NOVEMBER 2012, VOLUME 2, ISSUE 9

A JOURNAL ON FAMILY BUSINESS

TIMES OF ADVERSITY
Family business adept at managing growth in the face of high costs and tight credit flows

GROWING BUSINESS IN

ven as enterprises around the world grapple with the after-effects of the current global economic slowdown, especially in the developed markets, family-owned businesses, which make a substantial part of the overall business world, have indeed performed creditably. A recent study conducted by Credit Suisse and Ernst & Young has revealed that family businesses have outperformed non-family enterprises with many recording strong growth in the last year. The study was based on a survey of 280 familyowned enterprises across 33 countries. The participating enterprises are all members of the Family Business Network International. According to the study, 60% of the family enterprises

recorded revenue growth of at least 5% in the last year. This was mainly seen as the result of the family businesses innate characteristic of maintaining a long-term view on business and investments. The cash flow returns that listed family businesses generated were consistently superior to the wider listed sector. This was borne out by the Credit Suisse Family Business Index that has outperformed the MSCI Global Index by 8% over the past five years. Further, the study suggested that family enterprises were less concerned about the eurozone debt crisis, with only 15% of them citing it as a major business challenge. They were also less affected by the ongoing credit squeeze with the majority of these enterprises maintaining that they have all along enjoyed access to adequate and timely credit. Most family enterprises have a long-term payback approach to investment and focus on internal rather than external financing models to fund future growth. The study pointed out that 40% of the family businesses were prepared to wait up to 10 years for a payback what the research called patient capital. Their strong belief in patient capital comes from a relatively stable global economic environment that spanned nearly two decades preceding the current slowdown. However, as the slowdown continues, many of these enterprises could take a fresh stance on patient capital.

Inside This Issue

FIRST PERSON INTERNSHIP ACTIVITY

PG 3 PG 7 PG 8

COVER STORY

Nonetheless, the long-term approach has helped the family enterprises to stay ahead of the curve. In fact, one specialist family business institute has stated that a recession can be an opportunity for these enterprises to emerge much leaner, stronger, and more capable than ever before. The moot point is whether the emerging and young leadership in family enterprises are willing to adhere to the timetested business approach. Family enterprises pay attention to sweat-equity and low capital. It is very typical of a family-owned business not to be burdened by debt. When tough times hit, the members tend to take a hands-on approach and work harder. At the same time, family enterprises do not allow the economic ups and downs to affect the relationship with their employee. As one expert put it, family business leaders are much more likely to go to the mat for them, using staff cuts as a last resort. The economic downslide is also a time for some businesses to leverage the growth opportunities that exist in certain quarters. For instance, this could well be an opportune time for cash-rich enterprises to buy or merge with distressed competitors, increase marketing and promotion expenditures relative to peers, negotiate favourable terms and conditions with suppliers, reengineer systems and processes in the company, undertake leadership development and improved employee training, etc. Experts have suggested ways to build on the opportunities that a recession presents. Some of them are:  Judicious Management of Financial Resources & Expenditure: Most enterprises tend to cut expenses across the board in times of sustained economic slowdown and market contraction. The thinking is if the revenue growth is flat or going down, the management should reduce the expense line even faster so they can stay in the black. However, 2 CII-FBN INDIA CHAPTER JOURNAL | NOVEMBER 2012

this approach is likely to scuttle current and future growth opportunities. A more judicious approach to expenditure cuts is likely to yield more durable solutions, which many family-owned businesses tend to follow.  Boost Productivity Levels: Enterprises would do well to adopt rigorous HR systems for developing job descriptions, recruiting the right kind of people, hiring them through a highly regimented process, and retaining them over time with excellent compensation, incentives, benefits, and evaluations.  Process Review: A recent report suggested that one of the counter-intuitive benefits of a recession is that an enterprise is not running at 110% capacity anymore, so the management can possibly undertake a review of the operations and take corrective measures. In building the enterprises competitiveness, the next generation leadership in the family businesses could look to their own family history for guidance about how earlier generations managed adversity. This can be done without losing focus on the current growth imperatives. Families that own and operate a business venture during recessionary periods do not lack and are not really affected by the economic downturn. They would still be able to afford basic amenities that make them comfortable and ensure enough savings. They also would be able to lend to other families, thereby, becoming a source of help to others. On a larger plane, families that own their businesses help to get the economy back to normal by generating adequate demand and employment. They contribute to the national income and thereby help the nation through the recessionary period. And when the slowdown abates and growth returns, these very enterprises would be ideally poised to leverage the emerging growth opportunities.

