Managing Director of Caprihans India Ltd, Banerjee’s book looks at failures in the corporate world, global and Indian, and the reasons for the decline and fall of an enterprise. He not only draws out the lessons learnt but also provides guidelines as to how companies can avoid the pitfalls. There is a close relationship between success and failure, says Banerjee: “Success is often built on a bed of fiascos, and flops. Unless you fall, you do not learn; unless you try, you cannot fail; unless you fail, you cannot grasp.”
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NewsTranscript
00:00 Many entrepreneurs make the big blunder of overestimating themselves.
00:04 I have started the company, I know everything, I have 360 degrees capability, I know finance,
00:10 I know marketing, I know manufacturing, I know technology, I know HR, impossible.
00:15 God has not given us every possible capability.
00:27 Today, we have in our studio, Mr. Robin Banerjee, who's written a fine book on who blunders and how
00:34 the dumb side of the corporate world. Welcome Mr. Banerjee to Bibliophile.
00:40 Let me begin by asking you in a more generic sense.
00:44 Most people don't look at failures. They are more concerned with successes in the corporate world,
00:52 whether it's magazines or TV. You have written a book like this, but
00:55 what do we learn from failures?
00:57 Failures are the stepping stone for success. Everything what we have learned in our life is
01:04 from a failure. We learned to walk because in the first few steps or maybe number of steps we
01:12 tumbled. We learned to ride a bicycle because we failed several times. If you don't fail, we don't
01:18 learn. Unfortunately, the corporate world does not talk about failures. Failures, mistakes,
01:26 blunders are all shoved on the carpet, which means everything is hunky-dory, not possible.
01:30 In any business decision, if you take 10 decisions, 7 perhaps goes wrong, 8 goes wrong,
01:39 2 perhaps succeeds. We always discuss and talk about the 2, but what about the balance sheet?
01:45 This book is all about that. So much great learning can happen from those 8 cases which could not
01:52 succeed. Your book has a big chapter on family businesses where you said that family businesses,
01:58 generally, some of them over generations, they fail. Can you give for our viewers some examples
02:07 on the international one? We'll come back to the Indian examples later. But on the international
02:12 where the big failures happen in the family business, not in the professional young companies.
02:18 Most businesses are family businesses. Almost 80% of the businesses which we have encountered,
02:25 including the mom-and-pop shops, the corner shops, these are all family companies.
02:30 Most companies or most businesses start as a family business. Maybe the proprietor,
02:38 maybe the brothers or the cousins started something and then maybe in due course of time,
02:43 some may have become corporatized. Your question is, can I give you an example of how an
02:49 international failure takes place? There are many and there are many reasons why a family business
02:54 fails. It could be the infighting, it could be the owner or the person who started the business
03:03 did not foresee and have someone who will take over from him. Or it could be that the owner
03:10 has transferred the business to a child who is not suitable for the job. So there could be many
03:17 examples. I'll give you one example that there was a company called Carman which started in 1901
03:26 and they actually made, they used to make car bodies. Car batteries? Car bodies. They used to
03:36 make car bodies. They made car bodies for Volkswagen, Mercedes, BMW, the world's top
03:42 companies they used to make car bodies. One of the famous car body name is called Carman Kia
03:50 Volkswagen. Mr. Carman, who was a second generation, died in 1999.
03:59 Within 10 years, the fighting started amongst his successors. No one knew what to do, what is to be
04:08 done with the organization. Within 10 years, the company became bankrupt. A company which was in
04:14 existence for 100 years, they made the finest of the finest product. But the owner did not foresee
04:22 that what will happen when I die. And that's a classical example as to how family businesses
04:28 topples over because perhaps for the loss, lack of foresight. Very strange, but the owner had the
04:36 foresight to run the business, make it profitable to all the 360 degrees only to realize he or she
04:42 did not think what will happen when I'm not there. So there's no succession planning.
04:45 Absolutely right. There was no succession planning and there are a lot of Indian examples
04:50 and this issue also. So let us come to the Indian example. You mentioned about the Manis.
04:57 Dhirubhai Ammani set up an empire and then once he passed off, he didn't have a succession plan.
