Gmr group presentation

8/10/2019 Gmr group presentation

1/33

MR ROUP


2/33

G.M.Raos father was a successful dealer of jute, food

grains and gold.

Division of Wealth Each son received some property

and INR 3,00,000.

G.M.RAO Mechanical Engineer from Andhra University.

Worked in a Paper Mill and with PWD.

The brothers joined together and opened a trading

venture, dealing in jute like their father.

In 1988, the brothers separated as they had different

ideas. G.M.Rao wanted to reinvest the profits and expand

whereas his brothers were interested in profits.

He received a jute mill as part of the settlement.

Joined the board of Vysya Bank in 1985.

ORIGINS


3/33

Largest shareholder of Vysya Bank and in 1993, decided to

run the bank himself.

Brought Bank Brussels Lamber t (BBL) into the project, giving

it a 5 per cent stake, and upgraded the banks systems and

processes with the new partners help.

In late 2002, BBL was acquired by ING, with Vysya Bank

included as part of the deal, and Rao rece ived INR5.6 billion

for his stake.

Retired as its Director and Chairman in 2006.

Learning's from the bank venture

Exposed to the modern world of finance and broadened my

outlook on business.

Good businesses crash ing due to conflicting family interests

on business matters and lack of governance mechanisms in

the family.


4/33

Ferro-alloy manufacturing (1991-92)

Sugar production (1995)

Breweries (1998)

A 200-megawatt (MW) power project in Chennai ( mid-1990s)

A barge-mounted power plant, the worlds fir st and largest, in

Mangalore in late 2001.

Highways and Urban Infrastructure.

Airports

Manufacturing (agri-business, mainly sugar) Net revenue of INR 45.67 billion in 2009-10 as compared to

INR10.62 billion in 2005-06

Growth rate (CAGR) of 44 per cent.

Companys assets were valued at INR149.34 billion in 2010.

DIVERSIFICATION OF GMR GROUP


5/33

FAMILY TREE


6/33

S.B

Ventures- Soft Drinks Bottling & Aquaculture.

Joined GMR IN 1995.

Developed Two Power Projects in Karnataka and Andhra Pradesh.

Managing director of the Delhi International Airport Ltd. (DIAL) in 2006,along with Raju.

Since 2008, Handling Property Development, Construction of a SEZ, RoadProjects & the Delhi Airport.

RAJU

Bachelor of Commerce degree from University of Hull & Joined familybusiness in 1996.

Helped shape the overall strategy and positioning of the organization.

Served as CFA as well as the Board Of Directors.

Director of Delhi and Hyderabad Airports.

Also oversaw GMRs corporate services (including human resources as wellas the international business)

KIRAN

Completed his bachelor of commerce degree in 1996 and formally joinedthe Group as a director in 1998

Initially inducted him into their sugar factory development.

Involved in developing strategic tie-ups for a power project, a life insurancejoint venture with ING and Vysya Bank, a joint venture to develop aMalaysian airport and a collaboration with a Malaysian firm to bid for theIndian governments golden quadrilateral road projects.

Oversaw operations and business development and was the business

development head of the Groups airport business.


7/33


8/33

In 1991, motivated to serve those in nee d, especially in rural areas,Rao established the GMR Varalakshmi Foundation (GMRVF).

Run as an entrepreneuria l enterprise focused on developing education,healthcare, vocational and other programs for local communities. 3 to5 per cent of th e groups profit after tax (PAT) went into theFoundation.

Aimed at making high-quality educational insti tutions accessible toIndias poorest segments, partly through collaborations with thegovernment.

Healthcare init iatives also included partnerships, such as collaborationwith Helpage India to operate mobile medical units that serve nearly100 vil lages weekly.

Established five institutes for self -empowerment and vocational

training for unemployed youth and women. These in stitutes trainedunemployed youth in a variety of skil ls (e.g. , repai r of householdappliances and simple electronic products) and

Facilitated bank loans for aspiring micro-entrepreneur s. GMRVF workedintensively with five disadvantaged communities in Rajam, providingaddiction counseling, creating health awareness,

Providing mentorship to youth clubs, developing vil lage libraries andfacilitating participatory rural development.

