Asian Paints' Jalaj Dani Resigns After 18 Years
What Does Asian Paints Jalaj Dani’s Resignation Reveals About Family Businesses In India
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After spending 18 years with Asian Paints, Jalaj Dani, the third generation family member, resigned on 18 April, 2017, as he is planning to setup his own business. He was the President - Human Resources, Supply Chain and Chemicals, and was one of the members of the founding families. Dani was the public face of the company, having contributed to the success of the company.
There are also reports that his position could have been the end of the line for him, since the families have an agreement to appoint a non-family professional to the top position of managing director. This is a unique case where a qualified family member is forced to leave his family company because there is no scope for him to occupy the top position, which has to be occupied only by a non-family member professional!
Asian Paints is the market leader in paints in India, (Market cap $150 billion, Revenues $2.5 billion for the year ended March 2016). It was founded in 1942, and today has three of the four founding families holding about 47 percent of the company after the exit of the one family in 1997. All three families are represented on the Board.
While there is speculation on the reasons for the exit, the question that arises for larger business families is, should the family be in the business? And secondly, when should the family members not be in business? And thirdly, when can a family member leave the family business?
Should the family be in business?
There are plenty of examples of Indian families’ next-gen not joining the family business. There is enough research to show that the second generation led family businesses do not do as well as professionally led companies. So, the question arises that should the family be in business in the first place? What does the family contribute to the business?
Traditionally, families provide the patient capital, long term orientation, stability and assurance to the external stakeholders that the business will adhere to the values that the family stands for. And these are a great deal of comfort to those dealing with the family firms.
This is especially true in those environments where institutions are absent, or are not yet trustworthy as in developing countries with weak rule of law. It has been also shown by earlier research by Khanna and Palepu that family businesses have stepped in, to fill these institutional voids. Additionally, well established families have also contributed to the well-being of the communities that they operated in, to provide philanthropic benefits. Hence, there is a significant role for the family in businesses.
When should the family not be in the family business?
The next gen may have pressure due to the expectations for them to join the family business. Quite often, they join only to regret the decision later. So this is clearly one instance when they should not join. There have been numerous cases of next-gen successors not joining the family business but using the opportunity to excel in other areas of their interest.
Another case would be, when the business is doing well and the additional family members may not add value to the business. This would help the longevity of the family firm, if it is already well run and there is already a professional management in place. There is often pressure on the family to include the next-gen into the business but this temptation should be resisted.
The other case for not joining is when the family member is not qualified. I have had many debates from the patriarchs who insist that the business exists for the family members, but the result is usually the business collapsing with the family being mere spectators.
This is the reason some families today have laid down qualifying conditions for entry by the next generation members, which includes education and professional employment outside the family firm. The family has to decide the rules are and induct the family members based on capabilities and talent, rather than just by birth. Secondly, defining these capabilities earlier would avoid any conflicts later.
There are also examples of family members who choose not to join the family business, and follow their interests, funded by the dividends from the cash-generating professionally- managed family firm.
When should a family member leave the family business?
This is perhaps the toughest decision to make. Most founders would probably feel, never. But there is a strong case for inducting fresh thinking to take the businesses to the next level. New management would bring new ideas, energies and thoughts which could be invaluable for the company to face the newer challenges.
A family business founder explained his stepping down “When you realise that there is someone else who can run the business better than you can, then it is time to step down and hand over the business to him to run”.
The old guard stepping down, also signals to the organisation a time for change and renewal. This would help the company face the newer challenges, which the old management may not be the best equipped to face. Having an active board, comprising of independent experienced people, including family members, who can fix and implement limits of age or tenure for key operational roles would help. This is perhaps the most difficult step of all.
In conclusion, families today face the eternal conflict between considering the interests of the family against the interests of the business. Though family members play an important role in ensuring that the businesses espouse the values and direction set by the founding family, they also need to realise that their abilities can only take the business thus far.
And there is a time that they have to step down in favour of professionals to run the business. Sometimes the best contribution a family can make, is not to get operationally involved in the business at all! The business has to survive, and that offers the best chance for the success of the family.
And this fact is often forgotten by most families. By stepping down in spite of a stellar track record, and leaving a professionally run, extremely successful firm for professionals to run, Jalaj Dani has kept the interests of the company first. He may have sacrificed his own interests over the family best interests, and in doing so, exhibited a rare maturity that family business families worldwide can perhaps learn from.
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