FIRST PERSON

NextGen family business members would do well to gain initial experience by working with other global organisations

EARLY MENTORING
H
By Kanishka Arumugam umata Hukhta Hvaresta Good Words, Good Thoughts, Good Deeds. The Zoroastrian religion lays great emphasis on these values, and the Forbes family adheres to them at all times. This attracted me to Forbes Marshall and the short stint with them has enriched my knowledge and widened my business perspective.

He believes in not chasing numbers but in giving back to society in as many ways as possible. Recently, he undertook a not-for-profit initiative and incepted the Info Institute of Engineering, along with his friends, mainly for the first generation learners of the country. One can have simple living and be content but when it comes to business I believe one should never think twice about making it bigger. And this is what my father and I often argue about. Such exchanges have helped me gain insights into the perceptions and experiences of the previous generation which can be applied in the current business scenario. Last year, after my graduation, I spent time with a few European family owned manufacturers and also had a short stint at Xylem, a non-family owned American company, the worlds largest producer of pumps and systems. Its major competitor is a Danish family owned company. I was awestruck to learn how a family tradition could bloom into a highly competitive business. Now I am with Forbes Marshall in Pune and I am immensely benefiting from the myriad experiences at the company.

I hail from Coimbatore, an industrial and entrepreneurial city in south India, dubbed as the pump city of Asia and widely known for its world class pump manufacturers, textile industry and international educational institutions. The city is also seen as an emerging IT hub. I am fortunate to be a second generation member of the Deccan Pumps Group. I grew up in a business environment and decided to be an entrepreneur at an early age. This took me to different organizations around the globe where I honed my knowledge and skills. I also owe my grooming to my prestigious alma maters - Sheffield, Leeds and Stanford Universities. My father P. Arumugam and uncle K.K. Veluchamy founded Deccan Pumps 32 years ago with a mission to make the life of farmers better by manufacturing highly reliable and efficient pumps. Today Deccan Pumps is a closely-held conservative Group with anannual turnover of around Rs 100 crore. It is one of the top 5 manufacturers of submersible pumps in the country and remains Asias largest producer of vertical open well submersible pumps. The group is also engaged in trading, real estate business and education. My father is a keen philanthropist. He runs a home for elders, has a desire to turn his ancestral farm into a model agricultural unit, and spends time upgrading the basic infrastructure of his home village.

The Parsis A Unique Community in India

The Forbes family belongs to the Parsi community. The Parsis in India have descended from a group that fled from the religious persecution in Iran, then Persia, in the 10th century AD. They are truly industrious people who observe strong business ethics and values. Down the centuries, they have played a pioneering role in the progress of their own families, their community and the country as a whole, and prominent Parsis have established a tradition of benevolence in the country well before the 19th century, building and running educational and health facilities for the under-privileged people of all communities. Some of the most prominent Parsi businesses that have contributed to Indias industrial development are: Forbes Marshall, Godrej, The

Family Business International Internship Programme

The Family Business International Internship Programme is open to members of any of the national chapters of FBN. Owner-members can host interns, from both within India and abroad, who would indeed provide a fresh perspective on the business. This is a particularly good opportunity for Next Generation members to gain valuable experience in different business areas. Next Generationers can be interns in a family business in a foreign country for between one and twelve months. It is a great way to learn before one takes up a position in his or her family business. The CII-FBN India Chapter also offers the Family Business Exchange Programme which invites family business members from around to world to connect with Indian family business hosts throughout the country. This provides the opportunity to share and experience the Indian family business culture. If you are interested in the programme, write to: pooja.jha@cii.in NOVEMBER 2012 | CII-FBN INDIA CHAPTER JOURNAL 3

