SHOULD THE BUSINESS HIRE A NON-FAMILY CEO ?

Strategy Leadership

A brief overview• 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.

FAMILY STRUCTURE

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.

Corporate governanceCorporate governance:• The Murugappa Group has a corporate governance policy

that promotes the highest levels of transparency and accountability to all stakeholders. It is a system by which all business corporations within the Group are directed and controlled.

• Corporate governance policy of Murugappa Group includes: An independent and effective board of directors Good audit process and reporting Transparency Participation of shareholders in decision making Maximising shareholder value Meeting social obligations

EVOLUTION…

Decision-making StructureBefore 90’s 1990 -

1999After 2000’s

Family Head (AMM) Decision Maker

Seven 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

Limitations of decision-making structureLimitations of decision-making structure Not flexible in term of decision making (slow process in taking decision) Emotion evolved in business decision. Family members are focus on individual business units. Limited communication between family members in term of group business Inadequacy of governance in all business units. Belonging to the family is the condition to be CEO which cannot be

considered as a criterion of performance No share of experience Not possible to negotiate the process from supplier as a group

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

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

COOCFO

Family Member Non

Family

CEOConsultant

Non 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

PARRY’S Confectionery

MV Arunachalam

AMM family kartha

MV Subbiah

CEO’s are Family Members

Presidents are Non Family Members

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)

S.W.O.T

Strategies

• With the insight that India was moving towards Industrialization, Murugappa group financed their major funds into Manufacturing.

• To enter the business of making abrasives, later on the business was called CUMI and generated $67 million in sales.

3 Methods for Growth

1. Vertical Integration (CUMI became the only abrasives company in the world to be totally integrated from power generation, producing of raw materials to manufacturing, marketing and selling).

2. Acquisition (Cooperative Whole Society and EID-Parry)

3. To enter into business that did not require license ( Started a financial service – CIFCO)

Re-organization Goals• To be more of a group rather than a collection of

entities.• To be more flexible in the make up of portfolio of

businesses.• To have less emotional attachment by individuals

to their businesses.• To shift away from family led units to non-family

led units.• To mentor non-family Managing Directors/CEO’s

for the long-term view.

Group Financials

Group Composition

Blue Ocean Strategy

• Whether to keep swimming in shark-infested waters or in a serene blue ocean?

– Murugappa chose to swim and grow without indulging much into competition

MAIN CHANGES

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

• Shortcomings in Succession Plans

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

HOW TO MAINTAIN A GOVERNING STRUCTURE ON TOP OF A GOVERNING STRUCTURE?

Alternatives:

Alternative 1:Follow family custom, stay as chairman until age 65, and then offer the post to his next-in-line cousin.

Alternative 2:Retire early from the MCB and opt out of the business altogether.

Alternative 3:Step down as chairman before he turns 65, but to remain on the MCB as a full time director.

Alternative 3: Better OptionAdvantages:• Can guide the successor at the initial phase of

chairmanship.• Family will still have control over the business.• Can keep a check on the operations of the

business.Disadvantages:• There will be less influence of the family

members.

Recommendations

• Developing a family constitution• To include female in the family business• Roles and responsibilities made more clear• To decrease bureaucracy and give more powers

to managers • Explore new businesses into new areas, growth

industries• Brings more qualified outsiders• Diversity of employees

BCG MATRIX

Business` UnitsRelative

Market Share (%)

Market Growth rate(%)

Revenue- Net Profit (Rs. CR.)

1 CUMI* 45.493 11.000 148.33

2 CIFCO* 0.013 8.540 0.000

3 Coromandel International Ltd.* 33.986 12.000 403.140

4 E.I.D. Parry (India) Ltd.* 11.960 1.900 148.250

5

Parry Agro Industries Ltd.( tea& coffee industry) 3.115 3.900 104.350

6 Tube Investments of India Ltd.* 6.433 20.000 1208.600

Source• http://www.moneycontrol.com/,• www.ceramicindustry.com/keywords/2309-abrasives• http://www.niir.org/information/content.phtml?content=178

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