05:06 It fell on the two brothers. Now tell us in your own words, what happened between the two brothers
05:12 and why it happened? Very good question because it's a classical problem of the owner, the
05:20 entrepreneur who created a giant. He was himself a petrol pump worker. From there, he became one of
05:27 the finest and the biggest Indian entrepreneur. But he could not think about or he could not plan
05:35 what will happen when I die. And Mr. Dhirubhai Ammani clearly knew that he has two sons,
05:40 Mukesh and Atin and there is a possibility they might fight, but he did not do anything about it.
05:46 So when Mr. Ammani, when Dhirubhai Ammani died, the natural thing happened after two or three years,
05:52 things were going on reasonably okay. When unfortunately what we believe is the wives
06:00 were started telling their husbands that why don't you take care of the company yourself?
06:05 And that's where Mukesh and Atin fighting started, which is in a public domain in most of the cases.
06:13 In fact, how the infighting destroyed the value is for us to even very difficult even imagine.
06:21 Both the brothers got about 45 billion dollars each when the split took place.
06:29 Today, Anil Bhai is perhaps worth a billion, one billion only, whereas Mukesh Bhai is worth
06:38 100 billion dollars. So what's this difference between, is it got to do with personality,
06:43 it's got to do with their upbringing, teaching, what is it that two people grown up in the same
06:48 milieu go so differently? And this is a blunder. And this is a classic example, a case study perhaps
06:55 of how business blunders takes over. Anil Bhai, in my view, has done a blunder of getting into
07:03 too many businesses, not concentrating on the one or two which he is able to run better.
07:09 And whatever money he was making, he was investing in new businesses, so he wanted to show the world
07:15 I'm a great businessman. Second big blunder, he took debt from the banks without realizing that
07:20 he may not be able to pay it on time. Number three, he was so much busy with many activities,
07:27 including films and of course his running. I believe that he did not have a very good time
07:33 to concentrate on and give guidance to his managers. So many things went wrong there and
07:41 that's a good big lesson to learn that how Mr. Anil Ambani destroyed value while his brother
07:49 singularly and single-handedly added value. Now, most of the family companies in India
07:56 have come through an era of political control. Now, I want you to explain to us,
08:05 what do you think of the role of the government, especially coming from the license permit raj,
08:12 where they would support one company or bring down one company. How much of that has affected
08:19 Indian corporates over the period of time? I believe pre-1991, before the so-called liberalization
08:27 era, the businesses and success thereof were very much dependent upon government goodwill
08:34 and government gifts. Surely, reliance is one of the such story. And now, currently, if I may say
08:46 today, I don't think that a government relationship is important for a business success because more
08:53 and more India as a country has become laissez-faire. Laissez-faire means the government
08:59 leaves the companies to do their own business. So, while in the pre-liberalization era, government's
09:08 support and goodwill and being able to turn them towards you was important. That I don't feel is as
09:18 much as what it used to be earlier. Varun, you have your tea also while we talk. Thank you.
09:23 Okay, let's talk about mergers and acquisitions now. In your book, you have called it a mug scheme.
09:33 You said it's overrated. Why do you say that? An organization, a business can grow in two ways.
09:43 They can either grow themselves, like construct a factory, which is called a greenfield expansion.
09:50 Alternatively, a business can grow by acquiring another organization,
09:56 which could also be named as brownfield expansion. Many entrepreneurs have the vision of becoming
10:05 very big, all powerful, controlling the market. And the fastest way for doing that is to acquire
10:13 another company. The mistake which is made in many times in their eagerness to become big
10:21 and their eagerness to make it fast, there is a tendency to overpay.
10:26 And that's the first mistake which businessmen do. Acquisitions overpaid.
10:33 Valuation of the... Yes, valuations are then done inappropriately
10:37 and they go and make a large payment. The offset of that is that you have to do a large borrowing.
10:49 And the moment you borrow a large amount of money, you get into a debt trap,
10:53 which is another mistake, a huge mistake. So most mergers, most acquisitions do not work.
11:01 Historical evidence shows 70% of M&As did not work. This is contrary to what we feel and we think,
11:11 but the fact of the matter is most don't work. And therefore, that's a big blunder.
11:18 And if the learning there from that is an M&A should not be done in a half.
11:24 There are lots of lessons to be learned and most M&A succeeds if there is a give
11:32 approach than a take approach. By both sides.
