On a pleasant winter evening last year, several dozen men and women gathered at the Indian embassy in Abu Dhabi, the capital of United Arab Emirates, to celebrate the 90th anniversary of a family business that has grown from a one-stop shop in Basra to a wholesale and retail venture that spans the Middle East.
Founded by the late Rao Sahib Jashanmal — who came from India and launched his general store selling household goods, men’s clothing, stationery, books and newspapers in Iraq in 1919 — the Jashanmal Group is now run by the fourth generation.
The group, which is a big name in retail and wholesale business in consumer goods in the region, is steeped in history beginning when the British controlled most parts of an underdeveloped Arabian Gulf, and there were more sand dunes than people. It was also a time when camels and bandits roamed freely and oil, which later brought immense riches to the land, had not yet been discovered.
Research shows that a company’s performance usually slips once the founder’s vision is diluted by second- or third-generation descendents. The main issue is one of succession and how families manage succession," says Wharton management professor Raffi Amit. "When a founder wants to distance himself from the business, the question is always, ‘What has been put in place, is there a system of governance for the business in place?’ In those circumstances, when there is no governance system for the business or family members — when the founder steps back, turmoil can reach a lot of businesses."
The Jashanmals are different. Founder Rao Sahib retired in 1973, leaving the business to his five sons – one of whom later chose to go his own way. The business has only grown since then, as the Jashanmals have remained involved in the company from a distance, letting professionals run the day-to-day operations. Despite research findings that family-run companies are a better bet for all stakeholders as long as the founder of the firm is involved as chief executive officer or chairman, the Jashanmals say the business has lasted well into the fourth generation because family elders understood very early on that to grow, they needed to step into the shadows and hand over management to professionals.
"The desire of every person who starts a business is to see it grow so that he can leave something for his descendents. It works well for two generations. It is the transformation from the second to the third generation when [the firm] either breaks up, or some professional structure has to be formed for it to last," notes Tony Jashanmal, Rao Sahib’s grandson and currently the executive director of the group.
When the Jashanmals first came on the scene, Indian traders were spread all over the Gulf region, buying pearls from Arab merchants in return for just about everything that a starved land and its people required. Ships from India ferried in people and "Made in England" goods, making stops at Basra, Kuwait, Dubai and Bahrain before returning to Bombay (now called Mumbai). It was apparently a 21-day trip. Later, planes began landing on sandy strips unseen from the skies, bringing in tinned food, shoes, clothes and other luxury items that the colonial rulers and the locals needed.
Rao Sahib took advantage of the changing times and opened a general store in Kuwait’s Safaat Square in 1934, his first venture out of the secluded confines of Basra. The square was then the destination of camel caravans from Saudi Arabia. Vintage pictures show the Jashanmal store surrounded by bored-looking camels and their shabbily-dressed, tired drivers.
After Kuwait, growth came rapidly. Rao Sahib’s sons — Narain, Atma, Hiro and later Mohan — took over and began expanding the business into other parts of the region. The business moved into Bahrain — which then was the only destination of British Airways in the region — Dubai and finally Abu Dhabi, where the youngest brother Mohan arrived in 1964 to open an outpost on the beach.
At the time, Abu Dhabi, says Mohan, had no roads, a few buildings and a lot of tents. There was no potable water or electricity. When Mohan arrived there with his Boston-educated newly-wed wife, she wondered whether they were going to crash when she saw the wide expanse of sand below. The Jashanmals have seen the emirate grow and they have grown with it.
Rao Sahib made the region his home. The business in Basra was closed in the late 1950s when the Hashemite monarchy was overthrown in Iraq and it became difficult to import goods from the West. Since then, the group has focused on the Gulf region — except Saudi Arabia — and today runs stores and franchise shops in the United Arab Emirates, Kuwait, Bahrain and Oman that sell pens, cameras, luggage, fashion accessories, books, magazines, newspapers, giftware, household and kitchen appliances, and crystal ware. The firm has some of the biggest global brands in its stable and employs more than 1,000 people.
The multifold growth may not have been possible if the family had not decided to step away from day-to-day operations, they maintain. The process began in stages. After Rao Sahib’s retirement, the group continued to be run as a traditional family business. Later, the family decided to turn the business into a shareholding company equally divided between the four brothers. "[Family members] who worked for the company received salaries and dividends; those who didn’t got only the dividend. This was the first act of discipline," states Tony, in a phone interview from Kuwait.
In the early 1980s, when new partnership laws were introduced in the region, the Jashanmals decided to take a step forward and floated a holding company to accommodate family and non-family partners with different shareholding, a move that Tony calls "a jump into modern times." A new entity — Jashanmal Holding — was created, with a board of directors and a chief executive officer to run the business. Family members should not be at the top of the company," Tony notes, adding that while family members could work for the company, they had to come up from the bottom just like other professionals. "That was one of the reasons why many family members did not stay."
