Indian conglomerate Godrej is one of the fastest growing companies in the world. David Bain speaks to the Chairman about the family aspect of running the business and why it is growing so quickly.
Paul Polman, the president of consumer goods giant Unilever, regularly visits India. In fact, he has been there at least five times since becoming CEO in 2008.
Polman doesn't go because he loves this country more than anywhere else in the world. Rather, the 51-year-old Dutch businessman's frequent visits to India are a result of the country being at the forefront of the global battle to stay at the top of the fiercely competitive consumer products sector, and of course Unilever. This is because they have a great say.
And it's not Procter & Gamble, Unilever's overall biggest rival, that Polman is most concerned about in India. No, it's a local business. In fact, the company he is most concerned about is a powerhouse, three-generation family-run company called the Godrej Group.
Godrej may be small in terms of revenue compared to the mighty Unilever, but in 2010, the Mumbai-based company had a revenue of 2.5 billion euros, compared to Unilever's revenue of 4.42 billion euros. billion euros, but the company is growing faster than British companies. The Dutch company operates in the country through its subsidiary Hindustan Unilever.
In the three years to the end of 2010, Godrej grew its revenue by 40% in dollar terms, making it one of the top 50 fastest-growing family-owned businesses in the world (see page 33). And last year, Godrej's consumer goods division's sales rose 78%, while Hindustan Unilever's sales rose 12%. To be precise, Godrej does not only earn revenue from shampoo and soap products. The 114-year-old company, which got its start manufacturing locks when India was a British colony, is in many ways a typical Indian family-run conglomerate, with a number of businesses from real estate to precision engineering. It is a company.
Until the early 1990s, exchange controls made it very difficult for Indian companies to expand outside the domestic market. The closed economy has encouraged them to expand and innovate various businesses in the country to earn large profits. This has led to names such as the Tata Group, Reliance Industries, the Aditya Birla Group, and the much smaller but no less important Godrej, becoming increasingly well-known around the world. A family-run local conglomerate was born.
The business is currently run by the third generation of the Godrej family. At the top of its control is its chairman, Adi Godrej. He is generally credited with building the company into the rapidly growing multinational company it is today. Some say he is one of India's greatest business visionaries.
“Adi Godrej's leadership qualities were extraordinary,” said Kabir Ramachandran, a professor at the Indian Institute of Management. “He's a true epitome of stewardship. He's actually a business visionary.”
For Adi, the importance of the family element in running the business is paramount and at the core of its ambitions, which is huge. “We think we can continue to grow at a very fast pace and still maintain family control,” Adi says. “Certainly, we feel we can grow about 10 times in 10 years without weakening the family's control,” he says. If this growth rate is achieved, Godrej will become comparable in size to companies like Tata, Reliance Industries and even Unilever.
The extent to which the Godrej family actually controls the business is difficult to decipher due to the sheer number of businesses that make up the group. Three of his companies in the group – Godrej Industries, Godrej Consumer Products and Godrej Properties – are listed on the Mumbai Stock Exchange. But Adi believes his family probably owns 90% of his business, even after taking into account the public ownership part.
With virtually complete control of the Godrej group of companies, it is not surprising that senior positions in the conglomerate are well-represented by family members. Adi's younger brother Nadir is the managing director of Godrej Industries. Adi's cousin Jamshid Godrej is the chairman of the group's holding company, Godrej & Boyce. Adi's three children all work in the company. Son Pirojsha works as an executive he director in the real estate sector. The eldest daughter, Tanya, is responsible for the group's brand, marketing and media initiatives, while the second daughter, Nisaba, works as the head of human resources and guides the group's corporate and social responsibility. Earlier this year, Pirozhsha was named one of the world's top next generation business leaders. Camden FBSurvey of people under 40 years old.
Ramachandran believes the fourth generation is the future of leaders. “They have all proven to be entrepreneurial leaders in different parts of the organization,” he says. “I don't think there's anything to worry about when it comes to group leadership skills.”
