Ogg School of Ogee KELI21 JOHN L, WARD The Murugappa Group Centuries-Old Business Heritage and Tradition Alll embraced the Murugappa family culture, an amalgam of respect for the elders, traditional values, and modern professionalism." —AMM (1918-1999), second generation, family elder and kartha from 1965-1999, family business leader from 1965-1983, The important thing is to be flexible, just like a tree. There are heavy winds: there are storms blowing. The trees that are flexible survive. The trees that are rigid do not.* —Murugappan (b; 1935), third generation, family elder and kartha since 1999 My goal was to introduce change without disrupting performance and to create an open culture, I started to bring in this idea of professionalization. I thought, “Let's try to change business thought around here so that there is no more emotional attachment to individual businesses and there is more logic and strategy attachment.”* Subbiah (b: 1939), third generation, family business leader since 1996 With the economy opening up, we needed the kind of input that independent board members offered. A lot of us in the family didn't have wide exposure because we were just running our businesses.* —Venky (b: 1958), fourth generation, active in the family business since 1980 For at least five generations, members of the extended Murugappa family were successful in developing and leading important businesses in India. One of these enterprises, started in the 1910s by Dewan Bahadur,’ continued as of mid-2000 as the family-governed Murugappa Group. It was India’s sixteenth largest business group, with $850 million in sales and 23,500 employees. Headquartered in S. Muthish, Looking Back From “Moulmcin”: A Biography of AMA Anmachalam (Masta: EastWest Books, 2000), 138 (Gorell 440, * Murugappa Group, in discussion wit the autor, 200 Ibid “Ibid * His fll name was Dewan Bahadur A.M. Muruganpa Chetiar (1884-1949), “Dewan Bahadue” was the official ile bestowed upon the founder later i life by the Viceroy of British Indl. I mcans “a great manor distinguished personage who isa steward in charge of snhouse of business “The companys logo isa peacock symbolizing the chariot ofthe family's god and idol, Lord Muruga, sesond son of Lord Shiva, The feathers also represent the Group's many companies. (See Exhibit I: Symbolism ofthe Murugappa Group Company Logo.) {E2008 by the Kellogg School of Management, Nowhwesiem Univer. Tis case was prepared by Reseach Associate Carol Alle ‘Zsolnay’ a Professor John L. Ward, Cases are developed solely asthe hiss (or elas eisession, Case ae nl intnded lo serve 38 endorsements, surees of primary daa, orlustatons of effective or ineffective management, To order copies or request permission to reproduce materials, call 800-545-7685 (or GL7-7E3-7600 outside the "United Sites or Canada) or e-al custservahbsp harvard.edu. No part ofthis publication may be reproduced, stored in aretieval system, used in a spreadsheet, or transmitted in any form or by any means—eleetroni, mechanical, photocopying, rconling, oF oterwise—wihoot the permission of the Kellogg School of ManagementTH MURUGAPPA GrouP KELI21 Chennai (Madras), India’s fourth largest urban center, the Murugappa Group was a loose confederation of seven companies. It was composed of 25 business units in 38 manufacturing locations, spread over 11 Indian states in the fields of abrasives, bioproduets, confectionery, bicycles, steel tubes, chains, roll-formed door frames, sugar, fertilizers, pesticides, mutual funds, vehicle financing, stock brokerage, nutraceuticals, sanitary ware, and rubber, tea, and coffee plantations, Family ownership of the companies ranges from 34 to 100 percent. (See Exhibit 2: Businesses of the Murugappa Group as of 2000.) Up until 1990 each of the seven companies was headed by a family member as CEO. There was no formal interaction among the companies as a group, and only informal consultations among family ‘members. In 1990, with the opening up of the Indian economy and the start of a liberalization process, the family felt it advantageous to become a group in a more formal way, and officially constituted a Murugappa Corporate Board (MCB), composed of family members. MV, one of Dewan Bahadur’s six grandsons active in the enterprise, became Group CEO. His brother, Subbiah, became Group COO. (See Exhibit 3: Murugappa Family Tree Charts.) Family members continued as CEOs of the seven companies and nonfamily members served as presidents of the companies and as the Group CFO. With India’s signing of the World Trade Organization agreement in 1995, the family recognized new opportunities for the Group, such as increased export-oriented activities, and also threats, such as liberal imports. These situations required speedier and more flexible Group business portfolio decisions than could be made when individual family members were emotionally involved in separate ‘business units and focused on their individual company’s day-to-day management. It was hard for the Group to make a business decision to restructure, downsize, or sella division or unit, if that entity was a favorite of a brother or cousin running it. Even when all family members wanted to make positive bbusiness decisions for the Group as a whole, they could not make decisions as nimbly as required in the new faster-paced global economy. In September 1999 ownership and operational management of the companies were separated for the very first time. CEO leadership of the seven individual companies switched from