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Brand Rejuvenation through Succession Planning in Family Businesses

Brand is the most powerful asset of a business. It portrays quality, instills confidence and creates loyalty for the product and is a symbol of experience and reliability of the company and the group. Irrespective of the kind of business or activity, a ‘brand name’ plays a significant role in the success of a business. Globally, Coke (brand value: Rs 312,000 crore), IBM (Rs 225,000 crore), Nokia (Rs 127,000 crore) Disney (Rs 123,000 crore) Mercedes (Rs 92,000 crore) are few of the most valuable brand names and on the similar lines if we take the example of brands in India, Tata is one of the most valuable brand portfolios in the country (valued at US$6 billion by Bombay House recently).

Infact, the latter half of the twentieth century in India was the age of BRAND. Be it at small, medium or large scale, each company tried to create an indelible mark in the minds of their customers by manipulating the intangible assets of trust and relationship building. Whether it was Jamsetji’s Tata or Dr. S.K Burman’s Dabur or Karam Chand Thapar’s Thapar Group of Industries or Parvinder Singh’s Ranbaxy or Munjal’s Hero Motors or S P Godrej’s Godrej Industries, each one of them have nurtured their brand names with patient and dedicated hardwork; farsight; repetitive advertising; operational efficiencies; procedures and cultures that ensured consistent quality of their products in the market place. These fathers of now established and well known business houses have worked for years around a set of characteristics: integrity and compassion - for building their brand name .

Ofcourse, it was the compassion of Jamsetji Tata who started a textile-trading business at a very small scale in 1868 in Bombay which took the Tata brand name to the fabric of Indian life. It is after 138 years of continued hardwork, dedication and commitment of four generations that today Indians season their food with Tata salt, drink Tata tea, drive Tata cars, and use Tata power, air conditioners, and phone networks. They stay in Tata hotels and wear Tata watches. India's infrastructure is built with Tata steel, and its companies and government agencies run Tata software.

Again, it was the conviction of Dhirubhai, son of a village teacher in a small place in Gujarat which took the brand name of Reliance out of a small yarn dealership, in a small 10 by 10 room in Mulji Jetha market, Mumbai to textiles, chemicals, petrochemicals, oil exploration, gas, telecommunications and what not. Infact, it takes generations to bring a brand name to this stature. Yet, surprisingly few of the Indian family run businesses have a solid succession plan for turning their brand names over to the next generation.

"A lot of people do not understand that family businesses are social organisations and need to be treated as such. We in India still have a feudal set up, with succession planning by the family patriarch being done too late in the life span of the business when such planning should actually happen in the first generation itself. Businesses are meant to create wealth and this wealth should be shared by all in the family," says the Ballarpur Industries Managing Director, Gautam Thapar.

The outcome is imminent. Be it the Ambanis of Reliance Industries, the Bajajs of Bajaj Auto, the Nandas of Escorts, or the Modis of Modi Rubber - each family has, in the recent past, faced succession and ownership issues and found them tough to resolve. We can see brands like Topaz in shaving blades, Kwality in icecreams, Pachranga in pickles, Usha and Summit in electronics products and many others either getting sold off or diluted or on the verge of dilution owing to family disputes. The reason might be ego clashes in the family members, jealously, lack of tolerance, greed or fight among the ladies but such dissentions lead to conflicts which turn into litigations and finally to the collapse of the brand. Let us now delve in detail about the imprudence which led to the dilution of brands like Pachranga and Summit and the business acumen which led to the prosperity of brands like Lladro and Dabur.

