In any big Indian family, friction is perfectly normal. In the world of family businesses, differences are a dime a dozen. They are often kept within the confines of the living room, only occasionally spilling out into the public domain.
In modern times, such friction, however, tends to attract greater attention. Since any business encompasses a wider canvas involving a number of stakeholders, happenings – good, bad and ugly – within a family enterprise cannot just be strictly termed as the affairs of the family alone.
The case of Vallli Arunachalm, a fourth-generation member of the Chennai-based Murugappa Group, perfectly fits into this category.
The over $5-billion Murugappa group has, for decades, enjoyed a quiet profile. In fact, it was one of those rare business conglomerates which pioneered the concept of a group corporate board and let professionals manage the operating entities.
The quiet surrounding the South Indian business empire was shaken when Valli Arunchalam went public earlier this year to articulate her predicament in the system after the demise of her father, M.V. Murugappan, former chairman of the group.
Indeed, it took the corporate world in this part of the country by surprise. It was somewhat unusual for the Chennai-based conglomerate to find itself in such a situation.
The controversy is simple. Valli, the elder daughter of late M.V. Murugappan, has sought an equal opportunity in the family business on the same terms as the male heirs.
She wants a board seat on Ambadi Investments Ltd (AIL), the holding company of the group. Alternatively, she wants family members to buy her stake. Valli Arunachalam, her sister and their mother together hold 8.15% stake in AIL.
The shareholders of AIL, however, this week rejected a resolution to appoint her as a director on the board of the company. Predictably, Valli Arunachalam has indicated that she will take all steps to get justice.
“It was always our wish that the family issues remain within and are settled at the family level, but clearly it seems the family is more concerned about protecting its draconian perspectives and practices, even if it means forcing us to take the battle to courts. We will not shy away this time,” she told one pink paper yesterday.
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“It is evident that the family cannot tolerate women in their boardrooms, and they have showcased their considered view in this regard. It is very unfortunate that the AIL shareholders, the overwhelming majority of whom are also board members, are not able to understand what contributions women can make on the board.”
Highly-placed sources told this author that an exit price was indeed suggested to her. She, however, found that to be below fair value. Hence, she sought a representation on the board of AIL. Her demand was rejected by the shareholders, however.
Valli Arunachalam finds herself in an unenviable situation now. Her predicament is akin to Cyrus Mistry of the Shapoorji Pallonji group. Cyrus Mistry was thrown out of the chairmanship of the Tata Sons, the holding company of the Tata Group, after he fell out with Ratan Tata on a number of issues. The Mistry family holds 18.4% stake in Tata Sons and is the largest minority shareholder in the Tata holding company.
Accusing the Tatas of taking “value destruction decisions,” the Mistry family felt that a separation was best for the stakeholders of the Pallanji group. The estimates of the worth of Mistrys’ holdings in Tata Sons vary between Rs 57,600 crore to Rs 1.78 lakh crore, depending upon who has done the valuation.
The two holding companies in this context – Ambadi Investments and Tata Sons – are unlisted entities. The dynamics of holding company valuations are completely different and involve one too many imponderables that strictly don’t fall within the domain of a pure business relationship. A host of factors – trust, customs, family code and a sense of long-standing bonding – define the dynamics which are very often difficult to quantify in monetary terms.
Given these peculiarities in holding company arrangements, friction resolution can get problematic. Buying out a shareholder in a holding company is not as simple as one may think. A number of questions arise. For instance, do these holding firms have enough free float money to buy out any shareholder? Do others have ready money to buy out the willing quitter? The answer is yes and no. It all depends on the valuation. In these two instances, the valuation sought clearly can incapacitate others to buy out the quitters.
Is there a way out of this predicament for the Murugappa Group? A solution can be found to any problem – but it requires a proper mindset and an accommodative one at that.
Both the Tatas and the Murugappa group can still get the problems off their back. For example, is it not possible for the Tatas to give the Mistry family some shares of companies that Tata Sons holds in various group companies? This can be given in proportionate to their holding in Tata Sons. This should be the best and painless way to separate. By such an arrangement, Tata Sons can extinguish the holdings of Mistry in the holding company.
And, the Mistrys can then do whatever they want with their allotted shares in Tata Group companies.
The same thing can be done by the Murugappa group to let Valli Arunachalam out of Ambadi Investments Ltd. Co-existing with an unwilling partner in a business engagement can prove disaster for everybody in the end. The freedom to exit cannot be questioned. If that freedom could be conceded without upsetting the apple cart, it should be quickly pursued without any time lost.
K.T. Jagannathan is a senior business journalist.