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BW Businessworld

Hamara Bajaj

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Mumbai's Marine Drive is unusually cold after the sunset on 27 November. The usual crowd that throngs this promenade along the Arabian Sea is thinning for the night. The sea waves have calmed down to a low tide. But Bajaj Auto chairman Rahul Bajaj's sea-facing 13th floor flat in the plush NCPA Apartments across the road is buzzing with activity. The entire Bajaj clan comprising about 25 members has assembled to celebrate the wedding anniversary of Rahul's only sister, Suman.

The Bajaj family, which has been in business for over eight decades, never misses an opportunity to come together — whether it is for a cruise in the Bahamas or for celebrating Diwali in Pune. The fourth generation, including Rahul's two sons Rajiv and Sanjiv, are rare visitors on such occasions as they are mostly tied up with their businesses — auto and financial services, respectively. But this time round, both of them are in attendance too.

"We are a close-knit family. At least we four brothers meet regularly to discuss both family and business," says Niraj, the youngest in the third generation headed by the septuagenarian  Rahul Bajaj. Joint family is a feeling, says Rahul. "We brothers share a warm relationship and common values, though we no longer stay together. We help each other in crises," he says. Even though Rahul refers to Shekhar, Madhur and Niraj as brothers, they are actually cousins. His blood brother Shishir exited from the group in 2008 after a seven-year-long public spat. He now heads sugar maker Bajaj Hindusthan and FMCG firm Bajaj Consumer Care.

Click here to view enlarged imageNow, as executive control of businesses is moving into the hands of the fourth generation while the fifth generation is growing up, the  Bajaj clan is emphasising on these joint celebrations even more (many in the clan attended Niraj's daughter Kriti's graduation at Stanford in the US last year). The reason being that all empirical evidence suggests that family businesses are prone to parting ways by the second generation, and that their probability of splitting goes up to as high as 90 per cent by the third generation.

While the Ambanis, the Thapars and the Modis split in the second generation, the Birlas parted ways in the third generation. The Bajajs have already gone through the Shishir split. Can the rest stick together?

Life As We Know It
To avoid conflicts among family members in running the business, the elder Bajaj has given management control of each of the companies to his cousins as well as his sons. Shekhar and his son Anant manage Bajaj Electricals; Niraj controls specialty steelmaker Mukand; Rajiv is in charge of Bajaj Auto and Sanjiv heads Bajaj FinServ. Madhur is the vice-chairman of Bajaj Auto, but he prefers to stay away from management responsibilities.

"For retaining independence and individuality, we separated the management control of each company," says Rahul. In May 2007, he separated the financial services division from Bajaj Auto and handed over its responsibility to his younger son Sanjiv, an MBA from the Harvard Business School, even as his elder son Rajiv, who has a Masters in manufacturing systems engineering from the University of Warwick, continued as managing director of Bajaj Auto. While Rahul Bajaj claims this was done to unlock shareholder value, many believe it was to avoid conflict between his two sons, both of whom are very individualistic. Admits Sanjiv: "Complexity of the multiple businesses in Bajaj Auto created the need for separating the financial services…. Also, that created an opportunity for both of us to manage independent entities."

 NOW TO A FOUR-WHEELER
Rajiv Bajaj (BW pic by Satheesh Nair) "We are not going to go into car-making. Bajaj Auto will make a four-wheeler from a common platform of a three-wheeler and a four-wheeler," says Rajiv Bajaj, managing director of Bajaj Auto, which has only produced two- and three-wheelers in its more than four decades of existence. The passenger carrier could be called a van or a car or a jeep, adds Rajiv. Experts say it would be multiple products from the same platform.

The product, the brand of which is yet to be decided, is under development in Bajaj's research and development (R&D) centre at Akurdi in Pune. Bajaj plans to spend about Rs 500 crore on developing the four-wheeler and on setting up a factory near the existing plant at Chakan in Pune.

The initial planned capacity is 400,000 units a year and the vehicle will go on sale in 2012 as scheduled, says Rajiv.

According to an earlier plan, Nissan and Renault were joint venture partners in the project with 25 per cent stake each. The plan was announced in May 2008 by Rajiv and Carlos Ghosn, chairman and CEO of Renault and president and CEO of Nissan. But the original plan underwent a change when Bajaj Auto signed a memorandum of understanding with Renault-Nissan in July 2010.

