“The agreement we have reached secures my family legacy," said Vijay Mallya, the erstwhile King of Good Times earlier this month in a statement. His flagship United Spirits is now a subsidiary of UK major Diageo.
The family legacy that Mallya talks about does not exist as he has lost control of the company which was his father’s acquisition.
It is often said that any business does not last beyond the third generation. Less than one-third of family businesses survive the transition from first to second generation ownership.
In Mallya’s case, it has not lasted with the second generation.
Kavil Ramachandran, who heads the Thomas Schmidheiny Centre for Family Enterprise at Indian School of Business, says liquor companies normally do well because of the nature of the business. If Mallya hasn’t, it points out to possible anomalies in how he ran his company.
Ramachandran delineates the characteristics of family-owned Business (FoB) and what sets Mallya and his running of United Spirits apart.
Founding principle: Most entrepreneurs start ventures and build on it not for themselves but for their future generations. In several cases, founding team and the next generation work hard as they believe in this principle.
What Vijay Mallya did: After the early death of his father, Vijay Mallya became the chairman of United Spirits when he was 28 years old. Either he did not have anyone to mentor or guide him or he did not heed advice. Mallya did not play the role of a leader of a business as the trustee of the wealth bequeathed by the previous generation to him.
It is very easy to go adrift and to get carried away and destroy emotional and family wealth, says Ramachandran. This can happen to the third or fifth generation or even to the second as in Mallya’s case.
Responsibility to future generations: Family businesses have to be carefully tended to and cultivated so that they can be carried over by the next generation.
What Vijay Mallya did: He had ample opportunities to correct his mistakes or stop the companies in his control from bleeding profusely. But he chose not to.
A family business is a fragile entity and its inheritors have an important role to play in building them, points out Ramachandran. It was never too late for Vijay Mallya to take a step back and recoup the business. “When Kingfisher Airlines was bleeding, he had the opportunity to stop it. But he chose to borrow from banks and then became a defaulter,” says Ramachandran.
Don’t get your ego into the business: When an organization is not performing to its optimum, the person/s at the helm should look at what is going wrong objectively and take actions.
What Vijay Mallya did: He made his companies an extension of himself. Mallya refused to listen to reason, perhaps. Else, how could he have got so deep in the red?
“A few years ago, when the banks started knocking at Mallya’s doorsteps, he should have spoken with the board and come out with a solution,” says Ramachandran, adding, that Mallya should have had the humility to change the route the companies were taking.
Image matters: A company’s leader’s image affects how it is perceived by the public.
What Vijay Mallya did: He showcased this image of the King of Good Times and showed off his flamboyant self at all times no matter the negative headlines and space the company and Mallya found themselves in.
“Leading a company is a great responsibility. For a family business leader, ownership is a responsibility; it doesn’t give that individual to take any decision he/she wants. Every time the leader should ask this question: is the decision good for the company in the long run? For the leader, the responsibility is to preserve and grow the wealth and pass it over to the next generation,” says Ramachandran.