CSR


9/33

Mission - To build entrepreneurial organizations that

make a difference to society through creation of value.

GMRVF was headed by a non-family chief executive

officer (CEO), with a board of directors consisting of

family and non-family independent executive directors.

First- and second-generation females of the Rao family

served on the board and took part in multiple Foundation

activities.

Rao said, By committing more and more time to theFoundation, women of the family could develop an

identity for themselves beyond deriving satisfaction from

such initiatives.


10/33

GMR Holdings Pvt. Ltd. Is the holding company with 2

subsidiary companies- GMR Infrastructure Ltd. &

GMR Industries(Airports) Ltd.

Ownership structures has remained consistent withequity proposed to be distributed equally among

Rao, his sons and his son-in-law.

Decision making Council Rao, Raju, Kiran, S.B & 2

independent non-family executives.

Due to the rapid expansion of the group, Rao in 2006

hired strategy consultants Mckinsey & Company, so

as to assign roles and responsibilities to each family

member.

BUSINESS PROFILE


11/33

FAMILY CONSTITUTION AND OTHER

GOVERNANCE INITIATIVES

keeping thefamily

together, fromgeneration togeneration.

leveraging thefamilys special

strengths

Anticipating andmitigating

significant risksassociated withfamily business

infant mortality Fosteringstewardship amongfamily members to

promote the Groupslong-term successand sustainability.


12/33

New focus onfamily governance

form a family council,comprising the four

male members

working at GMR andtheir wives, to begin

discussing the values,mission, vision and

key policies thatshould go into a

family constitution.

invited aninternationally

renowned family-business advisor,

Peter Leach, toassess thefamilys situation

and makegovernance-

related and otherrecommendations

at a two-dayretreat.

In 2002, the family

council generated along-term agenda and

roadmap fornavigating future

family governance.

Over the next year, thefamily spent

considerable timerefining the roadmap,fixing an agenda oftop priorities and

other key tasks, again,with the help ofexternal experts.

The family discoveredthat the largest

challenge involvedmanaging individual

aspirations. For

instance, both Rajuand Kiran expressedthe desire to havemore operational

freedom under theGMR umbrella.Throughout the

process, the familykept focus on

maintaining harmony.


13/33

FAMILY PHILOSOPHY

aimed to create a long-term sustainable governancestructure and set policies to serve the family in the

current generation and beyondThe effort was to strengthen andsustain bonding among familymembers.

two separate, though overlapping,sets of core values for the family andthe business.

The family constitution articulatedand elaborated on each set, as thesewere considered pillars of thebusinesss culture and continuity.

The aim was to ensure a smoothtransition of business from generationto generation and enable professionalsto take on their rightful roles without

any interference from the family.

The family believed that the businessshould be run on a day-to-day basis by

highly qualified non-family executives,while family members should retain

control over the high-level strategy, ordestiny, of the Group.

retaining entrepreneurship in thefamily, while avoiding creation of silosof activities, businesses in which eachfamily member might get trapped.

In line with this philosophy, family

members were to withdraw graduallyfrom operations and restrict themselvesto fulfilling investment needs andproviding strategic inputs andcounselling for the Groups businessesand activities.


14/33

KEY FEATURES OF CONSTITUTION

A goal of the constitution was to emphasize family members

flexibility about joining the business. Thus, the document also

addressed how to handle family members opting out of the

business to pursue independent careers.

Rao decided to set up a separate fund for such individuals.Instead of setting up just one trust where all the family

members have a stake, which leads to disputes, we set up

four trusts (known as column trusts) for each of the two

sons, the daughter and myself, so there is clarity, Rao said.

Family members in future generations who wanted to enterthe business could not expect easy advancement they would

have to earn promotions through hard work and impressive

achievements.


15/33

Members of future generations wishing to join the Group would be requiredto sign an agreement for adherence to the constitution and theirperformance would be appraised through t he same system as for non-family professionals. Appraisers would include non -family members of theboard but as the t hird generation was sti l l far from working age, a formalprocess had not yet been determined.

