revenue to Godrej & Boyce as part of an agreement. It is essentially this element which is seen as the point of difference between the two sides. External advisors have also been appointed to resolve the issue.

However, a day after the reports surfaced, Adi and Jamshyd Godrej issued a joint statement which said the group had been working on a long-term strategy plan for several years and had sought advice from external partners to help it think through options. This, they said, was normal and a part of private family discussions. This joint statement seems to have settled the matter for now, though corporate circles are keenly awaiting the outcome of the negotiations. Major corporate names like Uday Kotak, Nimesh Kampani, Zia Mody, and Cyril Shroff are being mentioned as those who are helping the family work through this.

The question which the Godrej story brings out is whether this is indeed a “rift”, or do large business families typically need a reboot from time to time not just to keep them relevant but also to make them future-ready. In the case of the $5 billion Godrej conglomerate, the 122-year-old, locks-to-consumer goods-to-real estate group has multiple companies which are helmed by different sides of the family, and the family board will need to discuss options for the future from time to time. Corporate sources who know the family well say differences in how some businesses of the group are run are healthy and are bound to crop up from time to time.

“I think people are making a mountain out of a molehill,” says RPG Enterprises chairman Harsh Goenka, who was himself part of a pact for an amicable separation of businesses with younger brother Sanjiv in 2010. “Differences of opinion on some aspects can always be there and should be there in large family businesses. It is important to settle these differences amicably. In some cases families can always go for external help to settle the issues,” he adds. Goenka says the Godrej family has always conducted itself with utmost dignity, and says the reports about a rift could likely have been exaggerated.

In the context of the developments at Godrej, are there cues for family businesses in today’s rapidly-changing business environment?

Goenka feels there’s no “one size fits all” solution in the case of which route family businesses should take. “While many families will sit together and discuss issues, some will inevitably go for a split. The important thing is to do this amicably and without rancour.”

Harsh Mariwala, who is chairman of fast-moving consumer goods major Marico and had chalked out his own entrepreneurial path away from his family decades ago, says there’s nothing to be surprised if differences surface in business families. “It happens in every business family at some stage. As the next generation comes in, and some views emerge, these things will happen,” he adds.

The key, Mariwala says, is to resolve the differences amicably in a manner that the business is not affected. “Most of the time, the reasons may not even be financial,” he says, adding that multiple, non-financial reasons may lead to differences surfacing in business families.

A banker who has advised several large business families says often the next generation in a business family has aspirations which may not be in line with the existing businesses the family runs. Hence, some are even keen to chart out their own paths. In some cases, families even create new business lines within a group to fulfill the aspirations of the next generation. “The aspirations of the next generation often lead to some differences,” agrees Mariwala. “They come with a different view of things.” Mariwala also agrees that external help is always a good thing if it facilitates a solution within business families. “They can sit together with the family and come up with a solution. That’s very important.”

He says there’s “no right answer” to these things and they will be common occurrences at family businesses. “Sometimes business families can coexist for generations, and sometimes they split.”