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Why Modis Cannot Afford Another Family Dispute…

The reason why most people say that we should study history is to learn the lessons from it. The Modi family has experienced huge losses that result from conflict. They cannot afford another round.

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In recent media reports by IANS being quoted by various media publications, talks about a recent disagreement in the KK Modi family have been reported.

To understand the background, let us look understand what has been reported. After KK Modi passed away in November 2019,  his wife Bina was appointed as the President and Managing Director of Godfrey Philips. 

The family’s 47 per cent holding is majorly held by a family trust, along with other companies and related persons. Another 25 per cent is held by the other promoter, Philips Morris Global brands Inc., (of Marlboro fame). The trust is also running other companies like Modicare and Indofil Industries Ltd. The current market capitalization would value the promoter’s shareholding at somewhere around 3500 crores.

The first salvo apparently was fired by Lalit Modi, who apparently has made public his wanting to have an asset sale and his displeasure at the appointment of his mother Bina at the helm. He has been believed to have stated that she may not qualified to handle the responsibility and her appointment would destroy value. 

He is one of the trustees in the trust along with his mother Bina, and other family members Charu and Samir, all of whom are against the proposed sale. Lalit Modi cites a clause of the trust deed which calls for a sale of all the assets of the trust fund, in case there is no agreement between the trustees on whether to sell all or part of the family business. Lalit Modi states that this has been approved in the first trustees meeting on 30/11/2019, and the sale must be concluded by 20/11/2020.

To be fair, there is no confirmation or statement from any of the companies or family members and the above statements are based solely on Lalit Modi’s tweets. The news reports do have the drawback that they may contain inaccuracies, but they do indicate that there is some signs of disagreements brewing.

My opinion is that the Modi family just simply cannot afford another battle.

To get a proper historical perspective, the Modis in the 1970s and 1980s were a formidable family business group, dominating the top ten lists everywhere. They have a huge empire with huge cross-holdings in various companies in multiple sectors in the Indian economy. In fact, they had a township in North India housing a few of their plants and employees. They were present in all the major sectors and they had key partnerships and joint ventures with some of the most reputed multinational companies globally. They were a force to reckon with.

Unfortunately, a series of disputes which the lending institutions tried in vain, to resolve, resulting in the group becoming sick. The family members were engaged in various legal cases and Court battles, which apparently drew all their attention. This lack of attention to the business resulted in the companies not being competitive and losing market share to other firms. The losses further aggravated performance and their ability to repay their financial obligations, and along with other reasons was one of the factors causing their downfall. The complex web of cross-shareholdings and management in various firms, lead to disputes of ownership and control. These factors could be resolved satisfactorily, and consequently, resulted in long legal battles.

Conflicts in family, as I have said earlier, are rarely about money. But they arise more from issues like perceived lack of fairness, injustice, ego, prestige, etc. 

Families have to realize that in conflict, it is in their interests to resolve the issues at the earliest and take the hit at one time and proceed to build. Prolonged conflict does not help and only causes bleeding and lack of management attention on both sides, something which is a clear value destroyer. My research into family disputes over the last thirty years shows that such conflict is one of the highest value destruction methods that a family can have.

The reason why most people say that we should study history is to learn the lessons from it. The Modi family has experienced huge losses that result from conflict. They cannot afford another round. It is in their interests to show maturity from experience and step up to resolve this quickly and amicably. Else we may be witness to another saga in the Modi family. Which I hope does not happen.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Dr. Rajiv Agarwal

Rajiv Agarwal is the Professor of Strategy and Family Business at SPJIMR (S.P.Jain Institute of Management and Research)

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