family members, to professional nonfamily managers, all promoted from within, The five family members who had headed the seven different companies moved into a shared office suite at headquarters and became full-time directors of the newly reorganized nine-member MCB. They were joined on the MCB by three appointed independent outside board members and the Group’s nonfamily CFO. Each full-time MCB family board member was assigned three broad strategic tasks for the Group: a functional responsibility across all business units (for example marketing, human resources, technology, or strategy), a mentoring role to the CEO and board of one or more companies he had not led before, and a role as adviser/guide to younger family members working for the Murugappa Group. (See Exhibit 4: The Murugappa Group Governance Structure as of 2000.) The chairman of the restructured MCB was Subbiah. By mid-2000 the Group and family were moving forward with, and adjusting to, the changes in the governing structure. However, Subbiah believed there was still more professionalizing to do to secure the continued success of the enterprise for the family, employees, and community. Subbiah had no time to waste to complete a smooth transition. He was 61 years old, and, if he followed the precedent started by his uncle AMM and continued by his brother MV, he was scheduled to retire at age 65. ‘As Subbiah felt more decisions about business and family leadership needed to be addressed soon, he decided to head 300km further south in the state of Tamil Nadu for a weekend trip to his family’s ancestral home in the village of Pallathur, population 10,000. (See Exhibit 5: Map of the Murugappa Family Homeland.) He hoped to spend time at his family home, as well as at the tenth-century temple 2 KPLLOGG Scit001, oF MANAGEMENTTHe MURUGAPPA GrouP clan and the hospital funded by his family over the past seventy-five years. As he traveled southward, he reflected on the lessons leamed from the family and the business in the past in order to plan with other family members for the future. Family History Dewan Bahadur and his Murugappa ancestors were members of the Chettiar clan within India’s Vaisya caste, Members of this clan were businessmen, historically active in trading, money lending, and banking. (See Exhibit 6: Brief Description of Chettiar Culture.) Nine generations earlier, in the ‘mid-1700s, ancestor Vellayan Chettiar successfully pursued business in these fields. He had five sons who went on separately to build flourishing businesses that became industry leaders in India for generations. His second son, Arunachalam, was Dewan Bahadur’s great-great-grandfather. Arunachalam had one son who, in tum, had two sons. One of these sons had three sons, all of whom worked in the family enterprise.’ The youngest of these sons, born in 1884, was the energetic and entrepreneurial Dewan Bahadur The current family enterprise had its beginning in 1898 when Dewan Bahadur, at age 14, was sent to neighboring Burma (now Myanmar), where he worked a few years as a banking clerk for another Chettiar family business. Two decades later, through hard work, honesty, and savvy business sense, Dewan Bahadur had built a financial institution that was the largest private bank in lower Burma. During the same time period, he married and had a family that included five daughters and three sons—Murugappa, Vellayan, and Arunachalam (AMM)—who were reared back in India by his wife, Valli When Dewan Bahadur’s father died, his will followed the Indian tradition of partitioning the joint family business property and sharing the wealth equally. In 1929, when his own three sons were old enough to work in the family enterprise, Dewan Bahadur started a new tradition and divided up his, family business estate equally, while he was still alive and active in the enterprise, in order to give them all the opportunity to be a family energetically pursuing business together.” Doing so, Dewan Bahadur said, “gave each the confidence that he had a place as an individual in the whole.” This action multiplied the family’s entrepreneurial manpower to maximize opportunities for the enterprise, wealth creation, and family unity. Dewan Bahadur died in 1949, but the groundwork he laid for his family enterprise continued. Prior to his death, Dewan Bahadur also served as his family’s elder and kartha, The kartha system is a unique and flexible Hindu leadership tradition. Init, the kartha is the male family leader in charge of guiding and choreographing the course of the family. Among other things, he is responsible for directing the education and work paths of individual family members. Major family business decisions must also be blessed by him. On behalf of the family, he encourages and utilizes members’ individual strengths and supports weaknesses, even subordinating himself when others are better suited for the leadership of particular tasks and roles. However, when the family is under stress, the kartha serves as a general, around whom family members rally and submit, Until the The business was artanged in a trations Indian way, with only male family members involve, This ita practice that continues tod. "This poicy continues today into the fourth generation, Members af each ofthe original thee branches put up capital equally in new ventures 30 that each ofthe branches stl matntains 33 percent ofthe family contol stock, (See EXMDH 7: Shares ofthe Marugappa (Group Businesses by Generation, by Male} 4M 38 KELLOGG ScriooL oF MANAGEMENT 3