Under the new structure, Renault-Nissan would be marketing and distribution partners, and would not have any stake in the project. "The project is fully owned by Bajaj Auto," says Rajiv. "The entire design and development is done by us. Nissan and Renault are not equity partners. Their part is to sell the product in some markets under the brand they decide. Bajaj Auto will decide our brand and sell in some specific markets. Essentially, we are like original equipment makers."


Even the senior Bajaj advocates separate management of each business. He explains, "We are not in each other's hair. We are not stepping on each other's toes." As a result of the separation, each Bajaj Group business can stand on its own.

Shekhar's son Anant is in charge of Bajaj International, which looks after the export division of Bajaj Electricals. He is also the executive director of the electrical business. "We have the independence of taking decisions at the company level after consultation with the board members. That is essentially what management control means," says Shekhar.

As of now, only Niraj's son Nirav is not in business. "He is just 19 years old. But he will join the business 5-6 years later. As per natural evolution, he will be involved in Mukand steel. But if he wants to work in any other firm, he is free to do so," says Rahul.

Click here to view enlarged imageMadhur has two daughters — Neelima and Nimisha. Neelima looks after the small-scale travel agency business of the group — HMA Way, while Nimisha is helping her father in his own real estate business — Emerald Acres.

Cross-holding Conundrum
The question is: is management control enough to avoid future conflicts? Or, should the Bajajs find methods to disentangle their complex cross-holdings?
K. Ramachandran, professor of  entrepreneurship, family business, and strategy at the Indian School of Business, says, "Cross-holding per say is not a problem as long as the companies are run by professionals. But the cross-holding and involvement of family members in the management is a trouble-creating combination."

To avoid conflict in the joint family over stake, it is ideal to disentangle the cross-holdings during the time of a strong leader. "Doing this will attract tax, but is still preferable," Ramachandran says.

In Bajaj Group's present situation, self governance of companies and appointment of strong independent directors on the Board would help, according to Ramachandran. "There have to be agreements among family members about sale of shares to outsiders. Typically, the first right of refusal remains within the family. Also, it is important to reward individuals for their performance and treat dividend separately. It all boils down to the quality of relationship and governance within the family, which influences practice of such understanding," he adds.

 BANKING DREAMS
Sanjiv Bajaj (BW pic by Satheesh Nair)Bajaj FinServ, the financial services company of the Bajaj Group, is eager to get a licence to launch a bank in India and is waiting for the final guidelines from the Reserve Bank of India (RBI) on new banking licences.

"The access to the public deposit is the major attraction in banking. The liability part will be taken care of by the deposit. In the next 20 years, there will be tremendous need for banking in the country," says Sanjiv Bajaj, who took over as the managing director of Bajaj FinServ in 2008 after the demerger of Bajaj Auto. He adds that it takes about 10 years to build a bank.

Bajaj FinServ is a zero-debt company and has idle cash of Rs 800 crore, which it would like to utilise along with other resources to venture into the banking sector.

Moreover, at present, non-banking financial companies, or NBFCs, have to comply with fewer norms than banking institutions. This freedom allows them to grow faster. "Getting a banking licence is clearly a positive step for what we are doing," says Sanjiv. "With the present expertise, we could (also) foray into markets (identical to) India. The value that we create here, can be replicated there."

In Bajaj family's businesses, every member has a stake. The group's founder Jamnalal Bajaj had handed over his business to his two sons — Kamal Nayan and Ramkrishna, leading to equal stakes among them. Kamal Nayan's two sons — Rahul and Shishir — shared his 50 per cent stake and Ramkrishna's three sons — Shekhar, Madhur and Niraj — equally divided their half. When Shishir left the group, Rahul bought his brother's stake in the group companies. Though he exited from the group, Shishir and his elder son Kushagra continue to share office space in Bajaj Bhavan at Nariman Point in Mumbai, along with the other Bajajs.

At present, the Bajaj Group, which employs almost 50,000 people, consists of eight listed companies and two unlisted joint-venture insurance companies. The aggregate turnover of these 10 companies in 2009-10 was more than Rs 33,000 crore, with a profit of about Rs 4,000 crore (see ‘Group Performance' on page 38). In the 18 months till November 2010, the market cap of the listed Bajaj group companies increased by over five times to nearly Rs 70,000 crore, thanks to Bajaj Auto and its popular motorcycle brands, Pulsar and Discover.

