Suzy Bibko is editor of Families in Business.
GMR Group was founded just 30 years ago by G M Rao. Through its energy, transportation and charitable initiatives, Suzy Bibko discovers that it is helping create a stronger India – and building a sound family business infrastructure at the same time
When adults talk about building airports and roads, I can't help but think of little boys playing with toys – model jets landing on playground runways and miniature backhoes digging to China in the sandbox. The reality is far from playtime – these are huge projects, involving millions of dollars in financing and equipment. So, on second thoughts, maybe a good imagination and something akin to a child's willful determination is needed to succeed. Both of which the founder of GMR Group has in spades.
Founded by G M Rao (pictured) in 1976 as a company manufacturing jute twine, GMR Group evolved, gradually, into a major infrastructure business. Rao admits his initial plans were not well thought out: "I didn't plan to get involved [in the infrastructure arena]. I have three brothers and my father divided our inheritance between us. I started with just $6,000 in 1974. I applied for, and was granted, a licence for a jute mill – but there was no mission, no vision." In the next 10-15 years Rao expanded his business by setting up another jute mill, steel-rolling mill, ferro-alloys unit, brewery and an integrated sugar complex. During this period he also became the director and major stakeholder of Vysya Bank (the then leading private bank). He sold his stake to ING but following the takeover remained as non-executive chairman of the ING Vysya Bank Ltd.* When the government invited bids for setting up a 200 megawatt power plant in Chennai, Rao applied for it and won. That was GMR Group's first foray into the infrastructure field. The company now has interests in energy, roads, airports and manufacturing.
It is also a family concern: Rao's two sons and son-in-law also work in the business, each as a group director. Over the past 30 years, GMR Group has implemented some of the most innovative and technologically superior projects in India. Rao believes that these projects have contributed to the overall growth of the Indian economy and set new benchmarks for the Indian infrastructure business. Of this broad vision, Rao says, "I want to contribute to the building of India's infrastructure and these are long-term platforms [to accomplish that goal]."
The projects GMR Group has completed, or are currently developing, are impressive. In the energy sector, it built and operates three companies, with plans for a fourth: GMR Energy Ltd (a barge mounted project in operation since 2001, in Mangalore); GMR Power Co P Ltd (a two-stroke stationary engine power plant in operation since 1999 using treated water from its sewage treatment plant for cooling and other purposes); Vemagiri Power Generation Ltd (a gas-based power plant completed recently, near the KG Basin); and GMR Badrinath Hyrdo Power Generation P Ltd (a hydroelectric plant to be completed in 2012, in Uttaranchal).
In the roads sector, the Group has completed two projects, with another four in development: GMR Tambaram Tindivanam Expressways Pvt Ltd (a 93km highway completed in 2004; GMR has a 74% ownership interest); GMR Tuni Anakapalli EPL (a 59km highway completed in 2004; GMR has a 74% ownership interest); GMR Ambala Chadigarh EPL (a 35km toll road to be completed in 2008; GMR has 100% ownership); GMR Pochanpally EPL (a 103km highway to be completed in 2009; GMR has 100% ownership); GMR Ulundurpet EPL (a 73km toll road to be completed in 2009; GMR has 100%); GMR Jadcherla EPL (a 58km toll road to be completed in 2008; GMR has 100% ownership).
Manufacturing is the first sector for GMR Group, and they have decided to diversify into sugar and fero-alloys. In 1997, they successfully implemented a sugar cane development programme in a backwater district of India, providing the proper infrastructure for irrigation, transportation and the like, all of which have dramatically increased cane production and improved the livelihood of around 25,000 farmers in the area. The company also has a sugar factory, which is the technologically most modern sugar plant in the area and they have recently added an ethanol unit, which uses molasses made from the sugar as feed stock. GMR Group's fero-alloys divison manufactures a range of niche products that include high carbon ferro chrome and other specialty products used in the manufacture of stainless steel.