DILUTION OF BRAND

The case of Pachranga : The existence of the brand Pachranga dates back to 1925 when the Pachranga label was conceived, designed and adopted by Murli Dhar Dhingra in Pakistan at Kaloorkot, District Mianwali. The brand was inherited by four sons Ramkishan Dhingra, Asanand Dhingra, Ramnarain Dhingra and Manoharlal Dhingra who were appointed as partners in the father’s business. The brand acquired good reputation at that time and soon became a market leader in domestic as well as international market in pickle processing industry. On the separation of business amongst the brothers the eldest son got the copyright and trademark of the brand registered in his name which led to a dispute between the brothers. A case was filed by the three younger brothers alleging the rectification of application. The case continued in the court for more than fifteen years. Despite litigation, the brothers lived in the same compound and maintained love and respect for each other. On the date of hearing they travelled from Panipat to Delhi in the same car. The issue involved in the entire case was not right to own but the right of their heirs to inherit the brand. The eldest brother had no objection to the usage of the brand name by his brothers but the cause of concern for the three younger brothers was the right of their successors to inherit the brand. The case was finally settled out of court when the eldest brother admitted that he had no objection to the registration of the same brand name in the name of his younger brothers. The brand is now being used by three to five sons of each of the brothers. Owing to multiple usage of the brand you can find more than 150 shops on both sides of the G.T road selling " Pachranga Achar" world famous pickle. It now seems that everybody in Panipat sells Pachranga achar. Owing to multiple usage, the brand can no longer be associated with a particular taste or quality and has therefore lost its relevance.

The market size for pickle industry in Panipat is Rs.200 crores of which only Rs. 20 crore is sold under Pachranga brand under different entities (of which Rs.7 crore is the turnover of Pachranga Sons International). There are different websites saying different stories of brand history and Pachranga Sons International is lost among Pachranga foods, Pachranga overseas and Pachranga pickles. On a discussion with Ramsaran Dhingra, Partner, Pachranga Sons International, it is clear that the family has no clear plans of succession as yet and everyone still wants to blow his own trumpet.

The case of Sumeet: Sumeet brand was registered in the year 1964 in the name of Mrs. Madhuri Mathur, (proprietor of Power Control Appliances) an intelligent entrepreneur who made the lives of ladies in kitchen easier by bringing out the idea of a kitchen machine that would blend, chop, mince and grind that culminated into Sumeet mixer. It was her strenuous efforts, hard work, skill and exertion that improvements were brought in the appliances to make it at par with the modern technology. Soon the brand became well known in the kitchen appliances industry. Mrs. Mathur had two sons. On the separation of the businesses Ajay Prakash Mathur, the elder brother incorporated a new company, Sumeet Machines Pvt. Ltd in 1984 and in adopting the name ‘Sumeet’, his mother and father gave a written consent to the authority constituted under the Companies Act. The entire family including father, mother, sister, brothers were directly concerned and involved in the business of Sumeet Machines Pvt. Ltd. The company was engaged in manufacturing various types of Sumeet home appliances and power operation machines mainly washing machines and vacuum cleaners. Both mother and father stood guarantee for a sum of Rs. 2,00,00,000/- in the Bank of Hyderabad to provide working capital to Ajay’s company.

But as time passed differences started cropping up between brothers and in 1991 Sumeet Machines Pvt. Ltd. started manufacturing domestic mixies exactly similar to that of Power Control Appliances which was the business of the younger brother. A case was filed before the Madras High Court where the younger brother urged that Ajay Mathur’s Company had committed infringement of the exclusive trademark and copyright which was registered in favour his company. The stand taken by Ajay Prakash Mathur was that he was the eldest son of Mrs. Madhuri Mathur. On his return from United States, the family business mainly kitchen appliances and mixer machines under the trade name of Sumeet had picked up by the innovative ideas and dynamic marketing strategies evolved by him. The High Court in its decision in Power Control Appliances Co. & Anr. V. Sumeet Machines Pvt. Ltd & Anr. AIR 1993 Madras 120, held that the copyright with respect to Sumeet Kitchen Mixers vested with Power Control Appliances Company (owned by the younger brother) represented by Mrs. Madhuri Mathur and upheld their claim of the trademark (through Sumeet Research and Holdings Ltd.). Notwithstanding that, the court didnot grant relief to the younger brother on the ground of acquiescence by Power Control Appliances in the honest and concurrent user of Ajay Mathur.