Although family members hold executive positions at Godrej, Adi says two guiding principles at the company help mitigate accusations of nepotism. One is that family members working in the group should have high educational backgrounds, and the other is that non-family chief executives should head most companies in the empire.
“I think it is very important for a large, growing family business to have enough senior professional managers to ensure that the business moves at a planned and accelerated pace,” says Adi. Masu. “Most of our businesses have a tradition of being led by professional CEOs who are not family members.”
When it comes to family education, the Godrej family is very clear. Only the best universities teach. Adi holds a degree in business administration from Massachusetts Institute of Technology. Tanya completed the Advanced Management Program at Harvard Business School, Nisaba received her MBA from Harvard University, and Pirojsha received her MBA from Columbia University.
“We are very clear that family members entering the business must be at least as qualified as the best non-family professional managers,” says Adi.
Adi believes this arrangement will work well and allow non-family senior executives to realize their ambitions within family-owned businesses. Of course, when a business is growing rapidly, the ambitions of non-family senior executives are also easier to satisfy. This is the case for Mr. Godrej. But as any business school professor can attest, it is more difficult to manage harmony between non-executives and their families when times are tougher. Nevertheless, Godrej's ambitions and his location in one of the world's fastest growing economies mean he has to deal with disgruntled non-family business owners. Maybe someday this can be avoided.
But what about harmony between families working within a business? How is that being accomplished now that there are members of her fourth generation in the business?One of the things that impresses people who observe Godrej is that she has been around for 100 years. Throughout history, there has been clear harmony between generations of the family. Looking back at the company's history, there is nothing to suggest there has been any major family rift, at least in the public eye. Now, with a fourth generation of members taking on senior roles, maintaining harmony among the growing number of stakeholders has become even more important for the business.
Mr. Godrej established the Family Council in 2002. This council is held twice a year and is attended by all family members over the age of 18. Families working in the business also meet every Thursday for lunch, presumably to discuss the business issues of the day and come to a common consensus.
Adi will not be portrayed in the softer questions of why the Godrej family was able to manage the family side of the business so well. However, part of this solidity may be understood through their religious beliefs. The Godrej family is a follower of Zoroastrianism. Zoroastrianism, in its most basic form, is a religious and philosophical belief system that teaches that humanity is ultimately good and that this good will ultimately triumph over evil. That's something they will never teach you in business school.
But Adi may want to emphasize the secular prophet when it comes to business. At the top of his list are the late Steve Jobs and former General Electric CEO Jack Welch. His selection of two leaders who have pushed the boundaries of global business may give some insight into his ambitions for Godrej.
As India's economy opened up, Godrej expanded overseas accordingly, acquiring companies in other fast-growing emerging markets that Adi believed were the best opportunities for the future of the business. It recently acquired a hair care company in Africa, and last year acquired companies in Nigeria, Indonesia and South America. Currently, around 30% of the group's revenue comes from outside India.
The family talks about Godrej being a mini-Unilever, or a Unilever for emerging markets. “About 500 million Indians already use our consumer products every day, and another 50 million to 100 million outside India,” says Adi. “This puts us among the top five companies headquartered in developing countries in terms of the number of consumers we serve.”
What is certain is that the family business has no shortage of capital to realize its ambitions. The group has little debt and owns vast tracts of land potentially worth billions of dollars in Indian business capital.
So what are the challenges for Godrej?
Observers say that despite the fourth generation's obvious leadership skills, no clear successor to Adi has been chosen. “He will be difficult to replace because he has so much influence in the business,” said a close observer. “As Mr Addy approaches 70 years of age, the pressure to name his successor is reaching critical territory.”
When asked about his successor, Adi did not name a successor. But is it one of his daughters with the educational background and obvious ability to run a business that his father recognized? If so, this would be a first. So far, no woman has run a large family business conglomerate in India.
Either way, one thing is clear for Addy. “I expect the chairman of the group to always be a member of the Godrej family,” he says. Given the family's success in managing relationships with themselves and non-family business owners, few may challenge Adi's assumptions.
