INDIA’S TOP

AJIV BAJAJ, managing director of BajajAuto, recently asked other group compa-nies to develop their own individual brandsas he wanted the Bajaj name to be exclu-sively associated with the bikes his companyproduces.

The proposal, which is being opposed bygroup firms such as Bajaj Electricals, show-cases a new debate within several business

families in the country — how best to protect andnourish family brands, created through decades ifnot centuries of trust and goodwill among people.

Away from media glare and within the four wallsof the family, scores of business groups are puttingfamily governance processes and structures in placeto avoid a split and thereby safeguard their familybrand. Many families, such as the Godrej family, theBurmans of the Dabur group and the GMR group,have already done that, while many others, like theBajajs, are either at it or are toying with the idea.

When the Burmans pulled out of day-to-day run-ning of business at Dabur and handed it over to pro-fessionals on the advice of McKinsey in the mid-1990s, they formed a family council and decided thatno member of the family would use the Dabur namein any venture floated in his/her individual capacity.

“We decided that it is only when the family mem-bers collectively set up a new venture would they beallowed to use the (Dabur) brand,” says Amit Bur-man, non-executive vice-chairman of Dabur India.

Clearly, the family did not want to take chanceswith the brand’s 100-year-old heritage and strongpedigree seeped in Ayurveda.

Around 2002, the Godrej family embarked on asimilar journey. To bring in more transparency with-in family ownership, the group set up a family coun-cil that meets twice every year and is attended by allmembers of the family who are 18 years of age andabove. The idea is to maintain harmony within thefamily and keep the Godrej brand strong.

“The more consumer oriented a business is, thegreater is the role of a brand and that’s true in ourbusiness,” says Adi Godrej, the family head andchairman of the Godrej Group. Godrej products areused by 480 million consumers —the highest for anyIndian consumer business, he adds.

At the corporate level, Godrej has divided its groupcompanies according to their product segments andeach company is allowed to use Godrej brand onlyfor the product category it is assigned. This way, Go-drej Consumer Products (GCPL) owns the brand foronly FMCG products, while Godrej & Boyce ownsGodrej brand only for consumer durables.

The group is also working on building its brandimage under Tanya Dubash, daughter of Adi Godrejand head of the group's brand, marketing and themedia initiatives. All new brand initiatives by groupcompanies are done in consultation with her. She isresponsible for the group’s marketing function witha focus on the strategic marketing group that drivesthe development of the Godrej master brand.

Currently, the group is in the process of getting itsbrand worth valued by Interbrand. “Brand, whichcarries our family name, is extremely important forus and we have full faith in its value as a long-term

sustainable asset,” says Mr Godrej.

Brand analysts agree that family-controlledcompanies in India are certainly warming upto the idea of the brand. Today, brand is seen as

something that is perpetually adding value to the en-terprise. “There’s a big effort to carefully redefinewhat these brands stand for and deliver. Companiesare putting energy and enthusiasm behind this ef-fort,” says Harish Bijoor, CEO, Harish Bijoor ConsultsInc. “The brand name is no longer a cost-centre sideof business, it is the profit center,” he adds.

While family councils have helped not just ironout wrinkles within family folds, they have also in-creased the chances that the family name as a brandcontinues to thrive for generations and create value.

Burmans have used the family governance rulesto stay as cohesive as ever. At the corporate level, theyexercise occasional intervention through strategicmanagement committee to ensure that groupbrands, including Dabur, are not jeopardised in thelong run. “We work on a brand plan,” says Amit Bur-man. “We have a filtering process to evaluate if any ofthe five power brands can be extended. Once the de-cision is made, we leave it to the professional man-agement to execute.”

Amit and his first cousin Dr Anand Burman aremembers of the strategic committee. Dabur remainsstrong with the Group’s healthcare space withbrands such as Dabur Chyawanprash and DaburHoneytus continuing to leverage on the brand’sayurvedic pedigree. For other categories, the compa-ny has created and used new brands. “We haven’ttried to change that, it’s worked better that way,” saysAmit Burman.

Down in Chennai, the TVS family manages itsbrands through a holding company, TVS & Sons,which owns the brand. The family allows use of theTVS brand only if the holding company has someownership in it. Another southern family, the TTKGroup, follows a patriarchal system in deciding therights over the brand name. There, only the eldestson in each generation is allowed to use the TTKbrand. The current family head is TT Jagannathan.