The appeal to the decision of the High Court was filed by Power Control Appliances to the Supreme Court and the apex court in Power Control Appliances Co. & Anr. V. Sumeet Machines Pvt. Ltd & Anr.SC-1995-PTC-165 decided on 08.02.1994 held that Sumeet Machines Pvt. Ltd, the company of Ajay Prakash Mathur was incorporated for the purpose of diversifying the industrial activity of the family group but there is nothing on record to show that the company was manufacturing kitchen mixers earlier than the alleged violation of trademark, copyright and design. Moreover, the principle laid down by the apex court was that a trade mark can be only one and it could not have two proprietors. It was held that even if there are joint proprietors, they must use the trade mark jointly and for the benefit of all and could not use it in rivalry or in competition with each other. It was observed that the High Court had failed to note that the plea of honest and concurrent user as stated in Section 12(3) of the 1958 Act was not a valid defence for the defendant.

The case in the court may be in favour of any of the brothers but during this entire legal dispute the mark got diluted, lost market share and its presence. Same is the case with Malhotra brothers where after the division of family business, claims and counter claims for copyright of the diamond shape in the logo were made by both Topaz and Vidyut group. The litigation between the brothers for nearly a decade resulted in complete dilution of the mark and loss of substantial market share. In this period of dispute the competitors, national as well as international (Gillette) made deep inroads into the profits of both the groups. Fortunately, the settlement between the brothers has seen reemergence of Topaz as a strong brand in the Indian market.

Dilution of Brand: Stages and Reasons

 

On a careful analysis of the cases of Pachranga, Summit and Topaz brands, we can see that following are the various stages and reasons for dilution of these brands:

RISE OF BRAND

The case of Lladro: Lladro, is a famous name that stands for fine art, and although it is now the trademark, it was originally a surname of a family of Juan, Jose and Vicente Lladro. The origins of Lladro date back to a small craft workshop built in the mid-1950s in Almacera, near Valencia in Spain.

The Lladro brothers were born in the times when Spaniards were struggling to improve their lot in the aftermath of Spanish Civil war which devasted the fibre and the economy of the nation. With circumstances against them and a few acres to subsist on, the brothers fused their pathways in one with the foresight of their mother and her wish to see them succeed. Referring to the times of crisis, Vicente remembers, “Our mother would always insist that we try not to argue amongst ourselves and continue to work side by side. Thanks to this, we managed to stick together.”

With the, ongoing improvements on day to day basis, dedicated hardwork, innovative approach and advanced management techniques of the brothers, the company grew in multitude and the process of internationalisation started in 1960’s. Lladro’s venture into foreign markets started to fuel company growth. The company now exports its handcrafted figurines to over 120 countries with over two thousand people. The company has recently opened its third museum and gallery in the world and first in India at New Delhi. With a presence already in 123 countries, Lladro is now a household word for the rich and famous.

As time passed by, guaranteeing the continuity of their work was one of the first concerns of the Lladro brothers.

From very young age, they began to delegate responsibilities to the people who were inexorably called upon to carry on their work- their children, the direct heirs of their legacy. On January 20, 1984 the Lladro brothers opened the doors to the future by allowing three of their children to enter management circles in the company- one child from each of the founding brothers. This was a long and intense process whereby knowledge was passed from father to son or from father to daughter. Rosa, Mari Carmen and Juan Vicente underwent the difficult task of learning everything they could about the unique company founded by their parents and the way it operated.

The way the Lladro brothers approached the delicate issue of succession was based on non-coercive methods. It is only natural that some descendants should show an interest and inclination towards the work of their parents, whereas others should possess some other talents. The founding brothers have always respected these differences in their families. For this reason, the gateway to Lladro has always been open to members of the second generation who were able to demonstrate the necessary aptitudes and will to make the effort to acquire responsibility within the company. These requirements are no different from those that must be demonstrated by any other employee. Members of the second generation work side by side with their elders, in both everyday business tasks and the delicate job of canalizing creativity.

The success of Lladro lies in the warmth and trust they have always extended to the people they meet and work with. They have shown great skill in taking risks and dealing with difficult circumstances. They have been brave and innovative and have demonstrated the intuition required to create highly popular works of art with a personality of their own.