There was also an induction process t hat every newcomer to the business

was required to undergo. Family members were not directly appointed tosenior positions nor did they report to other family member s. They wererequired to work outside the family f i rm for approximately three yearsbefore joining the business.

An internship of twelve months was compulsory, which could be completedduring undergraduate years (e.g. , a series of two-month summer stints).

Assignments associated with these internships would help famil iarizefamily members with GMRs business practices, work culture and thefounders and other leaders pa ssion for bui lding the Group, as wel l asengendering a sense of pride and belonging in the entrant.

The minimum level at which a future-generation family member could joinwas set as assistant general manager.


16/33

Like any other employee, future-generation members were

also to be remunerated based on merit and performance.

Women of the first and second generations (i.e., the wives of

the four male members now working in the Group) had chosen

not to work in the business in order to take care of theirchildren.

The constitution indicated that they and future female family

members could take up external part-time jobs or start their

own businesses, provided such work did not inter fere with

their care-giving responsibilities.


17/33

Ownership of holding by Rao, who held nearly 100 per cent,

was being settled in four family trusts, with the husband, wife

and Rao holding equal voting rights within each.

Succeeding Rao would be anyone selected by the husband and

wife. If they could not agree then the thi rd trustee would be the

oldest direct descendant member of the family.

The second-generation husband and wife would select their own

successor trustees. The three trustees of each trust would

select the voting trustee for the voting trust.

There was also a clearly defined process for leadership

succession: Raju, Kiran and S.B. were to select a successorunanimously from amongst themselves upon the announcement

of Raos pending retirement. If they could reach no unanimous

decision, then a family appointment board consisting of two

independent directors and a facilitator (i.e., deadlock

facilitator) would interview all three and make a final, binding

decision.


18/33

Further stipulations were that Rao would retire by age 70 at the

latest, with a successor chosen three years before his actual

retirement date. Until that date, the s uccessor would be appointed

deputy chairman or a similar designation, with the leadership

transition conducted in a phased manner.

The successor would serve for five years and then offer himself for re -election. The future family directors were to retire at 65 years of age.

To make his mantra of keeping the family together work in p ractice,

Rao also included several formal organizational structures in the

constitution. These included the family council, the family business

forum, the non-business family forum and the founders business

office . The constitution also provided a family code of conduct to ensure

effective family governance. The family agreed that the constitution

would undergo a formal review in every generation and once every 10

years. Constitution-related proposals from at least two members

belonging to different units would go to the family business forum for

comments before the proposals were submitted for approval by thef amil co un ci l


19/33

THE ROLE OF NON FAMILY EXPERTS

P.M. Kumar (P.M.) was hired in 2003 to assist the family in drawing a

family governance structure, family mission, v is ion and values. P.M. was

a well -known process consultant in human behavior, with many years of

experience of working with family businesses.

He was actively involved in strengthening family bonds and teaching theRao family ski l ls for managing interpersonal differences.

During meetings among the family members, he would sometimes push

them to answer uncomfortable questions, such as: Which comes f i rst:

business or family?

His role was to col laborate with P.M. in fostering family governance, as

well as establ ishing the family off ice.

According to Sastry, Wealth management for the family was sti l l not very

well -organized. I t needed to be streamlined and al l the functions of

family off ice needed to be brought under one roof.


20/33

Throughout this process, family members never felt that they had done

enough collective development to emotional bonding, togetherness,

healthy relationships and conflict resolution.

The founders business office team had identified training programs and

mentoring sessions for the third generation and suggested courses andprograms they could undertake as they matured, keeping in mind

emerging leadership requirements for the business and family.

In April 2007, the counselors included an American-based leadership

expert and coach, an organizational psychologist, an emotional

intell igence expert and a spiritual-behavioral coach.

All were engaged to help the family maintain mature and posit ive

perspectives and develop emotional intell igence, openness and

constructive communication skills in order to foster bonding in

relationships, which was crucial to practising the values specified by the

constitution.


