Changemakers 2024: The Godrej Family Split is a Lesson in Separation

Scan the history of Indian corporates and the theme of family drama over wealth turns out to be a constant. Starting from the feuds of the Modi and Shri Ram families to the more recent disputes of the Bajaj and Ambani families, there are a number of examples of how and where things went wrong for business scions. So, the announcement of the Godrej family in April this year came as a pleasant surprise to many.

In a joint statement, the family announced that they had agreed to split the group into two divisions to better align the different visions of its members. On one side were Adi and Nadir Godrej, and on the other, Jamshyd Godrej and Smita Crishna.

While the peaceful resolution of longstanding issues came as a relief to investors and observers of the 127-year-old conglomerate, it was also a wise move at a time when the Indian economy was growing at a steady pace, presenting the conglomerate with several opportunities for expansion.

The detailed settlement not only broke from the trend of feuding over a share of the business, it also set a precedent for family businesses across the country and globally.

All in the Family

That a family dispute can hurt its business has been well documented. Estimates show that only 13% of family businesses survive till the third generation while only 4% go beyond the third generation. Seen in this context, the settlement agreement of the Godrej family is an impressive feat.

In an announcement, the family explain the rationale behind the settlement. “The realignment has been arrived at respectfully and mindfully to maintain harmony and to better align ownership in acknowledgement of the differing visions of the Godrej family members,” the statement said.

According to the family heads, the idea was to keep in mind the value for shareholders. “This will help maximise strategic direction, focus and agility and will accelerate the process of creating long-term value for shareholders and all other stakeholders,” they said.

The desire for harmony in the family is not new. The story of the conglomerate started with the collaboration of two brothers, Ardeshir Burjorji Godrej and Pirojsha Godrej.

For the family, meritocracy and democracy have always been important. This meant that each family member held equal stakes, including the women. The family also held regular meetings to ensure coordination.

The traditional foundations of the family are strong enough to allow for the airing of problems at forums. The Godrej family used to hold family council meetings once a year where every family shareholder above the age of 18 used to meet.

Keki Dadiseth, a former independent director of the Godrej family, told Outlook Business in 2013, “The meeting is usually held in April or May every year and is an intensive, two-day affair. The top management of the entire group interacts with the family.”

The family also had a long-running tradition of meeting for lunch every Thursday that was started by Pirojsha Godrej in the 1950s.

Logic Triumphs

A culture of close coordination ensured that all parties were welcome at the table. The family realised early on that it would be better to settle issues on the direction of the business instead of letting them simmer.

The division was carried out in a way that ensured that an element of continuity was retained. In the settlement, the families got the businesses they were already handling. This ensured minimal disruption. While it reportedly took five to six years to chalk out the details, the final settlement set in place a structure for future planning.

This has the potential to become a future reference. Kavil Ramachandran, professor and senior adviser at the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business says the culture of the Godrej family ensured a peaceful settlement.

“They are not street fighters. The family could see the logic in settling the issues now. Moreover, education on peaceful settlements is increasing and this settlement showed that large corporations can amicably resolve problems,” he says.

The family settlement’s clear take on succession has also been lauded by industry. The documents state that Pirojsha Godrej, son of Adi Godrej, will take over as the chairperson of Godrej Industries group in 2026. On the other side, Nyrika Holkar, daughter of Crishna, would act as executive director in Jamshyd’s Godrej Enterprises Group.

From decisions on land to the use of brand logo, the thoroughness in the settlement indicates that the family let logic triumph. Industry leaders pointed out that the settlement is historic and serves as a model to replicate.

Uday Kotak, former chairperson of Kotak Mahindra Bank, told CNBC TV 18 that the agreement ensured that future generations would flourish. “The Godrej family is known for their high integrity and quality. They have a subtle yet stylish approach to everything they do,” he said.

It is this stylish approach that the family has introduced this year that could shift the paradigm of future planning of family businesses.