Srinath Rajam is a Director at TVS & Sons, Chairman at Kwik Patch, and one of the four sons of the high profile TVS group of companies. The TVS Group is a long-standing family business, running for over 110 years, which has interests in everything from auto components through to finance. Now after over a century in business, the TVS group has decided to amicably separate. Srinath talks about this historical event and how by keeping it amicable, it sets the stage for the next phase of growth.
- "The process of how you manage a company is not taught anywhere; the process for how you manage people is not taught anywhere so these are things you need to learn by watching" - [Srinath]
- "Unless all of us are good human beings, we cannot work in a group" - [Srinath]
- "If the family is not in one piece... the businesses are going to fall apart" - [Srinath]
- "I don't worry about control, I worry about what's best for the business" - [Srinath]
- Srinath is a 4th generation member of the TVS and Sons Family. He talks about a historic date when the family will finally be breaking up the company and separating after 111 years. Unlike many families which split with resentment and animosity, this breakup is rather amicable which sets the stage for growth in the next phase.
- The seeds for the separation started in 1974, although from the onset, at a point when the Founder of the company had his influence waning as a patriarch, there was already a lot of mistrust. It was in 1974 that it became clear that there was no future for the company to continue as one large family which is now manifesting.
- Over the 48 years since the first conversation was had about splitting up, the company has lost opportunities to advance in IT, however, they were able to structure the core competence of the existing companies.
- The first phase was in 1927 when the company became the dealer for GM in South India. The next phase was automotive component manufacturing which continues to be the most profitable aspect of the business. The third phase is a two-wheeler operation, which is the largest and most valuable company. Most recently, the supply chain has also been racked up, which is the TVS Supply Chain.
- About the two-wheeler operation: in 1972, as a young teenager, Srinath had discovered what looked like an electric bicycle which his grand-uncle was creating as a cheap way for people to move around. The engineers had said it would not be possible, but he invested energy, time, and money in it based on his conviction. By 1978, he passed on 10 days before the company was opened. The group was also into all sorts of automotive industries.
- The strategy for the separation was that whoever is managing will continue to look after business till the separation, then the valuation was done in 2014, and the difference would be settled in cash. The Indian legal system encourages families to have such a business understanding, which was not initially accepted by all 64 shareholders but with persuasion, they agreed to implement it. The company also has very strict requirements regarding competence and experience to join in the business such that family members are not guaranteed an automatic seat.
- Some of these requirements for joining the family business include Graduation from an Ivy League school, a minimum of 3 years of work experience outside the family business with no help getting the job. These and more only qualify members to apply, after which a competency board will assign a mentor who looks after the possible future leaders, and then they can grow from there. These new family members entering into the business start with a small responsibility like one of the smaller subsidiaries and are mandated to only report to a professional, not their parents.
- Based on these requirements, most family members are only qualified to apply by their early 30s, which is beneficial for the company because emotional maturity is also critical.
- Although G4 wasn't particularly groomed for management, they intend to identify those things they lacked and make them available for G5. Since the process of managing companies or people is not taught anywhere, G5 has to be properly introduced by participating as observers in top review meetings. Most of the methods and practices being implemented to groom G5 are ideas from John Ward.
- Even though many families apply all sorts of family governance structures, not many are successful, meaning those structures do not guarantee anything. The question is "How do you make this work?". The first requirement is trust; without trust, none of these things can work. Next is transparency, and the third is to be Just and Fair. People working together must be good people who like being around each other. Additionally, fairness, compassion, and carrying people along, have been more efficient than any of these structures.
- To address the issue of power grabbing in the 60s, a change in the business system was made such that no decision can be made without the unanimous consent of the members present. It protected the person managing the subsidiary such that they could not be fired easily but the bureaucracy at the same time restricted opportunities for risk and growth. Hence the success of the group depended on the competence and ambition of the people running each company. However, while the trust was lost and growth was delayed, the companies held on better to funds for reinvestment which promoted overall growth. This however created problems and resentment from the shareholders.
- When John Ward came along, he increased the dividends to the non-working shareholders from 10 to 25%. Dividend taxes were also removed from the income. His approach was to make the family happy knowing that most of their problems could be addressed with cash. Some of the dividends were also used to take care of the educational needs of non-working shareholders.
- The family has about 80 shareholders, and after the break-up, things will fragment, and there will not be the usual large family get-togethers. Nonetheless, there will still be some rearrangement because some of these small businesses will come together to work to be more efficient. The strength of emotional bonds will also determine the interaction between these subsidiaries in the future.
- Unlike the previous structure of the large family where there was no exit clause, Srinath's family business will have one for the shareholders. The company will also take advantage of the newfound freedom from the bureaucracy of unanimous decisions, to take risks and opportunities to grow.
- In Srinath's family enterprise now, G4 members are only allowed to pass the shares to the linear descendants. Spouses, sons-in-law, and other members cannot enter the family business. This doesn't necessarily guarantee any birthright for the G5; some G4 members have donated all their shares to charity. The G5 is guaranteed to get no more than a decent standard of living and good education.
- When it comes to lineage, no differentiation is made between sons and daughters, it is simply a factor of competence. TVS has a balance between business and compassion, rather than overly tilting in any direction.
- Unfortunately, the larger family has never compiled books, photographs, or formally tried to document the family history; this has been a huge disappointment. However, Srinath's uncles tell him not to worry about the past, but to focus on what he can now do in the future.
- The logistics business was a brainchild of Srinath's cousin, Danesh, and started 10 years ago. The business supplies anything anywhere and unlike FedEx, they can design something and assemble it at the destination. The Rajam family only is entitled to the IPO; they are buying out the shareholding of everyone else.
- One of the most important things to imbibe is to be fair and just, whether at work or in personal relationships. It goes a long way to make people trust you and builds the energy of people around you.
- From Srinath to his children: Firstly, be fair and just, be a good person. Secondly, you must add value to the community; do not chase wealth, chase the creation of jobs. Be a positive person always.
- [00:50] Meet today's guest, Srinath Rajam.
- [02:33] What led to this amicable speciation agreement?
- [05:54] What are the main pillars that have made up the conglomerate over the last 100 years?
- [08:02] About the two-wheeler operation.
- [13:50] How have you decided where and how to draw the lines in separating this conglomerate?
- [16:42] What are the requirements for family members to join the business?
- [19:56] Are there comparisons between the success or failure of G4 and that of G5?
- [21:30] Where did the inspiration for this approach towards onboarding come from?
- [23:30] What formal family governance structures do you have in place?
- [26:32] What method hasn't worked well in keeping the family together?
- [34:00] How big was the wider family assembly?
- [37:50] After the split up, will you carry on the current family structures to your Family Enterprise?
- [40:38] How do succession and shareholding occur in your new family enterprise?
- [42:40] How do you view lineage in terms of sons and daughters?
- [45:51] After the separation, how does the thread of family history and storytelling continue?
- [49:22] Discussing the family logistics business.
- [54:40] From Srinath to his children.
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- kwikpatch.com | India — Srinath Rajam is the Chairman and CEO of Kwik Patch (a JV with MYERS Industries, USA) and Director in TVS Mobility .