21/33

the familys male members felt that outside help would benefit

the family because all four of them were aggressively pursuing

business growth and spent very little time together or with the

family.

The facilitators drew up individual development plans with

emphasis on developing competencies, behavioral skills and

spiritual intelligence.

The family focused on team-building, cohesiveness and personal

development plans.

The family had clearly benefited yet Rao planned to reduce thefamilys dependence on such experts.

In 2008, the family was planning to organize a series of training

programs on managing differences or conflicts of interest, with

the implication that the family members would become more

skilled in engaging in a meaningful dialogue without outside

help.


22/33

As a final thought, Rao added:

My journey over the last 35 years has been one of continuous learning

experiences based on family values and beliefs:

as a student, I was a student leader;

as a trader I learned the basics of the business;

as a banker I learned the importance of cash management;

as an industrialist I discovered the importance of managing

relationships with my stakeholders, delivering on promises and

building teams.


23/33

THE FUTURE OF GMR

Rao stated, Writing the family constitution was an arduous

challenge, but practicing it in its entirety would be the real

test.

He had instituted clear governance practices and had

completed the constitution during his lifetime, but whetheror not Raos children and grandchildren would uphold the

familys values and remain as committed to the constitution.


24/33

The speed and intensity with which Rao had created structures and

systems in the family were considered, several new concerns emerged.

For example, maintaining role clarity for individual members was not an

easy task.

The family pl anned to move out of operations and restr ict themselves to

strategy-making in the long run Their desire for growth and the external pressure to sustain their track

record of performance would requir e all the male members of the fami ly to

continue to be deeply involved in business, leaving limited time for fam ily

governance matters.

Would they be able to find a true ba lance between work and family l ife?

Would all of them deliver value equally as per the expectations of otherstakeholders, without creating any sense of division between sons and son -

in-law?

Overarching these concerns was Raos wish that GMR would continue its

strong performance fueled by a happy and collaborative family well into

future generations, even as Indias economy became increasingly complex

and competit ive.


25/33

ELEMENTS OF THE

FAMILY GOVERNANCESYSTEM


26/33

FAMILY COUNCIL

At GMR the family council composed of the four male

members and their wives.

Primarily responsibility of the council was to develop

responsible business stewardship among shareholders.

The council met very two months.

The council appointed family advisors.


27/33

FAMILY BUSINESS FORUM

The FBF served as bridge between the business and the family.

In 2010, the FBF included only the male family members.

The FBF met at least once in every two months.

It also determined the dividend split between the family fund

and trusts.


28/33

NON-BUSINESS FAMILY FORUM

The NBFF was run by the women of the GMR family.

Its purpose was to strengthen family members relationships.

It met every two months with pre-established agenda and

recorded minutes.

All decisions made in this forum were consensus -based.


29/33

FAMILY VALUES

The constitution indicated eight family values.

Humility, entrepreneurship, trust and faith and managing

differences formed core values.

While the remaining four values were viewed as operating

principles. The family also collectively established several principles to

be respected by all.


30/33

FAMILY CODE OF CONDUCT

There were specified principles and procedures.

All differences were to be resolved within 72hours of the

beginning of an incident.

If the incident were not resolved, an internal/external

facilitator would assist the concerned parties.

The GMR family had decided to separate the family leaders

role from that of the business leader.

All meetings were recorded on video for prosperity.


31/33

FAMILY FUND AND RELATED

ENTITIES

A family fund was to be established to maintain financial

equity among family members.

The fund was aimed at meeting essential security and

development needs, with separate sub -funds for each.

The family fund was to be funded by a cer tain percentage ofdividends of the holding company and income of certain family

assets.


32/33

SHARE OWNERSHIP AND DIVIDENDS

It was decided that the holding would remain private.

Four discretionary trusts were created for the four family

branched.

Sale of shares outside the family was prohibited.


33/33

FAMILY RETREATS AND FAMILY

ASSEMBLY

It was organized once or twice annually.

The whole family was encouraged to gather to celebrate

various festivals.

A family assembly was to be held once annually.

The assembly was not instituted for the current generation.

Documents

Gmr group presentation