Strategic Leadership - Murugappa group

Strategy Leadership

International Team:Xiang X, Jan E.A.N, Kamil T, Guang LStefania D V, Charlotte L

Murugappa Group Brief

Evolution of Governance (90’s to 2000’s)

Recommendations for Murugappa

Main Changes to Maintain Group Efficiency

Agenda

• Headquartered in Chennai, India.

• More than 32,000 employees globally.

• Strong alliances with huge international companies.

• Business origins dates back to 1900 when Dewan Bahadur

Murugappa Chettiar established a money-lending & banking business.

• Diversification in the area of business a frequently repeated practice,

with products ranging from bicycles to general insurance to fertilizers

etc.

• Leadership models have changed throughout the times but always a

family-run group.

A brief overview

Global Presence

Ownership structure

USD 4.4 BillionConglomerate

28 Businesses in 22 fields

- Governed by the Murugappa

Corporate Board (MCB), headed

by A Vellayan as its Executive

Chairman.

Group Structure

Abrasive, Refractories, Electro minerals and Industrial Ceramics

Tubes, stripe for industrial and automative

Fertilizers, pesticides & specialty nutrients

Sugar, neem producer

High yielding plantation

Financial services

Special Purpose Grinding Machines and tools

Non-life insurance products

Family Tree

4 Generations

(From 1884-Now)

Leadership (The Kartha System)

Mission & Strategy

As it is a group so there can’t be a single mission that runs through

different companies rather a philosophy that the group basis its

business on: it is an extract from: the ancient Indian treatise on

wealth creation and governance, the Arthashastra:

"The fundamental principle of economic activity is that no man

you transact with will lose, then you shall not.“

If one had to define a mission for the group it would basically be to

become a global group providing diverse types of high-quality

products.

The broader business strategy that has been practiced since the

inception of the business is to continue to diversify, capitalizing on

any slight opportunity that may be present in the market.

Values‘Treat people with respect and concern;Provide opportunities to learn, contribute and advance;Recognize and reward initiative, innovativeness and creativity

Values & Beliefs; Rules• Adhere to ethical norms in all dealings with share holders, employees,

customers, financial institutions and government.

• Provide value for money to customers through quality products and services.

• Treat our people with respect and concern,; provide opportunities to learn, contribute and advance; recognize and reward initiate, innovativeness and creativity.

• Maintain an organizational climate conductive to trust, open communication and team spirit& maintain a style of operations befitting our size, but reflecting moderation and humility.

• Manage environment effectively for harnessing opportunities.

• Discharge responsibilities to various sections of society and preserve environment.

• Grow in an Accelerated manner, consistent with values and beliefs by continuous organization renewal.

• In addition to that the basic rule for leadership in the family is the Kartha: Family’s elder, male family leader in charge of guiding and choreographing the course of the family. The Kartha would be the oldest male family member.





Agenda

Main Financials

Sales Composition PBT Composition

- 2011-2012 EBITDA Growth Achieved: 20%

- 2011-2012 Gross Sales: 22314 Crore India Rupees.

Decision-making Structure

Before 90’s 1990 - 1999

After 2000’s

Family Head (AMM)

Decision MakerSeven Family

Members (CEOs)

Non family members

(CEOs)

Main Business Units

“With governance and mentor from

BOD”

Independent finance, HR, Operation, etc. No information sharing and decision communication.

Evolution from 90’s to 2000’s

1990 - 1999

Limits of decision-making structure

1. No flexible in term of decision making

(slow process in taking decision)

2. Emotion evolved in business decision

3. Family members are focus on individual

business units

4. Limited communication between family

members in term of group business

5. Inadequacy of governance in all business

units

6. Belonging of the family is the condition to

be CEO => not a criteria of performance

7. System of mentor/ the older form the next

CEO => no vision from the outside

8. No share of experience

9. No possible to negotiate the process from

supplier as a group

Murugappa Corporate Board (MCB)Murugappa Corporate Board (MCB)Murugappa Corporate Board (MCB)Murugappa Corporate Board (MCB)

Role of MCBIncrease the exchange ideas, advice and knowledge for their family ownership companies

COO CFOFamily Member

Non Family

CEOConsultant

Non Family

CEOFamily

PresidentNon Family

CEOFamily

PresidentNon Family

CEOFamily

PresidentNon Family

CEOFamily

PresidentNon Family

CEOFamily

PresidentNon Family

CEOFamily

PresidentNon Family

CEOFamily

PresidentNon Family

In 1990, start of liberation process and opening Indian economy, Murugappa family decide to become company as group in formal way.

Governance Structure in 1990

Power path

Career path

PARRY’S Confectionery

MV Arunachaiam

AMM family kartha

Murugappa Corporate Board (MCB)Murugappa Corporate Board (MCB)Murugappa Corporate Board (MCB)Murugappa Corporate Board (MCB)

5 Family member move to MCB from 7 different companies

Director: ReghavanDirector: MastiDirector: Natalies

CEONon Family

PresidentNon Family

CEONon Family

PresidentNon Family

CEONon Family

PresidentNon Family

CEONon Family

PresidentNon Family

CEONon Family

PresidentNon Family

CEONon Family

PresidentNon Family

CEONon Family

PresidentNon Family

VC - Strategy: Algy (Family)

Director - HR: Venhy (Family)

Director – Technology: Murugu (Family)

Director – Marketing: A Vellayan (Family)

Director – Finance: Purtho (Non Family)

Chairman5 Full Time Directors 3 Part Time Directors

Function: External vision from outside

Role of 5 Directors-Functional responsibility for the group-Mentor CEO-Mentor for young family

Non Family CEO: all promoted from within

Governance Structure in 1999

M V Subbiah

PARRY’S Confectionery

(family kartha)





Agenda

Conflicting risks

• MBC and company CEOs: MBC is powerless in

decisions making process

• Shareholder and MBC: rights and

responsibilities are not clear

• Family female numbers and male members:

opportunity not equal

• Company CEOs: fight for resources

Decision to prevent risks

• Non-family professional manager steps up to Group

CEO after Subbiah retire. Build an independent and

effective board of directors

• Set up shareholder board, separate the rights and

responsibility of shareholder board from those of MBC.

Establish a Shareholders' Communication system to

increase transparency and to maximize shareholder

value

• Kartha only acts as a leader inside family





Agenda

Developing a Family Constitution

Why is a written constitution necessary?

- To minimize the potential conflict the Group might face

during generation transaction periods;

- To keep the family’s focus on important strategic

issues;

- To help sustain and grow the Group;

Developing a Family Constitution

What should the constitution focus on?-The Group’s values and beliefs

– as developed in 1987 under the leadership of MV– set to reinforce the family’s input and the kartha’s role;– with regards to business process, customers, employees,

stockholders and business ethics;

- The Group’s strategic goals– namely the governing structure in charge of setting strategic goals

- The Group’s ownership and management by family members

– criteria for transition and succession;– rules regarding salary, benefits and dividend allocation;– decision making;– family meetings;

Thank you !