Ramesh Srinivas, executive director at KPMGAdvisory Services, says that the idea of maintain-ing the family brand is not really new in India. Anumber of family brands have been in existencefor a hundred years or more — the Tatas, Birlas,TVS and so on – and some of them now into theirfourth or fifth generation.

“These groups have recognised the obvious val-ue that the brand provides,” he says. “High brandsalience enables quick market recognition, facilita-

tion for capital raising, assurance to consumers.” So, many families have learnt better than splitting

and frittering away the wealth that is a brand namefamiliar across the country when there is a disputeover succession, or when some members of the fam-ily want to start a new business on their own.

“The degrees of freedom for business families indeciding their own destiny and members to embarkon their independent entrepreneurial journey havesubstantially come down,” says Unni Krishnan, MDof Brand Finance India.

Today, creating a market presence and buildinga brand is far more difficult and expensive thanbefore. A decade or two ago, the name of a

well-known business family was good enough secu-rity for raising funds, but not today.

Several business families have initiated steps tosafeguard their brands. But many families that ET

contacted want to keep their family brand and gov-ernance initiatives close to their chest.

Some families, such as JK group, RPG group,Dalmia group, Murugappa group and GMR, havesettled for an informal structure based on inputs frommanagement gurus like Prof Krishna Palepu of Har-vard Business School and Prof John Ward of KelloggSchool of Management. “Family governance is gain-ing currency as a concept. This is also evident fromthe fact many B-schools have commenced moduleson family governance,” says Anil Sainani, a Delhi-based family governance advisor who has workedalongside Dalmia Cement and GMR.

Interestingly, the Wadias never tried to build afamily brand. Their group-controlled companies —Britannia, GoAir and Bombay Dyeing — do not havethe family brand. But this was how the business start-ed and it is purely coincidental, just like the lateDhirubhai Ambani started Reliance Industries.

The GMR group has instituted a family constitu-tion that lays down the principles, processes and poli-cies on all family and business matters. These includeresolution of differences, usage of family brandname, consensus decision-making, code of conductand media policy among others. It has separatedfamily wealth and business wealth, too, with the eq-uity of the family corpus being held in an investmentcompany called GMR Holding Private Limited.

“Only those families that have put in place mech-anisms to pre-empt conflict and, robust disagree-ment resolution systems, have survived as a brand,”G M Rao, chairman of the GMR Group, told ETin anearlier interview.

That is because there are many challenges in nur-turing family brands and keeping them relevant, par-ticularly when the family grows big. And it’s not justabout succession issues.

“The question is how to keep the brand relevantacross a range of product and service categories, therisk of brand dilution by any company and the abilityto maintain a consistent brand identity across differ-ent family groups,” says Srinivas of KPMG.

So, it is imperative for family-controlled business-es to have clarity on the treatment to be given to afamily brand. Many business families have under-stood that and want to leverage their family names.

4* THE ECONOMIC TIMES MUMBAI WEDNESDAY 27 OCTOBER 2010

CORPORATE BRANDS

IN THE NAME OF THE FAMILY

R

Several Indianbusiness houseshave woken up tothe huge value offamily brands builtover generations oftrust and goodwill.They are nowworking hard todevelop brands assustainable assetfor generations tocome, reportsBhanu Pande

In the mid-1990s Burmans ofthe Dabur group formed a fami-ly council and decided that nomember of the family who floatsa venture in his individualcapacity would use the Daburbrand. The family didn’t want totake chances with the brand’s100-year-old heritage. Burmansalso have formed a strategicmanagement committee toensure that all group brandsincluding Dabur are not jeop-ardized in the long run.

Godrej divided its group com-panies according to product seg-ments they manage. Each com-pany can use brand Godrej onlyfor the category it is assigned.For instance, FMCG arm GodrejConsumer Products cannot usethe brand name if it enters a cat-egory outside FMCG. Also, afamily council meets twice a yearand is attended by all membersof the Godrej family who are 18years of age and above so as tomaintain harmony in the family.