FIRST PERSON
The company also has transparent cabins, making everyone feel equal and easily approachable. They look for people with unique talents and give them all the freedom to convert their passion into work. An employee is allowed to even work part time if he has to attend to any personal matter. The groups people-centric approach is a key contributor to its growth and development. I have had varied experiences at Forbes Marshall given that the group handles a wide range of products. In the first month of my stint, I worked with the strategy department. Then I moved to the valve division where I learnt about machining. I also got the opportunity to interact with workers on the shop floor and learn about machining and the assembly line. Even when I was at Xylem, my first few weeks were spent on the shop floor and I was in fact asked to assemble a pump. Those experiences gave me a clear understanding of the challenges on the shop floor. Now I have specific plans to reorganise the designing and line up of our own products so as to make the assembling easy for our workers. All this practical learning wouldnt have been possible if I was in my family company where people, out of concern, wouldnt let me do any manual work. Also, working across all the departments, I realised how Forbes Marshall has become an evolved company in a growing country, and how important it is for organisations to acquire talent. Every person is a specialist in his field and a key resource for a company. Forbes Marshall practices some of the best management processes like the balanced scorecard method, and value added per person business models. They do not just chase top line growth and numbers in the balance sheet. Instead, they focus upon bottom line growth and the long-term sustainability of the business. They are on the path to build a great organization, from being good to great. The management is open to any innovative idea coming from the members, provided it is based on sound logic and can be supported with a business plan. A happy work culture, world class practices and highly skilled people make the group a great place to work.

With Mr. Farhad Forbes

Tata Group, Shaporji Pallonji (scion Cyrus Mistry is set to become Chairman of the Tata Group), Thermax and the Wadias.

The Forbes Marshall Group

Forbes Marshall, a closely-held family owned business with a turnover of around Rs 850 crore, is a leader in the area of process efficiency and energy conservation. The companys corporate mission is to be a developed company in a developing country. The company lays strong emphasis on HR practices and is ranked the fifth best workplace in India by The Great Places to Work and The Economic Times in 2012. The group was founded by Mr Darius Forbes in 1958 and is run by the second generation members Farhad Forbes and Dr Naushad Forbes who are siblings. They spearhead the groups divisions the Control Instrumentation Group and the Steam Engineering Group. Both the brothers are Stanford graduates, pioneers of innovative ideas and above all are extremely modest and have great regard for every member of the organization. They have clearly taken the group business to the next level with their hard work, global exposure and smart strategies. The group is one of the most professionally run family owned companies of this size in the country. The group management comprises the Board, the Supervisory Board and Senior Management. Both the brothers are actively involved in the dayto-day operations and work towards the empowerment of the employee who in turn treat the company as their own. It was an amazing experience working under Mehul Vaidya who heads the Actual Users Division of the group. I saw a deep sense of entrepreneurship, freedom and trust in every member. The family spirit and strong values percolate down the line and are imbued in all the employees. Both Farhad and Naushad are approachable by any member of the company at their offices. 4 CII-FBN INDIA CHAPTER JOURNAL | NOVEMBER 2012

Joint Ventures
In an era where many joint ventures do not last long, the Forbes family has a different story to tell. They have long standing partnerships with some of the best names in the industry such as Spirax, Arca, Codel, Vyncke, Krohne and Shinkawa, to develop, design and supply innovative solutions for the measurement and monitoring of process parameters. They have the countrys second longest joint venture with SpiraxSarco, UK, a world leader in technologies for the effective and efficient use of steam for energy. Looking into their successful JV models, I learnt that basically the company collaborates with similar family-owned companies and usually works on a 50:50 partnership; this gives equal rights to both the parties and makes long term commitments easy. They are completely transparent in all respects with their joint venture partners. The office is always filled with international interns, and guests from all parts of the world, making it truly a

FIRST PERSON
global organisation. They have adopted many best practices from their joint venture partners.

Ownership, Management and Family

Ownership, management and family should be viewed differently among the NextGen members. At Forbes Marshall business and family matters are approached differently. The brothers live in a very compatible ambience of love and joy with their family. But when it comes to business, the decisions purely rest on logic and strategy. They do not confuse personal relationships with professional operations. They combine the cumulative experiences of the previous generation with their own ideas and strengths to attain excellence in business. My view is that your father might have been a great product designer who has helped the company grow, but that doesnt mean the NextGen should follow the same methods. There is no point in just holding on to positions. Success lies in adding value to the business. Perform or else take the back seat. Family involvement in a company definitely helps it grow at a much faster pace since the output would benefit the whole generation. More than money, emotions and attachments drive individuals towards better growth. I believe family-owned companies and the NextGen should clearly differentiate between ownership, management and families. It is simple when said, but Im sure it is difficult to practice. My father and I might have a disagreement inside the office room, but that should not hinder the father-son relationship. My style of working is different from that of my father. It doesnt mean one is right and the other is wrong; we have to identify our own strengths and contribute to the growth and development of ones organisation.

