Ranbaxy’s demise wake-up call for business families in India
Last week, as the Manipal Health Enterprises Pvt. Ltd and TPG Capital combine inked a deal to acquire Fortis Healthcare Ltd’s hospital assets and SRL Diagnostics, it rang the curtain down on one faction of the business dynasty seeded by Bhai Mohan Singh in 1952 when he bought the then bankrupt Ranbaxy from cousins Ranjit Singh and Gurbux Singh.
At the time of his death in 2006, Mohan Singh couldn’t have imagined that in just over a decade, his grandsons—Shivinder and Malvinder Singh—would run into the ground what had been one of the leading business families in India.
The rot had started within a few years of his death when in 2009, Malvinder who was appointed as chief executive of Ranbaxy in 2006, resigned from the position and a year later, sold the company, including his family’s 35% holding, to Daiichi Sankyo.
It was another sad instance of the curse of the third generation raining down on a once proud business dynasty. The Mafatlals, the Singhanias and the Dalmias, among others, have all been there and after Parvinder Singh’s untimely demise in 1999, his sons proceeded to ensure another Indian business family went down that path.
Warring families aren’t just an Indian phenomenon. The Koch family in the US, besides spending money on bringing Donald Trump into office and denying climate change, went through years of infighting, as did the Porsche family in Germany. The difference is that their businesses have continued to prosper. Ranbaxy’s inheritors, by contrast, lost their companies, their reputations and a great deal of money.
Just how different it could have been for the owners of India’s leading pharma business is evident from the fortunes of another part of the same family—that of Analjit Singh, the youngest son of Mohan Singh. In the three-way split of Bhai Mohan Singh’s assets in 1989, Analjit appeared to have lost out, with Parvinder Singh getting the jewel in the crown, Ranbaxy.
A serial entrepreneur, with an impeccable sense of timing, over the next 28 years, Analjit proceeded to carefully construct the $2-billion Max Group, with interests in healthcare, insurance and specialty packaging film. Through it, he has always exhibited the rare ability to spot an opportunity early and, equally, exit a business when on top. He made an early entry into India’s nascent private telecom business in 1994 and scored heavily by selling it off in 1998 to his joint venture partner—the Hong Kong-based Hutchison Whampoa. Over the next few years, he exited many other businesses while strengthening his focus on healthcare and then insurance. In 2016, he agreed to a merger of Max Life with HDFC Standard Life Insurance Co. Ltd, though the deal had to be dropped subsequently.
The Max Group founder’s success is driven by the simple maxim of never being married to a business.
The contrasting fortunes of the two factions of the same business family reveal how complex the dynamics of being an inheritor are. Often, in the generations that follow the founders, the drive and the business acumen needed to run the business may just not be there. The insistence then to continue running it can spell doom, as happened with Shivinder and Malvinder Singh.
Given the many governance issues at Ranbaxy and Fortis, it is clear that a strong board is a prerequisite in family-owned enterprises. Paradoxical as it may seem, constant churning of the portfolio is another critical element for success. As Analjit Singh’s example shows, though, the most important decision business family leaders have to take is about knowing what’s best for the business rather than what’s best for themselves or for their sons and daughters.
Warren Buffet once warned against passing on the baton automatically to inheritors within families, likening it to choosing “the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”. It is a good reminder for many Indian business families.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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