The Greenfield Hyderabad International Airport and the modernisation of Delhi Airport are the two biggest, and most ambitious, projects of GMR Group. These projects are being developed on the public-private partnership model, which combines the best features of the public and private sectors: government involvement brings a sense of stability and security, while private participation draws on the sector's efficiency, expertise and cost-competitiveness. This sector also has huge potential, as GMR is involved not just in the design and build phases, but also in the operations management (flight and terminal operations, fire protection and parking). GMR Group will have operational rights over the two airports for a period of 30 years – and this can be extended to another 30-year period.
But the Group knows that if future generations are to be involved in the infrastructure business and reap its rewards, the Group itself needs a solid foundation on which to build. Therefore, GMR Group has undertaken an amibitious programme in the past eight years to professionalise the business. "We had to – because of the growth of the company", explains Rao. So, in 1998, with several emerging growth opportunities and plans in the works, Rao, his two sons and son-in-law began the process of introducing the proper systems and processes to grow into a professionalised family business. The result is a soundly structured business and family governance system.
On the business side, a Group Executive Council (GEC) was formed to broaden and professionalise the top management and create a participative decision and leadership forum. It is made up of seven members chosen by the family, four of which are family members. The role of the GEC is to focus on strategy, corporate governance and performance reviews of GMR Group. Business steering committees for each business sector (energy, roads, manufacturing and airports), made up of senior leaders (family and non-family) and functional heads of each business, were also formed to help provide strategic direction and long-term planning advice, and to help achieve performance targets and budgets, among other things. "The fact that there are discussions on how to manage projects and that the views of the professional managers are being heard is a positive sign," says one of the family's non-family advisors.
On the family side, they created a family council, family constitution, and family forums for both business and non-business family members. "With many business families facing conflicts and splits, we decided to work out a framework to ensure the family stays together and disputes are resolved within it", explains Rao. "We now have multiple platforms for discussion."
As such, the family recognises that the family council is a forum that is used to improve and facilitate better relationships. It is there to improve communication between family members working in the busines and those not working in the business; develop healthy, effective and strong personal relationships within the family and give family members a voice; develop responsible stewardship of the business and strengthen shareholder governance; facilitate the education of family members in current and future generations; organise family gatherings; encourage fun and strengthen family bonds.
The family business forum, on the other hand, deals more with family business matters. It exists mainly for the family directors to discuss business issues and speak as one voice; provide guidance to the board; enable the board to obtain shareholder approval; strengthen shareholder governance; set policies and provide guidance for the board; agree remuneration levels for family directors; and develop education programmes for family members working, or wishing to work, in the business.
The family has also put together a constitution. The process was intensive, with 14 family meetings held over a three-year period to discuss the content of the family constitution and emotional issues to sustain family harmony. "The family has deliberated these issues in considerable detail", says another of the family's advisors. In March 2004, the Rao family agreed the list of subjects and details to be incorporated into the constitution. The topics were then prioritised and the groups within the family responsible for detailing those items were identified. The result was a document incorporating the governance structure, as well as family values, a family code of conduct, a family fund and share structure.
The constitution also deals with the subject of succession. Rao intends to retire at the age of 70, so five years before he retires, there is a process to select and appoint a successor. "However", says Rao, "I will not nominate my successor. The next generation should select the chairman". Indeed, the constitution calls for Rao's sons and son-in-law to decide together, as a selection committee, who will succeed Rao. And if there's a deadlock, there is a process in place to remedy the situation (there is also a process for the case of sudden death). Then, once the successor is chosen, a handover period of a maximum of two years begins between Rao and his replacement.
But Rao is only 56, and retirement seems a long way off. What does he envision for the immediate future? "We would like to move from being a managing family to being a strategic family", says Rao. But is that all? Surely the lure of the big projects must still tug at his heart. Rao doesn't pause a second before revealing: "I want to build an entire city – a very big city". His dream is to build an entire city with world class infrastructure in terms of city planning and amenities such as uninterrupted power and water supply, wide roads and excellent connectivity through road, rail and air.