The joint ownership by family members is largely through investment firms such as Bajaj Sevashram, Jamnalal Sons, Bachhraj & Co, Bachhraj Factories and Baroda Industries. Also, the family is creating wealth through private trusts and partnership firms. Niraj, who is in charge of investment firms, manages the family wealth and controls charitable trusts.

Does it mean the spats and splits may have ended with Shishir? At least the spats haven't. For instance, of late, Rajiv Bajaj has been vocal about his philosophy that the Bajaj brand (being used for products ranging from hair oil to fans and two- and three-wheelers) has become diffused. As a result it does not stand for anything. He proposed that every group company create its own brand such as his Pulsar and Discover and vacate the Bajaj brand. The proposal was publicly disposed of by uncle Shekhar who runs Bajaj Electricals.


That leaves Bajaj watchers wondering whether the clan can stay together — post-Rahul. His charisma and larger-than-life figure in the industry and political spectrum (he was a Rajya Sabha MP between June 2006 and July 2010 though he is not associated with any political party) would be tough to match up to for his successor. "What will happen after you?" people ask Rahul. After a few seconds of silence, he responds, "Shekhar, Madhur and Niraj are the next eldest." Perhaps. And if it does stick together, this family would be an exception rather than the rule. Yet, given that most in the next generation, such as Rajiv and Sanjiv, have carved out their own identities and run their organisations independently with least interference from the third generation, this could well be the big challenge for the next leader.

But what will happen after that? It is hugely debatable whether the fourth generation will accept the eldest of their lot, Rajiv, as the head of the family, largely because of his individualistic personality.

Rajiv will need the support of the family to become the head of the group, especially from brother Sanjiv and cousins. "In future, the joint family's bonding may dilute to the level of business arrangement," says a corporate dispute mediator on condition of anonymity.

The Might Is With Me

Rahul and family, though, have the advantage of having a bigger say in the group. Having bought out Shishir, Rahul now owns roughly half of the entire group, while his three cousins own the rest between them. Rahul's share will go to his two sons while the cousins' progeny would get a stake further split from their smaller shares. That puts each one of them on a weaker wicket than Rahul's family.

The other major advantage going for Rahul's side is the growth momentum and profitability. At least 85 per cent of the group revenues and 95 per cent of net profits are contributed by businesses directly controlled by Rahul or his sons. The two major businesses the group intends to get into — four-wheelers and banking — would also fall within their ambit. According to experts who track the corporate house, these two dreams will decide the family's fortunes in the future. "Both these projects will open up new revenue streams. The scale of the projects will decide how big the group will be in the future," says an executive with a foreign bank.

So while the cousins would own stakes in Bajaj Auto and Bajaj FinServ through group holding companies, they would primarily be observers in terms of management and strategy.

In the past, too, group companies have avoided each other's troubles in the interest of corporate governance and transparency. Shekhar, chairman and managing director of Bajaj Electricals, recalls the dark days in 2002-03 when the electrical business was deep in the red. "During those tough days, I had to literally meet our bankers with folded hands," he reminisces. Seeing no way out, Shekhar asked Rahul whether the cash-rich Bajaj Auto could help. Rahul declined help from Bajaj Auto, though he offered to sign a personal cheque. "I declined that," says Shekhar.

FAMILY FEUD
(BW pic by Sanjit Kundu)Two years ago, the Bajaj family divided its businesses, and blood brothers Rahul and Shishir parted ways. Three cousins — Shekhar, Madhur and Niraj — stood with Rahul and accepted him as the head of the family. After the split, Shishir and his eldest son Kushagra, brother-in-law of Kumar Mangalam Birla of the Aditya Birla group, got the ownership of sugar major Bajaj Hindusthan as well as of
Bajaj Consumer Care.

It took about seven years to settle the dispute between Shishir and the other four. It was in 2001, in Pune, that Shishir had asked for a separation at a family gathering. The rest of the family had brushed off his demand then, but it came up again months later. Shishir's demand, seen within the family as having been made at the insistence of Kushagra, changed the equation in the family.

According to the grapevine, Kushagra wanted the financial services business of Bajaj Auto after he finished his MBA in 2001 from the prestigious Kellogg School of Management in the US. But that did not happen and he instead got involved with the sugar business. The management control of financial services later went to Sanjiv, Rahul's younger son, after the Bajaj Auto demerger in April 2007. Another version is that Kushagra was over-ambitious and wanted to become a Dhirubhai Ambani overnight. But the family was against his aggressive plans.