Corporate Social Responsibility

A team of personnel trained and experienced in social activities constitute and run the groups Department for Social. Mrs Rati Forbes leads this part of the organisation. CSR is a part of the groups annual business plan and is managed professionally. They are also accredited by several European institutions. This has motivated me to chart out new CSR activities for my family business where the activities can be carried out and measured more professionally. In the past I had often wondered why my father started a notfor-profit engineering college, a home for the elderly, rural development programmes and similar activities instead of just growing the business. But now I realize that companies with a deep sense of social responsibility contribute to society in crucial fields such as education, healthcare, women empowerment and other important social causes. Forbes, Godrej, TATAs, Thermax and Wadias are all living examples of this in India. Recently when I was in Germany I visited my friends familyowned company VIEGA, a fifth generation enterprise that makes pipes and systems. It was interesting to learn how the family and business have involved the small town of Anttendorn in a major way and how the feeling of goodness pervades everybody including the taxi drivers. The spirit of entrepreneurship and drive for growth were writ large in the current generation of the company, perhaps more than seen in the previous generations. It is very essential for the next generation family members to involve society and community at large, in which they operate, and help the under-privileged and make the world a better place for all. A companys purpose is not to acquire wealth and markets alone but also to contribute to society. This is key to building a long lasting organisation.

Values
Forbes Marshalls core values of family spirit, innovation and entrepreneurship, integrity and value delivery to their members (as every employee is referred to) and society at large have been their guiding principles in everything they undertake. Care for the members, humility, simple living and high thinking, engagement with society, respect and care for the under privileged, professional management with family members on board and participative management are all important to the company. The role of family business leadership can no longer be authoritative; only an inclusive leadership model with the best value system works in todays business environment. In a nutshell, the secret behind a successful business is a long-term outlook, highly ethical practices, family spirit, integrity, value delivery to customers and developing an entrepreneurial attitude in every employee. Keeping the company financially stable and risk-proof, and safeguarding and adding value to the business are equally important; these must be the goals of the NextGen members who wish to grow their company manifold.

Working hand in hand

NOVEMBER 2012 | CII-FBN INDIA CHAPTER JOURNAL 5

In India families tend to grow faster than their business and so the members are compelled to enter into agreements to secure the future of their business and the brand value created by their previous generations. We, at the Deccan Pumps Group, are currently working on ownership and brand sharing methods with the NextGen members. The ultimate goal is to secure the business, brand value and at the same time allow every family member to pursue his own interest, while the foundations and social initiatives are jointly managed by the members.

My time at Forbes Marshall, Pune has been an incredible learning experience and a good transition phase before moving to my hometown. Im looking forward to creating a great family-owned company with strong values and best practices that I have seen and learnt in the last few years across the globe and act as a trustee to the future generations. One thing I have learnt from the West is that family companies are held by foundations and work on the model of investing all profits back into the company where the family is allowed only a small percentage of profit. I shall try and work out a similar model for my family business. I am happy to have Naushad, Farhad and Rati as my mentors. India has many family-owned medium and large-scale companies and the next ten years is very crucial for the country. I am sure there will be many globally competitive family-owned companies operating in India across all sectors, if family companies practice the best processes and systems. I hope to put myself to work and add value to what my father has created. I am sure every nextgen member is talented, unique and can contribute in his own way be it CSR, marketing or research. I have always been thinking and reading a lot on family business management and practices. A few months ago my friend Shankar Vanavarayar, National CII-YI Chairman of India, introduced me to FBN. I am happy to share my thoughts here now. The internships I went through, systems I worked in, diverse cultures I experienced and talented individuals I met have left an indelible mark in my life.

