Murugappa Group Family Dispute Highlights Enduring Challenges In Indian Business Families

At the core of the current dispute, according to reports, are four group companies, which have shown a remarkable rise in their respective share prices. This should have been seen as a positive development but is now becoming a major bone of contention within the family.

This has stalled a two-year-old plan to divide the group equally among three factions, as the valuation of these four companies has grown substantially since the plan was put in place. This is reminiscent of other high-profile family disputes in India's corporate history.

The sagas of India's business families have long been intertwined with their remarkable entrepreneurial achievements and the disputes that often accompany them. 

Family Disputes Are Common

The Murugappa family’s issues mirror those of other Indian business families, where intermingling personal relationships and business interests often result in complicated disputes.

The Ambani family’s split in the mid-2000s is one of the most prominent examples, where the division of Reliance Industries between Mukesh and Anil Ambani followed a prolonged and public battle. Similarly, the Bajaj family feud in the late 1990s over the control of Bajaj Auto, one of India’s leading automotive manufacturers, highlighted the difficulties in balancing family and business interests.

Similar challenges were faced by the TVS Group, another storied South Indian business family, which underwent a complex separation process. The TVS family’s split was also marked by disagreements over the valuation of various group companies, with different branches of the family negotiating buyouts of each other’s stakes to retain control of specific businesses.

The internal struggle among family-run businesses underscores the need for clear and transparent governance structures. It must be pointed out that family-owned businesses make up a significant portion of India's corporate landscape, with nearly 91 per cent of listed Indian entities classified as family-run.

However, the challenge remains in balancing the preservation of family values with the demands of modern corporate governance. The Murugappa dispute, like those before it, highlights that while family businesses are a cornerstone of India’s economy, their future success will depend on their ability to adapt to changing times and resolve disputes amicably.

Why Do Family Disputes Happen?

“Family members tend to avoid conflict for as long as possible, and so if a conflict situation does develop, the issues are usually very serious: no one really anticipates such fallouts developing as business relationships are entered into when relationships are strong, and outlooks are positive," Elizabeth Black, a senior dispute resolution solicitor at the UK-based commercial law firm Harper James, wrote in an article.

“This is why parties often haven’t turned their minds to think about what could go wrong later and haven’t put appropriate protections in place in the form of shareholder agreements/have taken the view that such agreements are an unnecessary expense,” she added.

Family disputes in Indian business families typically arise from a combination of factors:

1. Succession issues: The transition of leadership from one generation to the next is often fraught with challenges. The lack of a clear succession plan can lead to power struggles, as seen in the Ambani and Murugappa cases.

2. Financial disagreements: Differences in the valuation of assets, as well as disagreements over financial decisions, are common triggers for disputes. The Murugappa family’s current predicament over the valuation of CG Power and other entities is a prime example. 

3. Control and governance: Conflicts over who controls the family business and how decisions are made can lead to prolonged legal battles. The Hinduja brothers’ dispute over asset control and the Kirloskar family’s disagreements over management reflect this issue.

4. Family dynamics: Personal relationships within the family, including issues of trust and communication, often exacerbate business conflicts. The emotional ties and historical baggage can make resolution more difficult, as seen in the Chhabria and Kalyani family disputes.

“Dealing with conflict has never been easy for family businesses. It’s part of an ongoing struggle many have with establishing strong family governance structures. In the survey, the conflict resolution mechanisms to deal with family disputes were at 13 per cent globally and 19 per cent in India.

"Only 65 per cent of global and 63 per cent of Indian family business leaders say that they have formal governance structures in place. This includes shareholder agreements, family constitutions and protocols, and even wills,” according to an India Family Business Survey by the consulting firm PwC, published in December last year.

The Takeaways

Like other high-profile family disputes, the ongoing issues within the Murugappa Group offer several key takeaways:

1. The need for clear succession planning: Indian business families must prioritise clear and transparent succession planning to avoid power struggles. The Ambani and Hinduja disputes highlight the importance of having a well-documented plan agreed upon by all stakeholders.

2. Importance of professional governance: Separating management from ownership can help mitigate conflicts.

3. Valuation disputes are inevitable: Independent and transparent valuation processes are crucial to resolving such disputes.

4. Legal frameworks and agreements: Legal agreements and frameworks, such as family charters or constitutions, are vital in managing and resolving disputes. The Hinduja family’s conflict over a 2014 agreement and the Murugappa family’s older agreement underscores the need for clarity and enforceability in such documents.

The disputes among India’s business families underline the complexities of managing family wealth and business interests. Given the significant wealth at stake, these conflicts affect the families involved and have broader implications for the Indian economy. 

As these businesses continue to grow and evolve, the importance of clear succession planning, professional governance, and effective dispute-resolution mechanisms becomes increasingly evident. The lessons from these disputes are critical for the sustainability and continuity of family-run enterprises in India.  

(The writer is a Bengaluru-based financial analyst. Views expressed are personal.)