Business lodestar. The Godrej group playbook for an amicable split

Late in the evening on April 30, one of India’s oldest family-owned businesses, the Godrej group, said in a statement, “The Godrej family today announced an ownership realignment of their shareholdings in the Godrej companies. The realignment has been arrived at in a respectful and mindful way to maintain harmony and to better align ownership in acknowledgement of the differing visions of the Godrej family members.”

That last sentence is what stands out, particularly the words “respectful and mindful.” In corporate India, family business splits are usually accompanied by ugly public squabbles, legal wranglings that go on for years and all-round acrimony. The Ambani brothers in 2004, the Ranbaxy brothers in the 2000s, Amarchand Mangaldas & Suresh Shroff & Company in 2015, the Singhanias, Kirloskar group, the Mafatlals, tussle between Onkar Kanwar and Raunaq Singh over control of Apollo Tyres, the Bajaj group, to name a few, are cases of family splits that were carried out in full public glare

The Godrej group family realignment was in the making for several years before reaching a conclusion last month, but nowhere was there a whiff of animosity among the family members – at least nothing that was expressed overtly and found their way into the media. That in itself makes for a refreshing change.

“The division itself and the perceived brand value could have been a huge bone of contention,” says Tulsi Jayakumar, Professor, Finance & Economics, Executive Director - Centre for Family Business & Entrepreneurship, Chairperson, PGP in Family-Managed Business, SPJIMR. “As such, the split along the unlisted enterprises and the listed industries group in itself is very interesting and heartening.”

The Godrej Group

The 127-year-old group, had its beginnings in 1897 when lawyer-turned-serial entrepreneur Ardeshir Godrej, struck by the rising incidents of burglaries in Bombay saw an opportunity in making ‘unpickable’ locks.

The group now has a sprawling empire spread across consumer goods, real estate, appliances, engineering, agriculture, chemicals, technology, and pharmaceuticals. The Godrej brand comes with a certain amount of trust and reliability.

Founder Ardeshir did not have any children. His brother Pirojsha Godrej had four children Sohrab, Dosabai, Burjor, and Naoroji. Burjor had two children – Adir, the chairman emeritus of the Godrej group and Nadir Godrej, the chairman and managing director of Godrej Industries, Godrej Agrovet and Astec Lifesciences. Naoroji had two children Jamshyd Godrej, managing director of Godrej & Boyce and Smita Crishna-Godrej.

Adi Godrej has three children – Tanya, executive director, and chief brand officer of Godrej Industries, Nisaba, the executive chairperson of Godrej Consumer and Pirojsha, the executive chairman of Godrej Properties. Jamshyd has two children and Smita has two children including Nyrika Holkar, who is the executive director of Godrej & Boyce.

Who gets what

“All settlements involve determination of financial worth of the business or businesses. It is never easy, and large, multi-divisional conglomerates find it more difficult,” says Prof Kavil Ramachandran, Senior Advisor, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business. “It is all the more challenging if the number of family stakeholders is large and that too with a lot of cross interests in ownership and management,” he added.

The Godrej family has taken that challenge head on and managed the split in an equitable way.

According to the announcement made by the group, the Godrej Enterprises Group (GEG) — comprising Godrej & Boyce (G&B) and its affiliates — will now be controlled by Jamshyd Godrej, Chairperson and Managing Director, Nyrika Holkar, Executive Director, and their immediate families. This group has interests across multiple industries spanning aerospace, aviation, defence, engines and motors, energy, security, building materials, construction, green building consulting, EPC services, intralogistics, healthcare equipment, durables, furniture, interior design, architectural fittings, IT, software as well as infrastructure solutions.

Godrej Industries Group (GIG) will have Nadir Godrej as Chairperson and will be controlled by Adi Godrej, Nadir Godrej, and their immediate families. This group has all the listed companies including Godrej Industries, Godrej Consumer Products, Godrej Properties, Godrej Agrovet and Astec Lifesciences.

The listed companies have a combined revenue of $5.3 billion and market capitalisation of over $30 billion.

Split rationale

The intent to prevent disharmony among the family members is clearly spelt out in the purpose of entering into the agreement. “To preserve mutual respect, goodwill, amity and harmony and to manage diverse expectations and varied strategic directions desired by each family branch…”.

The agreement also takes into account that the older and younger generations may have different interests and way they want to drive the future of the group. “The third and fourth generations of the family branches have diverse interests, and varying perceptions as to, amongst others, the strategic direction, growth and governance of the various entities of the Godrej Group…”.

There is an elaborate non-compete agreement and use of the Godrej brand to prevent differences cropping up in the future.

Prof Ramachandran points out that family businesses like Godrej and TVS have encouraged family members to be actively involved in operations from early on, partly to exploit emerging new business opportunities and partly to make sure that the family had a close say in the functioning of all key businesses.

Family businesses typically tend to be family first or business first firms, where the prevailing logic is either the family or the business respectively, says Jayakumar. “The Godrej split is a testimony to the strength of a family business first approach. The intent here is to preserve the family - its identity, reputation, and legacy, while at the same time balancing the business interests,” she adds.

The split also ensures that neither group will have any board representation in the companies of the other group while neither group will have any special rights with respect to the other in terms of appointment of directors or subscription to shares issued.

The Godrej group owns vast tracts of land in Mumbai, especially in Vikhroli, where the headquarters of the group is located. Over 3,000 acres of land is held by Godrej & Boyce and there is an existing land development agreement with Godrej Properties. This development agreement between the companies has been left undisturbed.

Noting the ease with which Godrej and the TVS group arrived at an amicable family arrangement, Ramachandran said it took several years for them to arrive at a solution.

“Sometimes, after prolonged negotiations, fatigue sets in when people will resort to sub-optimal solutions or legal recourse. Hence, quality of maturity and respect family members show for finding a solution is critically important.”

Many Indian business families flounder when the original promoters grow old and have omitted to put a robust succession plan in place. The Godrej family split has taken care of this putting Pirojsha and Nyrika directly as the next generation leaders who will take over.

“Indian family businesses need to learn about succession and a peaceful transition to the next generation from cases like the Godrej Group, since India has the third largest number of family businesses in the world,” says Jayakumar.

Acrimony and legal disputes have the power to destroy much of the shareholder value and wealth in India.

(With reports from G Naga Sridhar)

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