When Rupert Murdoch, Chairman of British satellite broadcaster BSkyB, walked in to attend the company's annual general meeting a couple of months ago, one irate shareholder told him: "Mr Murdoch, you have an arrogance and an indifference to us that is appalling."
Shareholders were angry about Murdoch's decision to appoint his son James -- a college drop out -- as the new head to replace outgoing chief executive Tony Ball, the man who oversaw BSkyB's return to profitability. James' only previous taste of top management came at the Asian TV arm of his father's News Corporation Group.
Murdoch's chilly response to the shareholder was an eye-opener: "If you don't believe in us or our results, you should just sell the shares."
It is easy to dismiss Murdoch's answer as either highly combative or plain arrogance, but the point the News Corp chief wanted to put across made eminent sense: the market is the best judge of a promoter's decision in a listed company.
The trouble is that this simple lesson is invariably forgotten whenever a professional chief executive leaves on his own or is replaced by somebody from within the promoter family.
The reason: people caricature owners as entrepreneurial but unqualified, and professionals as qualified but lacking entrepreneurship.
Such flawed stereotyping is evident from the collective disbelief when in an interview Malvinder Mohan Singh, the late Parvinder Singh's eldest son, attributed his quick progression to the position of second-in-command at Ranbaxy as nothing but his professional achievements.
While D S Brar's sudden exit from the company did -- and should -- raise legitimate questions over what happens to the company now (specially as Brar's is a tough act to follow), it would indeed be wrong to make a sweeping generalisation that promoters cannot also be professional managers. The real issue is performing versus non-performing managements.
No doubt, quite a few family-owned businesses have faded into oblivion since the early 1990s. A recent study by McKinsey said only 7 per cent of the family-owned businesses in India have gone beyond the third generation.
But there have been innumerable instances as well of many a blue chip company, wholly-controlled and managed by the best of professional managers, collapsing on account of poor managerial responses to market challenges.
If some family businesses have failed in India, consider the reasons. The licence raj in the pre-reforms period nurtured a breed of businessmen who understood the system and duly exploited the loopholes.
That's the time when some corporate families cornered businesses that were up for sale. With their economic clout, came the inevitable hubris: they cornered whichever licences that came up on offer.
But the heartening sign is there have also been quite a few promoters who have moved with the times and prospered. The reforms' children are many.
The Munjals of Hero Honda, for example, remains a closely-knit family owned business. Yet they have clocked a stupendous 51 per cent compounded annual growth rate in their net profit and an average sales growth of 32 per cent in the past five years.
There are many others: the Agarwal brothers Anil and Navin, who have set a blistering pace in the copper and aluminium industry; Anji Reddy who set up Dr Reddy's Research Foundation in the 1980s realising that the discovery and development of new chemical entities was vital for long-term survival; Azim Premji who reinvented his father's cooking oil business into a software services giant; Ramalinga Raju who moved away from his family business of cotton spinning and construction by propelling Satyam Computers on to the global stage in 1992.
They showed why family-owned businesses can also remain professional. In the US, for example, close to a third of the Fortune 500 companies are family businesses.
A similar controversy -- like the one being witnessed in Ranbaxy -- broke out after SRF promoter Arun Bharat Ram replaced CEO Ravi Sinha (credited with turning around the loss-making company) with his eldest son Ashish.
All hell had broken loose with Ashish described in the media as just another half-witted moneybag's son who will take the company on reverse gear.
What wasn't highlighted was the fact that Ashish was an MBA in finance from Cornell and had nine year's grounding in his father's business. He was also the one who was instrumental in convincing his father to remain focused and sold SRF Finance to GE Capital for $ 100 million.
The point -- rightly or wrongly -- is that his father thought he was suitable to play a larger role in SRF and the market should judge Ashish by the company's performance under his tutelage. And so far, he hasn't disappointed.
The lesson is clear: it matters little whether the man at the helm belongs to the promoter family or not.
What matters is whether he has the requisite professional skills and the vision to take his enterprise forward. If he is treating the company as a mom and pop venture, the market is the best place to punish him.
For the sake of fair play alone, Malvinder Mohan Singh deserves more time before he is judged harshly.
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