The case of Dabur: Started in 1884, with a small, but visionary endeavour of Dr. S. K. Burman, a physician tucked away in Bengal with his mission to provide effective and affordable cure for ordinary people in far-flung villages, Dabur India Limited is India’s most recognized herbal specialist company and a trusted name in the field of natural and herbal healthcare worldwide. Building on a legacy of quality and experience for over 120 years, the six generations of Dabur family have developed powerful brands in diverse categories of health and personal care such as Dabur Chyawanprash, Dabur Amla, Vatika, and Hajmola, Anmol & Real. The company has a wide distribution network, covering 1.5 million retail outlets, with a high penetration in urban and rural areas. It is one of the leading FMCG companies in India with a consolidated turnover of Rs.1899.57 crores.

In the mission, the Burman family has forged ahead with the founding thoughts of Dr. S.K. Burman, while also evolving and progressing in tune with the changing demands of a growing business. Placed below is the Dabur family tree

Dabur’s Family Tree

Over the years, the family has understood the demands of incorporating a professional management team that would be able to launch Dabur onto a high growth path. The Burman family has therefore downscaled its direct involvement in day-to-day operations , allowing a team of able managers to run the company and steer its fortunes. Gearing towards a new system where the direct involvement of the family is limited, the Burmans have formulated a Family Council, which acts as an interface between the family and the Board and management of Dabur. 

The family members' involvement has come in for a qualitative shift, with fresh members being encouraged to develop their own ventures. These proposed ventures are then presented to the Family Council for approval and funding.

As per the succession plans of the Burmans, after the death of G.C Burman, Anand Burman has taken over Dabur Pharma from G C Burman who in turn had taken over from V C Burman, rather than G C Burman's brothers Pradip Burman and Sidharth Burman. While Pradip Burman is in charge of other group companies such as Ayurvet and Sanat Products, London-based Sidharth Burman handles the overseas forays of the group.

On the similar lines, Thapar Group of companies has set a future direction for their business by segregating and clarifying interests between the four sons of Late Karam Chand Thapar as a part of succession planning. The aim was to maximise shareholder value through greater clarity leading to improved accountability and elimination and avoidance of cross-holdings. As per the family arrangement, I.M. Thapar Group was given, among others companies, KCT Coal Sales, Waterbase, India City Properties; Brij Mohan Thapar was given, among other companies, Bilt Chemical, English Indian Clays, Bharat Starch Industries and Crompton Greaves. BILT and APR Ltd, besides other companies, came under the fold of L.M. Thapar. JCT Ltd, Greaves Ltd and JCT Electronics Ltd, besides other companies, came under the control of M.M. Thapar.

Rise of Brand: Stages and Reasons

From the analysis of the cases of Lladro, Dabur and Thapar group, following may be noted as the stages and reasons for the rise of the brand:

Comparative Analysis of Rise and Fall of Brands

This brings us to the moot question- What makes a brand rise for generations to come and what are the reasons for fall of the brand over next generations. Following are the striking differences in the cases of Lladro, Dabur and Thapar Group and the cases of Pachranga, Sumeet and Topaz.

  • Objectivity: As brand succession involves substantial socio-economic implications, the owners of family businesses need to maintain objectivity in taking the decisions pertaining to such issues. They need to focus on the requirements of business, look into the possible strengths / weaknesses of the prospective heirs and then carry out the relevant analysis before arriving at any decision. Lladro brothers maintained complete objectivity in arriving at their decision and the same was found lacking in case of Pachranga.
  • Restructuring & Diversification: The decision for restructuring and diversification if taken at the right time may avoid lot of controversies. Transformed business models and redesigned organisations would rather fight battles in the market place than in corridors of power. C omplex ownership and family circle issues can be typically resolved in a slipshod manner -- by fragmenting businesses into as many parts as the number of siblings and creating a web of cross-holdings as was seen in the case of Dabur. Thapar group of companies, has gone a step ahead and have eliminated further diputes by reducing the cross holdings in each other’s companies.
  • Family Values: Successful businesses over generations have used core 'family values' as an ethical guiding star. Formal family constitution, laid down rules and codes of conduct, and modifications in them as and when required reduces the scope of conflict in the families. Family Councils can be constited which provide a forum for open discussion. There are examples of some functioning as formally as boards of directors of listed companies Through these institutionalised mechanisms families have tackled typically contentious issues of mismatches between managerial positions and the number and/or capability of aspiring siblings, the sale and restructuring of business, diversification to accommodate aspirations and skills of new entrants and so on. The existence of similar such family council has been observed in the case of Dabur which is instrumental in the success of Burmans during last four generations.