"In the most successful family businesses, the merit policy is followed strictly," Amit says. "Family members need to apply and go through the same screening process as anyone else, and are compensated accordingly. That is in the best interest of business, but sometimes it’s very emotional to tell a daughter or son that they are not good enough. It is one of these things where the emotions of the founder or CEO, in their role as a manager, and in the role of a father, sometimes collide. To the extent that governance is in place, in those circumstances, families that stick to policy come ahead."
Today, family members have a choice to enter the business, but they are usually encouraged to start a career somewhere else, gain experience and then decide whether they want to stay out or join in, Tony says. "In many cases, family members have started their own businesses and carried on the founder’s entrepreneurial spirit. But then there are those who want to do something for the family and the group. We tell them that they don’t have to feel obliged."
Tony’s son Narain came into the family business six years ago after studying filmmaking in New York. He runs the group’s magazine and newspaper distribution business, as well as a chain of bookstores. Sitting in his vast warehouse in Dubai’s Al Quoz industrial area, where dozens of workers sort books and magazines, mark them and put them in the racks, or pack them for delivery to shops and clients, Narain is optimistic about the future.
Typically, families running large businesses end up doing three things, he notes: They sell out to a larger competitor; they take their companies public; or the branch of the family running the business buys out other non-operating family members and turns the company into a privately held organization.
"We have never found it necessary to do any of these three things," Narain states, adding that there was enough organic growth and enough money to finance expansion to accommodate all branches of Rao Sahib’s large family. The management structure put in place three decades ago has ensured that the business grew and shareholders got their returns.
The structure the Jashanmals introduced in the early 1980s had no parallel in the region, where — like many other parts of the world — family businesses dominate. While an independent, five-member board oversaw the business, a parallel board made up of different branches of the family was also set up. The family board meets a few times a year and its chairman represents the family on the main company board, which has four other members — one external non-shareholder, one representative of non-family shareholders, one representative of the management, and the chairman, who is also a non-family shareholder in the company.
Family firms seem to outperform their non-family counterparts for two reasons, experts say. Many non-family companies suffer from conflict between management and shareholders over such issues as returns, compensation and governance. "This conflict between owner and manager is standard in widely-held firms," Amit says. "In a family-run company, the manager and owner are the same and so the conflict doesn’t exist."
Wharton professor Amit adds that "family unity is very important for professional managers to run the business in a way to create value. When we talk about families where multiple branches have a stake, the dynamic between and among the branches play an important role in enabling or hindering professional managers to create value — whenever there are vast disagreements among branches, professionals become confused. It’s just like having a sailboat with multiple skippers. A harmonious family with appropriate representation on a board makes all the difference in the world."
In the case of the Jashanmals, the family found another way to provide its leadership: through the family office that has representation on the company’s board. The family has stayed away from day-to-day operations, but has still managed to push the founder’s business values and beliefs through its presence on the professional board. "There is equal representation, but external oversight," Narain points out, adding that what usually harms a family business is the family’s inability to separate itself from it.
The transition from a family-run company to a family-owned company was shepherded by Gangu Batra, the group president who plans to step down after 50 years with the group. For decades, he was the public face of the company and shepherded rapid expansion in the firm’s retail and wholesale business, while also seeking other opportunities for growth as consumers began spending more and places like Dubai became major tourist and trading hubs due to low customs duties.
Since 1980s, the Jashanmal business has undergone a huge change — expanding through joint ventures and affiliations that have allowed it to become leaner, and remain profitable even in the current troubled economic times. Many businesses that the Jashanmals once controlled directly, such as perfumes, are today managed by joint venture partners, ensuring that the group keeps reaping profits without the daily headaches.
"Our sales two years ago could have been higher, but because of the joint ventures I now have lower sales [and] fewer people, but better bottom line," Tony says, adding that his business was profitable despite a debilitating global financial crisis that has hit businesses in the region hard. "Retail demand dropped, but not as sharply as people expected. It was not too bad for companies that have been [in the region] for long," he notes, adding that while overall the impact on the region was balanced, businesses should not expect the same growth rates as in the past.
Tony is looking toward a new era for the firm after the departure of the long-serving Batra, who will eventually be replaced, though there seems to be no hurry. A management team made up of the retail and wholesale division heads, the chief financial officer, the human resource head and the legal advisor currently runs the business. He expects much more investment in the region in the years to come, and believes that will change the business again.
The group does not have plans to expand aggressively outside the region, however, not even in India, where the Jashanmals originally came from. "We are the most confident in the GCC (Gulf Cooperation Council) because we know this region the best. We have helped our principals to get into India when they wanted to," Tony states.
At the same time, the group has chosen to stay out of the vast Saudi market — the biggest in the region — because of the various market restrictions there. It, however hopes to be back in Iraq where it started once the security situation there improves. "I don’t think you lose out if you are not the first one to enter," he says.
To succeed, Tony notes, family businesses need to make the staff aware of the family’s values, and the beliefs on which the founder based business practices. "Many professionals have a short-term view, but in family business they need to have a long-term view. People need to have more meetings, talk more. That’s why you need family members to be around to emphasize that point of view."