A Rich Experience
The company and the brand have been built up over three decades and more, so extreme care is called for in architecting the future of our business. The ultimate goal is to protect the business and the brand that the previous generation has toiled all their life to build. Every NextGen family member should take on a stewardship / trustee role. I find myself not as a maverick, but as a star in my own way. NextGen entrepreneurs are fortunate to be born into privileged families and should be thankful for their education and resources that not many are fortunate to have in a developing country like India. So we should add value to what the previous generations have created, protect it and pass it on to the NextGen. Im just 22 years old and have a long way to go and I am sure my thought process and learning will evolve as I observe, learn and grow. I strongly believe that every nextgen member should spend time with at least two companies for some time before joining their respective family businesses. It gives one great insights on how business families work across the globe, which elevate the thought processes and enhance ones entrepreneurial skills. 6 CII-FBN INDIA CHAPTER JOURNAL | NOVEMBER 2012

I am currently working on a project to set up a state-of-theart new plant with the experiences gained from across the globe. Though not a mega plant, I aim to make it a very efficient one. I found the brand Deccan Pumps strong only in certain segments. So my new brand extension line would help create a new perception among customers and drive growth. The products are being designed and upgraded to world-class standards with strong emphasis on manufacturing systems and process technology. The new plant is a small test that I am putting myself to. It will also increase our productivity in one product line by up to five times. My professors in Stanford and Sheffield have been good mentors and when I shared this idea they felt that this startup would help me learn quickly all aspects of business and if I perform well I will be ready for a bigger role. Perform and preserve, else perish. With the strong support of the previous generations and the wide global exposure that we have had, it is time we the nextgen create history! Kanishka Arumugam is part of the family-owned Deccan Pumps Private Limited

INTERNSHIP

KNOWING INDIA UP-CLOSE

A European student shares a glowing account of her FBN internship at Forbes Marshall
By Alys Grenier

irst and foremost I would like to express my gratitude to Mrs Gaucher who made that experience possible as well as to Mr and Mrs Forbes who have have been kind to welcome me at Forbes Marshall. Forbes Marshalls head office is located in Pune. It produces industrial boilers and is more broadly specialised in steam engineering. Its Kasarwadi campus (Pune) was set up in 1958. Since the beginning of that adventure, Forbes Marshall has strived to work hand-in-hand with local communities. The Department of Social Initiatives, in which I interned for a few weeks, has been taking care of this aspect of Forbes Marshalls activities. The CSR department of the company is well developed and cooperates with a number of NGOs (implantes) in the region. As an intern, I joined the project called Akanksha. That particular program strives to give better access to education to underprivileged children. I helped the teachers with English

lessons and creative activities. The opportunity to work with a group of ladies that produces artisanal objects has been offered to me as well. Working with Forbes Marshall CSR department was a thoroughly interesting experience. It allowed me to discover the personality of that family business as well as the local culture. As a European college student, that experience has, I believe, helped me appreciate the Indian culture, patterns of thought, corporate culture that can be found in India and those that are present in Europe. However, these few weeks only allowed me to scratch the surface of that culture and my understanding of it is still very shallow. Adapting to that culture was harder than I thought it would be. It was equally more enriching as well. In my opinion, that experience is one to be cherished and I would recommend to whoever is willing to do an internship to join Forbes Marshall. NOVEMBER 2012 | CII-FBN INDIA CHAPTER JOURNAL 7

ACTIVITY

AN INTERNATIONAL COMMUNITY WHERE FAMILY BUSINESSES CONNECT, EXCHANGE & LEARN

FBN Xchange is a secure, international, on-line community Available exclusively to FBN members which replaces FBNs old members directory and library and contains many new exciting features. Members of the Family Business Network will have exclusive access to: Members Directory Network with Chapter members and from across the world Forum Exchange ideas & best practices with peers Next Generation Events, networking & careers Resource Centre Learn from a wide range of content on family business International & National Events Stay updated with the latest developments and events in the Network FBN eNews Our online magazine in any language.

CIIFBN India Chapter Activity Calendar 2012-13

Name of the Event Family Business Theme Workshops
Workshop on Family Business focusing on Business vs. Family values & Retirement process Bangalore 8th December 2012

Venue

Date

CONTACT US: CII-FBN India Chapter Secretariat Mr Rajesh Menon, Executive Director, CII FBN India Chapter, Confederation of Indian Industry India Habitat Centre - Core 4A, 4th Floor, Lodi Road, New Delhi-110 003. Tel: 91-11-2468 2236 Fax: +91-11-4682226 Email: rajesh.menon@cii.in Website: ciifbnindia.org DISCLAIMER Copyright 2012 by Confederation of Indian Industry (CII), All rights reserved. No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However, neither CII nor any of its office bearers or analysts or employee can be held responsible for any financial consequences arising out of the use of information provided herein. Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-110003 (INDIA), Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: info@cii.in; Web: ciifbnindia.org

CII-FBN INDIA CHAPTER JOURNAL | NOVEMBER 2012