RECOMMENDATIONS

After the detailed discussion of the cases mentioned above, it is clear that disputes on ownership rights for a brand may lead to the doom of the business. In order to avoid such disputes the authors seek to discuss the following four succession strategies which may be adopted by a family business for smooth succession of business among the legal heirs:

I. Provision for Multiple Rights in an identical trademark: Providing for multiple rights of the heirs may be one of the effective strategies for smooth succession. Under the Trademarks Act, 1999 a company may provide for multiple rights in an identical trademark subject to two conditions:

(i) No overlapping of goods: Section 40 of the Trademark Act,1999 specifically provides that a trade mark can be assignable or transmissible in more than one person subject to a condition that it shall not be used by the multiple users in relation to  (a) same goods or services;(b) same description of goods or services; and (c) goods or services or description of goods or services which are associated with each other, if having regard to the similarity of the goods and services and to the similarity of the trade marks, the use of the trade marks in exercise of those rights would be likely to deceive or cause confusion. Therefore, it is advisable to create multiple users of the same mark for different goods and services.

(ii) No overlapping of territories: Section 41 of the Act provides for assignment or transmission of the trademark in different parts of India. For example in case of Haldiram’s brand name, assignment of territories was done by its founder Late Gangabishan Aggarwal between the two brothers Moolchand Aggarwal and Rameshwar Lal Aggarwal for rest of India and West Bengal territories respectively. Haldiram’s is one of the strongest brand in food industry today and has exports in over 60 countries in the world. The territorial division made by the founders helped a lot in the growth of the business and brand value of Haldiram’s. The third generation descendants breached the succession plan of founders with enlarged aspirations to expand beyond the state of West Bengal resulting into litigation. It is therefore necessary that the succession plan must be executed and recorded in proper manner duly recognized by law to avoid any disputes at later date on account of changing aspirations of the descendants.

(iii) Law permits bifurcation of even registered trademarks on territorial basis or on the division of specification of goods/services.

II Added Features: Added Features means adding some other additional distinctive element to the mark which is sufficient to distinguish its source. There are many examples, like Bentex Group under the names R.K Bentex and M.K Bentex, Mehra Sons Jewellers under the names Yashpal Mehra and A.K Mehra Group and most recent Reliance Industries Anil Dhirubhai Ambani Group.

III Creation of Family Trust: Creation of a family trust and transferring the brand to it is another important aspect of succession planning provided necessary precautions are taken so as to save the mark from the attack on the ground of non-use. In such a situation the trust is considered as a holder of a trademark just like any other property which has been upheld in the case of Chinar Trust Vs. Usha(India) Ltd. 1999 PTC(19) 688 decided on September 23,1999.

IV Registered User: In certain situations the right to use the mark can also be vested in different companies/firms managed and controlled by the members of the family through registered user/licensed agreement.

CONCLUSION

Though astute in business and entities to reckon with on the bourses, when it comes to sorting out matters of succession some of India's oldest business families have failed to do their homework. The messy conflicts for assets and power--which overnight cause irreparable damage to relationships nurtured over decades send a clear message to Indian family businesses to prepare their brand succession plan so that their empire passes over to their sons and daughters in a smooth and amicable manner.

References:

  1. Business Line, Succession issues in business families, 26 November, 2004
  2. Business Standard, 'Cousin consortiums' can work, Narendra Jhaveri, June 05, 2003 
  3. Chinar Trust v. Usha(India) Ltd. 1999-PTC (19) 688
  4. Lladro Commercial, S.A Lladro: The Will to Create
  5. Power Control Appliances v. Sumeet Machines Pvt. Ltd 1995-PTC-65 decided on 8-2-1994
  6. www.dabur.com
  7. www.lladro.com

 

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