GMR GROUP

G.M.Rao’s father was a successful dealer of jute, food grains and gold.

Division of Wealth – Each son received some property and INR 3,00,000.

G.M.RAO – Mechanical Engineer from Andhra University. Worked in a Paper Mill and with PWD.

The brothers joined together and opened a trading venture, dealing in jute like their father.

In 1988, the brothers separated as they had diff erent ideas. G.M.Rao wanted to reinvest the profits and expand whereas his brothers were interested in profits.

He received a jute mill as part of the settlement.Joined the board of Vysya Bank in 1985.

ORIGINS

Largest shareholder of Vysya Bank and in 1993, decided to run the bank himself.

Brought Bank Brussels Lambert (BBL) into the project, giving it a 5 per cent stake, and upgraded the bank’s systems and processes with the new partner’s help.

In late 2002, BBL was acquired by ING, with Vysya Bank included as part of the deal, and Rao received INR5.6 billion for his stake.

Retired as its Director and Chairman in 2006.Learning's from the bank venture – • Exposed to the modern world of finance and

broadened my outlook on business. • Good businesses crashing due to confl icting family

interests on business matters and lack of governance mechanisms in the family.

Ferro-alloy manufacturing (1991-92) Sugar production (1995) Breweries (1998) A 200-megawatt (MW) power project in Chennai (mid-

1990s)A barge-mounted power plant, the world’s fi rst and

largest, in Mangalore in late 2001. Highways and Urban Infrastructure.Airports Manufacturing (agri-business, mainly sugar)Net revenue of INR 45.67 billion in 2009-10 as

compared to INR10.62 billion in 2005-06Growth rate (CAGR) of 44 per cent.Company’s assets were valued at INR149.34 billion in

2010.

DIVERSIFICATION OF GMR GROUP

FAMILY TREE

S.B

• Ventures- Soft Drinks Bottling & Aquaculture.• Joined GMR IN 1995.• Developed Two Power Projects in Karnataka and Andhra

Pradesh.• Managing director of the Delhi International Airport Ltd.

(DIAL) in 2006, along with Raju.• Since 2008, Handling Property Development,

Construction of a SEZ, Road Projects & the Delhi Airport.

RAJU

• Bachelor of Commerce degree from University of Hull & Joined family business in 1996.

• Helped shape the overall strategy and positioning of the organization.

• Served as CFA as well as the Board Of Directors.• Director of Delhi and Hyderabad Airports.• Also oversaw GMR’s corporate services (including human

resources as well as the international business)

KIRAN

• Completed his bachelor of commerce degree in 1996 and formally joined the Group as a director in 1998

• Initially inducted him into their sugar factory development.

• Involved in developing strategic tie-ups for a power project, a life insurance joint venture with ING and Vysya Bank, a joint venture to develop a Malaysian airport and a collaboration with a Malaysian firm to bid for the Indian government’s golden quadrilateral road projects.

• Oversaw operations and business development and was the business development head of the Group’s airport business.

In 1991, motivated to serve those in need, especially in rural areas, Rao established the GMR Varalakshmi Foundation (GMRVF).

Run as an entrepreneurial enterprise focused on developing education, healthcare, vocational and other programs for local communities. 3 to 5 per cent of the group’s profi t after tax (PAT) went into the Foundation.

Aimed at making high-quality educational institutions accessible to India’s poorest segments, partly through collaborations with the government.

Healthcare initiatives also included partnerships, such as collaboration with Helpage India to operate mobile medical units that serve nearly 100 vil lages weekly.

Established fi ve institutes for self-empowerment and vocational training for unemployed youth and women. These institutes trained unemployed youth in a variety of skil ls (e.g., repair of household appliances and simple electronic products) and

Facilitated bank loans for aspiring micro-entrepreneurs. GMRVF worked intensively with fi ve disadvantaged communities in Rajam, providing addiction counseling, creating health awareness,

Providing mentorship to youth clubs, developing vil lage libraries and facil itating participatory rural development.

CSR

Mission - To build entrepreneurial organizations that make a difference to society through creation of value.

GMRVF was headed by a non-family chief executive offi cer (CEO), with a board of directors consisting of family and non-family independent executive directors.

First- and second-generation females of the Rao family served on the board and took part in multiple Foundation activities.

Rao said, “By committing more and more time to the Foundation, women of the family could develop an identity for themselves beyond deriving satisfaction from such initiatives.”

GMR Holdings Pvt. Ltd. Is the holding company with 2 subsidiary companies- GMR Infrastructure Ltd. & GMR Industries(Airports) Ltd.

Ownership structures has remained consistent with equity proposed to be distributed equally among Rao, his sons and his son-in-law.

Decision making Council – Rao, Raju, Kiran, S.B & 2 independent non-family executives.

Due to the rapid expansion of the group, Rao in 2006 hired strategy consultants Mckinsey & Company, so as to assign roles and responsibilities to each family member.

BUSINESS PROFILE

FAMILY CONSTITUTION AND OTHER GOVERNANCE INITIATIVES

keeping the family together, from generation to generation.

leveraging the family’s special

strengths

Anticipating and mitigating significant risks associated with

family business “infant mortality”

Fostering stewardship among family members to promote the Group’s long-term success and

sustainability.

