Dramatic paper that electrifyingly shook age-old perceptions

Perhaps the most dramatic paper that electrifyingly shook age-old perceptions was the one presented in 2004 by stalwart professors Belen Villalonga (Harvard Business School) and Raphael Amit (Wharton), who analysed “all” Fortune 500 firms and proved unequivocally that “when ‘descendants’ (of founders or founding families) serve as CEOs, firm value ‘is’ destroyed!” Villalonga and Raphael further proved that descendant CEOs “destroy value whether or not the family has control-enhancing mechanisms.” If that wasn’t enough proof to convince why companies should believe in professional managers (called ‘outsiders’) beyond the fi rst generation, a 2003 research by London Business School proffered that family businesses “risk their growth potential if they fail to recruit from outside...” Amusingly, this fi nding gets tremendous support from the subsequent benchmark 2005 research paper titled ‘Firm Performance... In Family Managed Firms’ by David Hillier (Leeds University) and Patrick Mc- Colgan (Aberdeen University), which indisputably establishes how family CEO successions are almost always followed by dramatic declines in not only stock performance, but most dangerously, even operating performance!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist)

SHEER DYNAMITES

History remembers ‘warriors’ who fought because they shared a common passion, yet weren’t owners of the land... History will also remember capitalistic warriors of India Inc. who fight on and share a common passion, yet are ‘non-owners’... It will!

Capitalism, they say has a fundamental rule – one who takes ‘higher’ risks also deservedly stands a ‘higher’ chance of winning back greater returns! Well, indeed that’s a reference to ‘first generation entrepreneurs’ who invest their lifetime and fortunes into making that single formula work, trying hard to get that single meeting click and spending endless hours walking in the hot sun to get hold of that single customer... and they certainly do deserve those titanic returns and the full right to run their company, for its an established truth that shareholders of an organisation being run by ‘first generation’ owners earn rich returns. But then the question arises, “What about their descendants?” We take a look at successful capitalistic entities around the globe and in India too; and the truth surfaces – professional managers make living easier for the company and provide better returns to its shareholders than ‘descendants’.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist)

Protagonists of different sorts!

No matter what they do, they make sure that it’s big, every time... even if the clock is running against them!
Every rise has its fall… only to rise even beyond! With this wise and time-tested belief we unfold this edition’s list of newsmakers, who for a change have made it to our hallowed corridors not for their echoing success, but after seeing billions of net worth being wiped away in a jiffy... Mukesh and Anil Ambani, Sunil Bharti Mittal, Azim Premji and K.P. Singh are names that are constantly making headlines with aggressive growth charts, but this time, they are protagonists of a different sort. A heart wrenching $10 billion of cumulative wealth of these five bigwigs vanished within a fortnight, which was marked by tumultuous times for global equity markets. Undoubtedly, the last few weeks for the famous five richest that India has produced, first got big gains for these tycoons, followed by a bloody bloodbath at the bourses. Only last month, Kushal Pal Singh, Chairman of DLF Group, made the country proud by becoming India’s third trillionaire in rupee terms (as shares of DLF saw some vigorous escalation).

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist)

All’s well that ends well!

Genpact stumbles & recovers on NYSE
“We are the largest BPO in the country, hence we were definitely looking for a premium,” exclaims Pramod Bhasin, Head, GenPact India, with respect to the listing of the company on NASDAQ. But when the winds of misfortune strike, even such impeccable laurels aren’t enough to rest on. When Genpact went public on August 2, its plans lacked one critical aspect - timing. With a global equity sell off happening from Washington to Wellington, Gen Genpact could only manage to sell shares at $14, against a band of $16-$18 and raised close to $500 million. Genpact is the third BPO company to list on an overseas exchange after WNS (NSE) & EXL (NASDAQ). WNS listed at $20 per share & raised $224 million, while EXL shares were priced at $13.5 and raised $67.5 million. “An international listing helps the company with some very obvious benefits such as more liquidity and diversifications of shareholder base,” says Pankaj Karna, Partner & Head, Grant Thornton, India. So, was Genpact caught in the bad weather or was Genpact really overpriced? Perhaps, both. But even then, despite a lukewarm response, Genpact has had a decent run in the secondary market, as the stock ended at $16.75 on day one. Well, tough times seldom last, they say!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist)