We reproduce here with permission, a conversation between Shobha Warrier and N Sankar, Chairman, Sanmar group soon after the restructuring of the Corporate Management group at Sanmar. The interview was done for rediff.com This is the era of ‘professionals’. Family-run business houses are wooing professionals to run their businesses ‘professionally’. Does this mean that they had not been running their businesses professionally till now? Why this sudden shift to professionalism? Are the Indian business houses getting scared of the multinationals that are coming into the country?
Yourself, your brother N Kumar and your son Vijay Sankar are professionally qualified, and you have been running the Sanmar group for the last three decades. Now, you have inducted professionals who are non-family members as heads of the various units of the group. Do you feel professionals who are non-family members can run a business better than those from the family?
I don’t think running a business successfully depends on whether somebody is a family member or not. It depends on the capabilities of the individuals concerned. There are good managers among family members; there are also bad managers among family members. There is no connection between the two.
The two of us (N Sankar and N Kumar) have proved that we are good managers. I have been in this field for the last 30 years and we have the arrogance to say that we managed our business well. We have done a reasonably good job. It is not that we couldn’t have done better. Any professional manager who wants to match us will have to really put in a lot of effort. It is not that they can’t do it. I think all of us have the confidence in ourselves. I have confidence in my ability. There are certain businesses I am knowledgeable about, and there are some businesses about which probably a professional manager knows better. So your question is difficult to answer. It is possible to do better and it is also possible to do worse. I am sure genes do not have anything to do with it.
You have been doing quite well all these years. Then why did you decide to hire professionals to run the various units of your business now?
The personal reason is that I am now 55 and Kumar is 50. As long as we are looking after the operations, decision-making gets pushed up. Anyway, the ultimate decision has to come from the shareholders, forget the family part of it. Decision-making starts with the operational management, then it goes to the board and finally to the owners who are the shareholders. What happens now is that issues that can be settled at the operational level get pushed up. That doesn’t help develop the next level of managers. After all, I am 55 and one day I am going to retire. So, the institution has to learn to manage without me.
And I like to do that when I am there to see the transition to the extent that I can, that is, the right people are doing the work in the right way. I had decided long ago that at 55, I would retire. No, not retire, I would go offline. It doesn’t mean that if one of the managers messes things up, I won’t come back and do anything. After all, the one person who can’t run away from the job is me.
We have the intellectual arrogance that we can run any one of the businesses better than the guy currently running it. But we can’t run all of them as we have diversified and even after all the restructuring, we have four core businesses and an IT business now. No one individual can run all the five businesses. But we are not competition to any of the professional managers. They have the freedom up to the managing director’s level.
So, where does the buck stop in the Sanmar Group now?
Operationally, it stops at the managing director. Operation management is one and long-term management is another. As the decision gets more critical, it goes up. It is a fuzzy line, you know; what is operational and what is long-term and what is medium-term. It may be an operational decision but a very critical one; like closing down one business. But it will have to go all the way to the board. So, it is very difficult to say where the buck stops. But I think it can be said that it stops with the operational manager.
Why is it that of late, many business houses run by families have started employing professionals?
I have been thinking about this for a long time.
Several family run businesses have taken the help of management consultants from abroad while you chose to have those who had been with you.
That shows I have professionals in my group. I have had them for the last 20 years. Anyway, there was nobody else from the family except Kumar and I to look after our business. Vijay is pretty young. He has just come in.My father retired from India Cements, and was never with the Sanmar group. We have no relatives in the business. So we have always had professionals running the business.We have delegated a lot more operational and short-term strategic management to professionals more than the other businesses.
The reason could be that we didn’t have any family member to run the business.
What we have done now is that we have completely withdrawn from the operational management. We have prepared these people all these years too. I don’t want one dictator to go and four dictators to come in. We have spent time developing a common set of Sanmar group’s philosophies and processes, and these people are committed to them.
Isn’t what you have done a kind of
re-designation?
It is not.
These people had always been with you, and now you have made them managing directors.
Yes, they have been with us. But today, they take the responsibility. In the past, they always had the feeling that ultimately we are there to take the final decision. I come to work at 8 in the morning, and till 6, I am here. So, they just come ‘for a minute’ and ask something. Finally, they always say that we discussed it with you when I was not in a position to seriously think about an issue and come to a decision. Now, I tell them to take decisions and take responsibility for them too.
Yesterday, you said things would be more transparent now. Why?
Not ‘more’. Things have always been transparent and they have to continue running transparently too.
Let me go back to employing ‘professionals’ once again. Is it because multinationals are coming in and there is going to be more competition that many family-run businesses are going in for professionals to manage their businesses?
I don’t think so. In the past, you could come in and take a decision a day and promise to look at the other things in a day or two. It cannot be done today. Everyday, there is a problem and you cannot sit back and say, I will look at it tomorrow or the day after. Everyday is a crisis. In the old days, inheriting a company was something to look forward to. Today, I am not very sure it is so.
Is it because of competition?
It is a lot tougher to run businesses these days.
Why is it so?
Yes, competition. Because of the economy opening up, people demanding more, and more imports coming in. So it is no longer a bed of roses to inherit a company. It is a big commitment and responsibility. And, in the past, because of our tax laws, the only way you could maintain a comfortable lifestyle was to be a company executive. Today, that is not required any more. Today, you can get good dividend and returns from the stock market and the banks, and live a good life
Besides, people are getting qualified and they can get a good job and a salary of not merely Rs 2,000 or so. They get a substantial salary, without any ownership. So there is no necessity to employ a family man any more.