New focus on family governance

form a family council, comprising

the four male members working at GMR and their wives, to begin discussing the

values, mission, vision and key

policies that should go into a family

constitution.

invited an internationally

renowned family-business advisor, Peter Leach, to

assess the family’s situation

and make governance-

related and other recommendation

s at a two-day retreat.

In 2002, the family council generated a long-term

agenda and roadmap for navigating

future family governance.

Over the next year, the family

spent considerable time refining the

roadmap, fixing an agenda of top

priorities and other key tasks, again, with the help of

external experts.

The family discovered that the largest

challenge involved managing individual

aspirations. For instance, both Raju and

Kiran expressed the desire to have more operational freedom

under the GMR umbrella. Throughout the process, the family

kept focus on maintaining harmony.

FAMILY PHILOSOPHY

aimed to create a long-term sustainable governance structure and set policies to serve the family in the current generation and beyond

The effort was to strengthen and sustain bonding among

family members.

two separate, though overlapping, sets of core values for the family and the business.

The family constitution articulated and elaborated on

each set, as these were considered pillars of the business’s culture and

continuity.

The aim was to ensure a smooth transition of business from generation to generation

and enable professionals to take on their rightful roles without

any interference from the family.

The family believed that the business should be run on a day-to-day basis by highly

qualified non-family executives, while family members should

retain control over the high-level strategy, or “destiny,” of the

Group.

retaining entrepreneurship in the family, while avoiding

creation of silos of activities, businesses in which each family

member might get trapped.

In line with this philosophy, family members were to withdraw gradually from operations and restrict themselves to fulfilling investment needs and

providing strategic inputs and counselling for the Group’s businesses and activities.

KEY FEATURES OF CONSTITUTION

A goal of the constitution was to emphasize family members’ flexibility about joining the business. Thus, the document also addressed how to handle family members opting out of the business to pursue independent careers.

Rao decided to set up a separate fund for such individuals. “Instead of setting up just one trust where all the family members have a stake, which leads to disputes, we set up four trusts (known as ‘column trusts’) for each of the two sons, the daughter and myself, so there is clarity,” Rao said.

Family members in future generations who wanted to enter the business could not expect easy advancement — they would have to earn promotions through hard work and impressive achievements.

Members of future generations wishing to join the Group would be required to sign an agreement for adherence to the constitution and their performance would be appraised through the same system as for non-family professionals. Appraisers would include non-family members of the board but as the third generation was sti l l far from working age, a formal process had not yet been determined.

There was also an induction process that every newcomer to the business was required to undergo. Family members were not directly appointed to senior posit ions nor did they report to other family members. They were required to work outside the family fi rm for approximately three years before joining the business.

An internship of twelve months was compulsory, which could be completed during undergraduate years (e.g., a series of two-month summer stints).

Assignments associated with these internships would help famil iarize family members with GMR’s business practices, work culture and the founder’s and other leaders’ passion for bui lding the Group, as wel l as engendering a sense of pride and belonging in the entrant.

The minimum level at which a future-generation family member could join was set as assistant general manager.

Like any other employee, future-generation members were also to be remunerated based on merit and performance.

Women of the fi rst and second generations (i.e., the wives of the four male members now working in the Group) had chosen not to work in the business in order to take care of their children.

The constitution indicated that they and future female family members could take up external part-time jobs or start their own businesses, provided such work did not interfere with their care-giving responsibilities.

Ownership of holding by Rao, who held nearly 100 per cent, was being settled in four family trusts, with the husband, wife and Rao holding equal voting rights within each.

Succeeding Rao would be anyone selected by the husband and wife. If they could not agree then the third trustee would be the oldest direct descendant member of the family.

The second-generation husband and wife would select their own successor trustees. The three trustees of each trust would select the voting trustee for the voting trust.

There was also a clearly defi ned process for leadership succession: Raju, Kiran and S.B. were to select a successor unanimously from amongst themselves upon the announcement of Rao’s pending retirement. If they could reach no unanimous decision, then a family appointment board consisting of two independent directors and a facilitator (i.e., deadlock facilitator) would interview all three and make a fi nal, binding decision.

Further stipulations were that Rao would retire by age 70 at the latest, with a successor chosen three years before his actual retirement date. Until that date, the successor would be appointed deputy chairman or a similar designation, with the leadership transition conducted in a phased manner.

The successor would serve for fi ve years and then off er himself for re-election. The future family directors were to retire at 65 years of age.

To make his mantra of “keeping the family together” work in practice, Rao also included several formal organizational structures in the constitution. These included the family council, the family business forum, the non-business family forum and the founders business offi ce .

The constitution also provided a family code of conduct to ensure eff ective family governance. The family agreed that the constitution would undergo a formal review in every generation and once every 10 years. Constitution-related proposals from at least two members belonging to diff erent units would go to the family business forum for comments before the proposals were submitted for approval by the family council

THE ROLE OF NON-FAMILY EXPERTS

P.M. Kumar (P.M.) was hired in 2003 to assist the family in drawing a family governance structure, family mission, vision and values. P.M. was a well-known process consultant in human behavior, with many years of experience of working with family businesses.