The TVS family has a holdingcompany, TVS & Sons, whichowns the brand. It allows theuse of the TVS brand onlywhen there is some ownershipby the holding company.When the company does nothave any holding from TVS &Sons, the TVS brand cannot beused. For instance, HaritaGroup of Companies is fullyowned by the Srinivasanbrothers only and, therefore,do not use the TVS brand.

DABUR GODREJ TVS

AR

IND

AM

The concept may

seem radical to

several business

leaders who have

relied on tangible

assets for assessing

potential value of

their businesses

UNNI

KRISHNANMANAGING DIRECTOR,

BRAND FINANCE INDIA

AMIT BURMANNON-EXECUTIVE VICE-CHAIRMAN,

DABUR INDIA

ADI GODREJCHAIRMAN,

GODREJ GROUP

VENU SRINIVASANCHAIRMAN & MD,

TVS MOTOR COMPANY

SANTOSH

DESAICHIEF EXECUTIVE OFFICER,

FUTURE BRANDS

The crux of the

issue (when a

foreign parent takes

royalty payout from

Indian arm) is who

spends the money

in building the brand

RAHUL

BHASINMANAGING PARTNER,

BARING PE PARTNERS INDIA

Brand-holdingfirm, anyone?

Vikas Kumar

NEW DELHI

SEVERAL business conglomer-ates in the country are lookingfor ways to take care of their

generations-old brand names andmanage their different brands for dif-ferent industries. While most fami-lies have set up family governanceprocesses and structures to protectand nurture their brands, expertsfeel that the next step could be cre-ation of brand-holding companies.

Juggling a wide portfolio ofbrands and retaining the core iden-tity of the parent calls for more thansound brand management capabil-ities, trademark security and a sim-ple brand identity manual. It re-quires a value-orientation.

This means a strategic shift inthinking about the brand as a coreintangible asset that has to be safe-guarded and monetised through arobust mechanism.

One model that has created in-terest around the world is a brand-holding company on the lines of anasset-holding company.

The concept may seem radical toseveral business leaders who haverelied on tangible assets for assess-ing the potential value of their busi-nesses. But that could change, saysUnni Krishnan, managing directorof Brand Finance India.

"Companies are realising that abrand-holding company is essentialin the next phase of growth," he says.

At a simplistic level, a brand-holding company earns royaltyfrom each of the operating compa-nies using the brand as a shared re-source. This royalty is usually de-termined as a fair market rate if thebrand were to be licensed to anoutside company.

The model helps evaluate howmuch a brand is worth, and pro-vide a legal framework to regulateits commercial use within an or-ganisation's group companies.

It is like a licensing agreementwithin a company. It's notional, yet

contractual. The contract in thiscase spells out how and where thecorporate brand can be used in ex-isting and new business areas.

There are many pointers to whylarge diversified conglomerates inparticular should go in for such anentity. "One strong reason is theability to generate revenues. Sec-ond is ensuring misuse doesn'thappen-there are contractual obli-gations you can enforce among thegroup companies using the brand,otherwise there are only soft nego-tiations. Thirdly, when you needfunding to create new initiatives,this structure is useful," says San-tosh Desai, CEO, Future Brands.

It's also a useful option for family-owned companies where frequentspats can lead to dilution of the cor-porate brand as members deploy itindiscriminately into new business-es and markets. The brand holdingstructure could obviate the nega-tives associated with such a situa-tion, and bind group firms through amutual contract, says Mr Krishnan.

Multinationals that operate inIndia through a licensing arrange-ment receive a royalty payout fromthe revenues generated by their lo-cal subsidiaries. This has been asubject of debate.

Rahul Bhasin, managing part-ner at Baring Private Equity Part-ners, argues that since the Indiansubsidiary or licensee has spent aconsiderable amount of moneyand effort in establishing the brandin local markets, the current sys-tem of repatriation of moneythrough royalty is not appropriate.

"The crux of this issue is whospends the money in building thebrand. If this becomes a profit model(for the parent) it's unfair to minor-ity shareholders,” says Mr Bhasin.

In a judgment this July, the DelhiHigh Court said that Suzuki Motorshould compensate its subsidiaryMaruti Suzuki India for developingmarketing intangibles that involveconsiderable advertisement expenseand benefited the parent company.

One strong reason

is the ability (of this

model) to generate

revenues...when

you need funding

to create new

initiatives, this

structure is useful