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Rao family of GMR group signs 'family constitution'

Rao’s family has adopted a 'family constitution,' that defines how his successor would be selected, reports Raju Sarkar.

business Updated: Apr 23, 2007 04:27 IST

If you want to avoid bitter family splits or squabbling between your heirs, you may like to take a lesson from GM Rao, the 56-year-old chairman of Bangalore-based GMR Group, which develops infrastructure projects. Rao’s family has adopted a 'family constitution,' that defines how his successor would be selected.

The constitution also defines the minimum qualification the family members must have to enter business, their remuneration and perks, including what car they will get to drive. ‘‘It also provides for a family member wanting to branch out,’’ said Madhu Terdal, CFO, GMR Group.

On March 3, members of all the family (GMR and his wife, with his two sons and son-in-law and their wives) signed on the family constitution at the group’s annual leadership forum in Sariska in presence of 150 top executives of the group.

With many business families facing problems and splitting, Rao wanted to have a framework that will ensure the family stays together and disputes are resolved within it.‘‘ The constitution came out of five years of work, 180 different sittings, where each family member’s aspirations were taken into consideration.

Rao first picked up the idea at a CII meeting in 2000, where he learnt that only a quarter of the family businesses make to the second generation and only a 13 per cent make it to the third generation. It doesn’t mean the businesses have failed; it could be that they were sold to an external party, or that the following generation does not have any wish to work in the businesses.

But quite often, the current owner does not know how to handle the difficulties of passing the business onto the children. With this thinking, Rao kicked up the idea in 2000, and after some groundwork over the next three years, he roped in Peter Leach, a UK-based expert on family businesses, in 2004 to draft the constitution.

Leach is a partner at BDO Stoy Hayward LLP, part of the world’s fifth largest accountancy network. He has pioneered family business research in the UK and is the founder and chairman of the Stoy Centre for Family Business. BDO Stoy Hayward is a leading adviser to family businesses in the UK.

How does the family governance works? Rao has constituted ‘family board’ and the ‘family council,’ which meet at regular intervals to discuss, respectively the ways and means of growing the business and keeping the family together.

Rao has also made them (his sons and son-in-law with their wives whom he calls them as three sons and three daughters) as equal partners with him.

Other groups like the Kasliwal family and Dalmia Cement have also initiated similar family governance processes, which could help avoid bitter splits.

First Published: Apr 23, 2007 04:26 IST