He was actively involved in strengthening family bonds and teaching the Rao family skills for managing interpersonal diff erences.

During meetings among the family members, he would sometimes push them to answer uncomfortable questions, such as: “Which comes fi rst: business or family?”

His role was to collaborate with P.M. in fostering family governance, as well as establishing the family offi ce.

According to Sastry, “Wealth management for the family was stil l not very well-organized. It needed to be streamlined and all the functions of family offi ce needed to be brought under one roof.”

Throughout this process, family members never felt that they had done enough collective development to emotional bonding, togetherness, healthy relationships and confl ict resolution.

The founders business offi ce team had identifi ed training programs and mentoring sessions for the third generation and suggested courses and programs they could undertake as they matured, keeping in mind emerging leadership requirements for the business and family.

In April 2007, the counselors included an American-based leadership expert and coach, an organizational psychologist, an emotional intelligence expert and a spiritual-behavioral coach.

All were engaged to help the family maintain mature and positive perspectives and develop emotional intelligence, openness and constructive communication skills in order to foster bonding in relationships, which was crucial to practising the values specifi ed by the constitution.

the family’s male members felt that outside help would benefit the family because all four of them were aggressively pursuing business growth and spent very little time together or with the family.

The facilitators drew up individual development plans with emphasis on developing competencies, behavioral skills and spiritual intelligence.

The family focused on team-building, cohesiveness and personal development plans.

The family had clearly benefited yet Rao planned to reduce the family’s dependence on such experts.

In 2008, the family was planning to organize a series of training programs on managing diff erences or confl icts of interest, with the implication that the family members would become more skilled in engaging in a meaningful dialogue without outside help.

As a final thought, Rao added:

My journey over the last 35 years has been one of continuous learning experiences based on family values and beliefs:

• as a student, I was a student leader;

• as a trader I learned the basics of the business;

• as a banker I learned the importance of cash management;

• as an industrialist I discovered the importance of managing relationships with my stakeholders, delivering on promises and building teams.

THE FUTURE OF GMR

Rao stated, “Writing the family constitution was an arduous challenge, but practicing it in its entirety would be the real test.”

He had instituted clear governance practices and had completed the constitution during his lifetime, but whether or not Rao’s children and grandchildren would uphold the family’s values and remain as committed to the constitution.

The speed and intensity with which Rao had created structures and systems in the family were considered, several new concerns emerged.

For example, maintaining role clarity for individual members was not an easy task.

The family planned to move out of operations and restrict themselves to strategy-making in the long run

Their desire for growth and the external pressure to sustain their track record of performance would require all the male members of the family to continue to be deeply involved in business, leaving limited time for family governance matters.

Would they be able to fi nd a true balance between work and family life?

Would all of them deliver value equally as per the expectations of other stakeholders, without creating any sense of division between sons and son-in-law?

Overarching these concerns was Rao’s wish that GMR would continue its strong performance fueled by a happy and collaborative family well into future generations, even as India’s economy became increasingly complex and competitive.

ELEMENTS OF THE FAMILY GOVERNANCE

SYSTEM

FAMILY COUNCIL

At GMR the family council composed of the four male members and their wives.

Primarily responsibility of the council was to develop responsible business stewardship among shareholders.

The council met very two months.The council appointed family advisors.

FAMILY BUSINESS FORUM

The FBF served as bridge between the business and the family.

In 2010, the FBF included only the male family members.

The FBF met at least once in every two months. It also determined the dividend split between the family

fund and trusts.

NON-BUSINESS FAMILY FORUM

The NBFF was run by the women of the GMR family. Its purpose was to strengthen family members

relationships. It met every two months with pre-established agenda

and recorded minutes.All decisions made in this forum were consensus-

based.

FAMILY VALUES

The constitution indicated eight family values.Humility, entrepreneurship, trust and faith and

managing diff erences formed core values.While the remaining four values were viewed as

operating principles.The family also collectively established several

principles to be respected by all.

FAMILY CODE OF CONDUCT

There were specified principles and procedures.All diff erences were to be resolved within 72hours of

the beginning of an incident. If the incident were not resolved, an internal/external

facilitator would assist the concerned parties.The GMR family had decided to separate the family

leader’s role from that of the business leader.All meetings were recorded on video for prosperity.

FAMILY FUND AND RELATED ENTITIES

A family fund was to be established to maintain financial equity among family members.

The fund was aimed at meeting essential security and development needs, with separate sub-funds for each.

The family fund was to be funded by a certain percentage of dividends of the holding company and income of certain family assets.

SHARE OWNERSHIP AND DIVIDENDS

It was decided that the holding would remain private.Four discretionary trusts were created for the four

family branched.Sale of shares outside the family was prohibited.

FAMILY RETREATS AND FAMILY ASSEMBLY

It was organized once or twice annually.The whole family was encouraged to gather to

celebrate various festivals.A family assembly was to be held once annually.The assembly was not instituted for the current

generation.