‘Old Boys’ Club’: Indian Businesses Are Keeping Boardroom Positions Within Family And Friends

Traditionally, family business boards were composed of independent directors who were loyal legal and finance professionals as well as retired bureaucrats, all of whom owed allegiance to the business family. More recently, another important trend in board composition and character has been observed: that of other family business members being inducted on the boards.

For example, Tata Sons has TVS Group chairman emeritus Venu Srinivasan and chairperson of the Pirmala Group Ajay Piramal. The Bajaj Auto board includes joint managing director of Apollo Hospitals Sangita Reddy and co-chairperson of Forbes Marshall Naushad Forbes. The Mahindra and Mahindra board boasts of the chair of Godrej Consumer Products Nisaba Godrej and the chief of EID Parry India Ltd of the Murugappa Group, Muthiah Murugappan. Meanwhile, the Pune-based Thermax Ltd has inducted Harsh Mariwala, founder and Chairman of Marico, on its board. TVS Motors in south India has Vijay Shankar, chairman of the Sanmar Group, another important family business based in the south.

While this is only an indicative list, the bonhomie between Indian business families is more evident now. Interestingly, this trend is apparent more among the business families in the western and southern parts of India and not so much in those based in the eastern and northern parts. Crucially, two business groups which have traditionally had a perception of not being high on corporate governance, Reliance Industries and Adani Enterprises, do not have any members from other family businesses on their boards. In fact, that is the paradox of this recent trend: while Tatas, Mahindras and TVS are all known for their high credibility, mature leadership and evolved governance, this trend is seen more in such groups but also demonstrate that they still have some chinks in their armour.

Professor Kavil Ramachandran, senior advisor at Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business (ISB), Hyderabad told The Core, “This is an old boys club phenomenon. There are three shades of corporate boards today: paper boards, advisory boards and active boards like that of Dr Reddy’s Laboratories and Cyient where independent directors are no pushovers.” The implication is that while other family business members do bring some value, there could be potential for back-patting and papering over governance issues due to their familiarity.

Marriages And Social Ties

Rakesh Mohan, president emeritus of the Centre for Social and Economic Progress (CSEP) and former Reserve Bank of India deputy governor, who has been on many corporate boards including at Kirloskar Brothers, argued that the phenomenon was particularly present in India — as compared to corporations in the United States and United Kingdom — where a majority of Indian companies are family-owned.

He added that since many of them are part of the same communities like the Marwaris, Chettiars, Syrian Christians and Parsis, these business families are connected by marriages and social connections. For example, the family business groups of Bajaj and Dalmias are related to each other while the MRF and Muthoot Finance business groups from the south have close social connections. Mohan also alluded to another factor. He said that kings and queens in the UK and other countries in Europe and Burma in the past, and Bhutan today, added a touch of aura to their countries. Could family members on other family boards be like the kings and queens who have an aura around them?

Another reason is that in recent years many family business members have become closer through their business and professional networks like the World Economic Forum, Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI), All India Management Association (AIMA) and the Young Presidents Organization (YPO). For example, while Venu Srinivasan, Anu Agha of Thermax and Naushad Forbes have typically been active in CII, Sangita Reddy is a past president of FICCI. Similarly, Shrinivas Dempo, chairman of the Goa-based Dempo group of companies and Sanjay Kirloskar are very active together at AIMA. In fact, Rekha Sethi, the Director General of AIMA is also on the board of Kirloskar Brothers. Further, many of the business family members in India are members of the India chapters of the global Family Business Network (FBN) and Campden Family Connect where they meet for conferences and other activities.

Pros And Cons

One of the biggest pluses of this development is that in an era of family feuds and partitions, having members from other families help to share insights and best practices that bring on board their wisdom and experiences. For example, Puneet Dalmia, managing director of the Dalmia Bharat group, who is on the board of directors of Piramal Enterprises, brings with him his experience of transforming a conservative business group into a modern, scalable, climate friendly business in cement manufacturing.

At Tata Sons, Ajay Piramal and Venu Srinivasan, even though of high leadership cadre play an outsized role in the critical Audit and Nomination & Remuneration committees. Additionally, Venu Srinivasan is on the board of trustees of Tata Trusts which own 66 per cent share of equity of Tata Sons. Having an arms-length distance between family members of two business groups, especially in critical committees and shareholding trusts would serve the cause of board independence better. The argument is that since other family members on boards would almost invariably have familial and social connect, this should not influence their decisions unduly in favour of the family business owners. Late Rahul Bajaj of Bajaj Auto once told this writer that his board members are mostly “chelas” and that they will always listen to him. While this comment can be attributed to Bajaj’s light-hearted banter, it is also a truism in many family business boards.