11:36 First, when an acquirer acquires an organization, the acquiring company feels that I must take a lot
11:44 of things. I must take their money. I must take their cash balance. I must take their technology.
11:48 I must take their people. But that doesn't work. If you acquire an organization, you must first
11:54 think, what can I give that organization? The moment you think that I shall give and not take,
12:01 an M&A starts succeeding. Goes without saying, when you start giving, you should also take.
12:08 It cannot be one way. So this give and take approach makes an M&A succeed. Perhaps it is not
12:15 the normal way we read in the books, but that's my experience of seeing why and how an M&A can
12:23 actually succeed. You've talked about the top man, the CEO or the chairman, whoever the executive
12:31 chairman, whoever that they are often responsible for bringing a company down. Why is this so? Is it
12:39 hubris? Is it lack of experience? What is the reason that many of these people bring the company down?
12:46 Many entrepreneurs make the big blunder of overestimating themselves. I have started the
12:53 company. I know everything. I have 360 degrees capability. I know finance. I know marketing. I
12:58 know manufacturing. I know technology. I know HR. Impossible. God has not given us every possible
13:05 capability. Therefore, one mistake which entrepreneurs do that I know it all,
13:14 I can think about everything. I don't need any advice. Number two, a big blunder which entrepreneurs
13:22 do is the greed. The greed to become big, powerful overnight. And three, not taking sane advice.
13:35 Sometimes, or why sometimes I'm sure entrepreneurs are speaking to hundreds and thousands of people.
13:42 They're speaking to the bankers, their advisors, their auditors, their own people, their employees,
13:46 their managers. But are they listening? Speaking is fine, but you need to listen.
13:52 And if you listen, of course, some of it could not be may not be good advice. But it is important
13:57 for the entrepreneur to able to sit through what is good and what is bad, and then try to implement
14:04 the good ones. The ones who have been able to do that have been successful, like I believe Mr.
14:12 Ratan Tata, very successful businessman has listened to many. You also said in your book
14:18 that the boards should be more proactive at times when they see something is wrong,
14:23 they should throw out the CEO or the chairman, whoever it is responsible. Does that happen in India?
14:29 My advice, of course, I'm talking about blunders. And my advice to the boards are that if
14:39 an organization is not doing well, and the board feels that CEO could be a cause of concern,
14:46 the CEO should be set. It has fortunately started happening in India. Just a few days back,
14:55 Mr. Thapar, who was the chairman of CG Power, was thrown out. Mr. Gautam Thapar, who was a chairperson
15:04 of CG Power, which used to be Crompton Group Powers earlier, a huge name in the country
15:11 has been thrown out. It was unheard of earlier, but it has happened. Therefore,
15:16 boards perhaps have started reading my book already.
15:19 That's probably true. There are many questions I want to ask, but I'll probably end with one
15:26 which is perhaps relevant in the situation we are in. You also talked about it, about sexual
15:33 harassment by the top person in the company, in view of the Wisaka guidelines by the Supreme Court.
15:41 Do you think it's a major issue at least in the board level or at the CEO and other levels in
15:49 India? I think it is an issue. It's a hush issue in the corporate world. The ladies or the lady
16:00 who suffers from harassment keeps quiet in the Indian environment because she feels that I shall
16:08 not be supported. I may be actually blamed and the system will throw me out and I shall not get a job.
16:16 There is a problem. It is true that the government is trying to do a lot. There are sexual harassment
16:23 guidelines with organizations. There are committees being made. The sexual harassment guideline needs
16:29 to be in the internet, in the website of the listed companies. Lots are being done, but the
16:38 most important is we as humans have to change our thinking. We must treat each and every individual
16:45 as our equal. We must treat a woman as if he's a man. No special favor should be asked for or no
16:56 special intent needs to be shown. But it's all in the mind. Unless we the managers change,
17:03 I'm not too sure how this issue of sexual harassment is going to end in the Indian context.
17:09 There, like I said, there are many more questions I would like to ask, but I'm afraid
17:14 we have run out of time. Thank you, Mr. Benaji, Managing Director of Caprihans India Limited
17:20 for coming to our show, BBJO5. Thank you. I had wonderful talking to you. God bless you.
17:27 [Music]