This vision seems achievable, as Rao seems to have the means and experience to build everything required for a whole new economic zone. He even has the appropriate social programmes in place to ensure the population is skilled, educated and healthy. Through his GMR Varalakshmi Foundation, the corporate social repsonsibility arm of GMR Group, he has established a network of activities to help those less fortunate sections of society around his home town Rajam in Andhra Pradesh and the communities around the Group's plants and projects. "I started the foundation in 2000", explains Rao. "I wanted to give back to society because I came from the village and I know what it's like. I thought, what are we going to do? Every year we contribute 3-5% of the Group's net profits to help the community."
The social projects are often initiated simultaneously to GMR Group's infrastructure projects, bringing Rao's involvement full circle. For example, on the same day one of GMR Group's airport projects began, the Foundation also launched a Mobile Medical Unit for villages around the airport area. Along the same lines in Delhi, preliminiary discussions have been held with the State Education Department on an initiative to strengthen science education in government schools around the Delhi airport area, and a financial commitment for the same area has been made by the Foundation.
The Foundation is structured well and works in four areas: education, empowerment, healthcare and community development. The aim of the educational programmes is to bring quality education to remote rural areas of India. As a result, the Foundation has started several state of the art educational insitutions, including an engineering college, a degree college and three English secondary schools.
The Foundation realises that while these institutions want to bring the best quality education to students in the area, not everyone can afford to take advantage of the opportunities offered. Therefore, the Foundation has created several educational scholarships and loans. In existing government schools, the Foundation works with the district authorities to provide teaching volunteers in 50 schools where the student-teacher ratio is poor, supplies supplementary mid-day meals to students and works with parents to help ensure attendance and retention. The Foundation also provides free after-shool classes for students who need extra help in their studies, extra-curricular after-school activities and village libraries to more than 4,000 children.
The Foundation's healthcare programmes are impressive. Running several Mobile Medical Units (MMUs), the Foundation provides healthcare to the doorstep of those who find it difficult to receive medical care. "We bring the hospital to the community", explains Rao. "We go to the people and we treat them. And if it's serious, we take them by ambulance to receive treatment elsewhere." Each MMU visits ten villages a week and treats over 1,000 patients. In remote areas, the Foundation has two ambulances on call 24 hours a day for anyone who needs them. It also runs a variety of 'medical camps' in targeted communities to deal with recurring problems in that area, such as eye disease and orthopaedic problems. There is rigorous follow-up to ensure patients are referred to specialty medical institutions and receive the proper treatment.
Rao says that while education and healthcare are important for India's underprivileged population, "we also want these people to stand on their own". As a means to this end, the Foundation runs three institutes of Rural Entrepreneurship Development to teach rural youth skills like television repair, home nursing, vehicle repair, tailoring and photography (to mention a few of over 40 trades), which in turn helps strengthen communications, enterprise management and financial management. "After two years of training, if [a student] wants to start his own business, we can help them facilitate a bank loan", says Rao. "Since starting this programme, about 75% of trainees own their own business now." This is an inspiring programme and one that seems to strike a chord with this family business entrepreneur: "This is a project very dear to me," reveals Rao.
This empowerment project for individuals has a sister programme in the community. As the last area of it's four-part aim, the Foundation works with communities to support their overall socio-economic development. Working with communities including basket weavers, washermen and cleaners, the Foundation provides them with training, facilitiation, and help in establishing small businesses and markets for their products.
Edmund Burke, the 18th Century British statesman said, "Good order is the foundation of all good things". Rao and his family have certainly heeded those words by building a well-structured and professionalised family businesss. There's no doubt that generations-to-come will be able to benefit from such a solid family firm, and contribute significantly to building world class infrastructure in India.
*During the year 2005-2006, Mr Rao resigned as Non-Executive Chairman of ING Vysya Bank as he completed his latest continuous, and maximum permissible, term of eight years as Director, as per the Banking Regulation Act. The Board of Directors of ING Vysya Bank, while placing on record his yeoman services to the bank for over two decades, as Promoter Director and Chairman on the Board, decided to confer the title of Chairman Emeritus on him – a rare and unique honour in the Indian Banking Industry.