Some Indian business groups are employing consultants from abroad. Do you feel those who studied and trained abroad are better than those coming from our management institutions like the IIMs here?
Not only IIMs, but all our professional educational institutions produce excellent people. The only problem is that they don’t stay back in India. In the last 20 years, we have appointed many management professionals from the IIMs and other quality institutions.
Recently, a business magazine said in its cover story that nobody employs a professional who is 45-plus even if he is highly qualified and experienced. Of course, all your managing directors are 50-plus. Do you think there is a general shift in the corporate sector towards younger people?
In the past, you automatically got promoted based on your seniority. Now, it is not so. In the future, it is not the next senior man who goes up but the next capable man. In this environment of IT, it looks like youngsters are more capable to do e-business than we are. At the same time, it is his capability that counts. We have people of 55, 54, 50 etc., and they are there because they are capable. There are many others whom we have moved sideways; we have also let some people go. That was not because they were old but because they were not capable.
Now, you have re-entered the IT field too. Do you feel the IT stocks and to some extent pharma stocks too are pushed up in an exaggerated fashion? The old economy is down for a very long time. Where will this lead to?
The business concept of IT is not exaggerated or overvalued. What is wrong is the valuation given. See, you have production at one end and the consumer at the other end. The consumer could be a retailer or a businessman. And the manufacturer could be a manufacturer of cement, steel, sugar or whatever. Now, you have to take goods from here and deliver it there.
There is a lot of money going into the delivery mechanism and also to the consumers in the form of loans etc., but there is no money going to the manufacturing area.Unless we manufacture goods, where are they going to come from? I know from where they will come – overseas.
So, shortly, we are going to have an excellent delivery mechanism and you are giving a lot of money to the customers too, but the production side is dying.
That will be a bad scenario for the country.
For the country, it is bad but not for the consumer. Individually, I am a consumer first and a manufacturer second. I am very happy because I have enough wealth to consume and you have all the imported stuff here. But as an Indian, I am not happy. India is growing at six to seven per cent a year. But if you take cement for example, seven per cent of cement of 100 million tonne is seven million tonne. There is no seven million tonnes capacity coming up. I am only giving you rough figures.
So what will happen to the old economy like steel, cement etc?
All of them will be closed down and we will have only imports, unless there is a change in the policy. I will say again, this is not good for India. Information Technology is only an enabling factor but we have to manufacture the basic things to deliver. See, if you have bought lots of trucks to deliver stuff from the factory to the consumer, and the consumer is ready. But what will happen if you don’t produce any goods in your factory?
What should be done to revive the old economy, according to you?
As a part of second-generation reforms, we need equity funds. The old economy is fighting with its hands tied. It has distinct businesses and even in this condition nobody can close it down because it runs into labour laws. The new guys coming in starts with much fewer people. That is one part of it. Okay, if I expand and put up a huge business, there is no equity funding available. You have people coming in and saying, you have a wonderful project. We will give you all the money you want as loans but we won’t give you equity. If the project is good enough for loans, it is even better for equity. But there is no equity available. So how can you set up a project?
The government has to bring back the equity culture. I think what you need is an equity fund like what the LIC, UTI and ICCI are holding. The government should come forward to fund a good project. And, of course, you need some reforms in the laws whether it is labour laws or finance laws.
Earlier, when the government announced its decision to build infrastructure, the prices of cement and steel went up for a while but as nothing further happened, what went up came down. So you expect hard decisions and initiatives from the government other than just announcements?
Absolutely. Initiatives are very important. Okay, about taking hard decisions, they may talk about political compulsions. But I think what we need is an equity fund. Now, if you need equity, you have to go the foreigners. I am not against foreign investment but then you have to think of the country’s future. As far as I am concerned, I have no problem.
You are into the shipping business too. What do you say about the privatisation of ports? What do we have to do to make our ports function properly?
It is a good idea to privatise them but then who is putting in the money? All the money is coming from overseas. There is no Indian money going into any of these. Then, all these will be internationally owned and not domestically owned. If you say that is the way you want to go, fine. I am not for a closed economy. I am only saying that we need to enable the domestic economy; we need domestic investors who are able to complete things in a proper way, in a balanced way.
Do you want protection?
I am not for protection. I am only saying that if there is a project that can be set up here, which is viable even at the low rates of import duties, that should be supported. Now, you get all the loans but there is no equity culture here.
Do you agree with government running businesses that make bread, butter and cars?
I am only asking for equity funds and that the government owns more but does not run the business. I say, you invest but let the management run the businesses. Don’t do it through politics.
But when their money is in the business, they will play politics, won’t they?
Who are ‘they’? The government is ‘we’, not ‘they’. The government is not investing its money but my money and your money. So, you and I should be managing the business. What about mutual funds? They don’t invest their money? They invest others’ money and they run it well.
In politics, we have only people who are in their seventies and eighties, and a person in his fifties is called young. Here you are at 55 want to go offline. Why?
I want to relax now. But those who know me say I will not do that. Then I am a good planner. So now I can do a lot of planning for the business. Then I can think. I can catch up with my reading. I am not very computer savvy and I want to spend a month learning some basics.
Play more tennis?
I still play tennis. But I don’t think my body will take any more even if I want to.