The separation settlement (mediated by Nationalist Congress Party chief Sharad Pawar and columnist S. Gurumurthy) was finally reached by the end of December 2008. Shishir acquired nearly 30 per cent stake in Bajaj Hindusthan in over 100 transactions with different family members.

However, despite splitting two years ago, the offices of Shishir and Kushagra continue to be located at the Bajaj Bhavan, where the other family members also sit. The Shishir faction, in fact, owns about 3,500 sq. ft of the building at Nariman Point.



In hindsight, he says, Rahul had a point. Corporate governance and transparency would have been compromised had this happened. "The tough times made me tougher. We reduced inventory drastically. Bajaj Electricals sold a large tract of real estate in Pune to weather the crisis," he says. The steps paid off, and Bajaj Electricals declared a profit of Rs 125 crore last year. A far cry from the loss of Rs 13 crore in 2002-03.

Similarly, specialty steelmaker Mukand, which is managed by Niraj, a former national table tennis champion and Arjuna Award winner, along with the Shah family is now looking to reduce its debt through sale of its 55 acres of land at Kalve in Mumbai for about Rs 500-600 crore. In addition, it has increased its capacity to 500,000 tonnes from 300,000 tonnes with an investment of Rs 400 crore.

Rahul and his two sons operate from a swanky campus in Akurdi, on the outskirts of Pune, where the elder Bajaj had started manufacturing the hugely popular Chetak scooters — they once had a 10-year waiting list! However, after the collapse of the scooter market, Rajiv closed down the plant and converted it into a research and development (R&D) centre, against his father's wishes.

Rajiv, who prefers to move out of the shadow of his father, admits he had differences with his father and brother Sanjiv in terms of business strategy. "There is a saying that under a big tree, only grass can grow. But you cannot become someone's shadow," says Rajiv.

Instead of the family, Rajiv leans on his colleagues to handle high-pressure situations. "I have worked in Bajaj Auto for 20 years. Most of my colleagues, such as Abraham Joseph, Pradeep Shrivastava and Ravi Darad, have been working with me from day one. We are in our 40s now. We all have grown up from young age to middle age together. We have attended each other's marriages. We have faced problems together. I can honestly say that in a way my colleagues are my family," says Rajiv, who recently moved out of the Bajaj family home in Pune and now stays separately with his wife and son.

Experiments With Truth
Though it has been two years since Shishir's exit from the group, the scars have not healed completely. To avoid any further split in the group, Rahul Bajaj, as head of the family plans to form a family council of four-five members. It will be a family council without a legal standing. "We want each company in our group to be professionally managed. At the moment, the head is a Bajaj family member because of his professional competence," Rahul says.

The senior Bajaj says that the family has clarity on how to run the business. Anybody who is not interested in the business can leave it. "If anyone leaves, we will take a professional in his place," explains Rahul.

Despite the efflux of time, the values and ideals of Jamnalal Bajaj continue to be the guiding spirit of the Bajaj group. "We follow the legacy of Gandhiji," says Rahul. "Our founder Jamnalal was a saint. His sons Kamal Nayan and Ramkrishna learnt their lessons from Mahatma Gandhi and Vinoba Bhave." He adds: "I hope the values that my predecessors set out, will exist in the future generations also".

"Even in today's times, the group follows fair business practices," says Justice C.S. Dharmadhikari, the former acting chief justice of Bombay High Court, who has been close to the Bajaj family for over 50 years.

Though the third generation eschewed extravagance like Jamnalal and his sons, there has been a dilution in this quality in the younger generations. Even though there may be no compromise on the core values. Anant, Shekhar's son, says, "We want to do business truthfully. Nobody should point a finger at us. As per family policy, we are creating wealth for the people."

The group spends about Rs 30-35 crore every year on charity. The worth of charitable trusts under the group would be around Rs 4,000 crore, says Niraj. The Bajaj family encourages women, especially the daughters-in-law—Kiran (Shekhar's wife), Kumud (Madhur's wife) and Minal (Niraj's wife) — to involve themselves in charity and corporate social responsibility (CSR) initiatives. Among daughters,  Neelima, Madhur's daughter, is the first woman from the family to head a business.

As the family steps into a new decade, Rahul Bajaj is confident that it can hold together the dreams and aspirations of all its members. If it can, there will be many more family celebrations together. Outsiders hope this isn't the case of one generation praying the bond gets stronger, while the next generation has a mind of its own.

nevin(dot)john(at)abp(dot)in


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