The lessons we can learn from Baniyas
Aakar Patel, Mint
– 27th October 2012
What makes the Baniya special? I am an
admirer of this community that consistently
produces India’s only world-class industrialists.
What are their secrets?
We are fortunate that the Birla family
have been written about and have themselves written enough material for us to
get a glimpse into the working of a successful, conservative Marwari Baniya
family. The word Marwari being used as a generic name for Baniyas from
Rajasthan. The Birlas are, of course, from Shekhawati.
There is a biography of patriarch
Ghanshyam Das Birla and an autobiography of his son Krishna Kumar (KK) Birla,
both in English. Then there is Swantah Sukhay (For My Own Pleasure),
the autobiography in Hindi of Basant Kumar (BK) Birla, father of Aditya and
grandfather of Kumar Mangalam. Published in 1991, it is a remarkable document
and much can be learnt from it if it’s read carefully.
Often its descriptions are generic and
uninteresting. For example BK’s account of his long-standing partnership with
the Dutch, in textile firm Century-Enka, is childish in its simplicity. Dr X
was a nice man, Mr Y was a good man and so on.
It is when BK tells
us about himself and his family that he is interesting. The first thing he says
to describe his style is: “Arthik niyantran mera achha hai (My
control over finance is sound)” (chapter 10, page 67).
His main instruction
is that “hisaab kitaab” be kept up to date with clean entries and every
detail. This tight control over numbers is the reason that “meri companiyon
mein lambi-chaudi gadbad nahin hui (this is why there’s been no major
trouble in my companies).” He says he learnt accounts as a boy under a man called
Shantimal Mehta, a Baniya. Birla had a natural talent for picking it up.
Father Ghanshyam Das (GD) Birla made a
one-year programme for him to learn it, and BK says he needed the full year
under Mehta’s training. He learnt: cash, copying, accounting, raising bills,
understanding bank statements, daily reports, daily and annual profit and loss
accounts, savings and expenses, and sales.
Employees said later
that where they sought to hide or pad up numbers, inevitably Babu’s (BK’s) eye
would prise open those grey columns.
Through his working
life, before the 12th of each month, he examined the books of the previous
month. This is staggering devotion to numbers. Anticipating the reader’s
astonishment, he says it is absolutely essential and he never delayed this
practice: “Vilambh karne se nuksan hota hai (Delay results in loss).” He focused on the hisaab kitaab
of some of his firms every month, some every second month.
Lesson I:
The Marwari Baniya’s
company is controlled through the balance sheet. Management through
accountancy, not through business administration. Basant Kumar says he knew which of
his companies were well managed purely through this exercise. After this, he
met the managers to listen to what was going on. The debrief of larger firms
took one or two full days each month. These meetings served three purposes:
They gave the managers confidence, gave him a window to their views, and the
opportunity to assess their capacity, and their character. After learning
accounts, Basant Kumar learnt how to manage a mill under Murlidhar Dalmia and
Sitaram Khemka (again, both Baniyas).
He learnt how to operate the machines.
However, at 70, he admits his weakness is in technical matters. He lists the
following reasons: Not enough primary knowledge of engineering, diversified
businesses, technicians worked on the site where he couldn’t meet them often.
It wasn’t that he was uninterested, but his “contribution was mainly economic
and financial”.
At the age of 13, the
family announced it would stop giving BK money. He had to manage his expenses,
and contribute to the house’s, by making money on the stock market, which he
had to figure out himself with the family broker’s help. He made Rs.4,000 the
first year, 1935, and paid income tax at 14.
Born in 1921, BK began working in 1936
on turning 15. He recorded in his diary (in English): “I began my business
career. Went to the office at three O’ clock, learning account in jute mill and
cotton mill. Worked up to 5:45. Felt ‘battle bliss’. I ask God to spread His
blessings upon me as a businessman.”
In mid-1939, at 18, he was given
India’s largest mill, Kesoram, which was making losses. A couple of months
later, Neville Chamberlain declared war on Hitler. The British government began
buying hosiery aggressively for its troops, and the profits of Indian mills
jumped.
By 19, BK was independent. GD need be
consulted only when issuing fresh capital. Else the patriarch stopped meeting
managers and stayed away, making only the occasional inquiry: “Basanta, Kesoram theek chal rahi hai na? Kay
faydo hai (Everything going well? What’s the profit)?”
GD’s advice, when he
gave it, was generic: “Be cautious, keep your finances strong, ijjat par koi
batta nahin aave (our honour should be unstained).”
It is incredible that
a 19-year-old should have managed India’s largest mill successfully .
Lesson II:
Business is learnt by
doing business.
Along with the mill, BK was handed a
new assignment. GD introduced him to a pharmaceuticals expert, Hungarian Dr
Perks, and after a 10-minute discussion dismissed them. BK and Perks had to
begin a medicine firm. Which medicine? They were not told and had to find out
themselves. Dr Perks scanned the market and decided it had to be a hormonal
drug. This required cow organs, which he secured from an abattoir.
GD had no problem with this but when
the older men in the family, BK’s grandfather and uncles, found out “bawander
mach gaya (all hell broke loose)”. Animal organs? A cow’s!? They
were furious at BK and showed it. After this the project was suspended for a
couple of months while BK tried to explain to an irritated Dr Perks why they
had to find another route.
Soon after the World War began and Dr
Perks fled back to Hungary. The project ended. The Birlas audited their loss.
It came to Rs.2.5 lakh, and auditor Kishandutt Goenka said the hisaab-kitaab
was not in order (avyavasthit). BK was summoned and given a shouting. The loss was fine, but it was unacceptable that he
had been lax with the accounts.
Lesson III:
Having no control
over the business is worse than losing the business.
The Birlas were fiscal conservatives
and G.D. Birla was terrified of debt. He usually set 25% of a firm’s start-up
value aside as a support fund, an unthinkable waste of capital today. His
response to Basant Kumar’s proposal that they raise money by issuing
convertible debentures was: “Main aisi
jokhim lene ke viruddh hoon (I am against such risks).”
“This was a sound policy for its time,”
writes Basant Kumar, “it gave us slow and solid growth.” After 1975, it became
easier to raise money and issue capital. Government-owned funds were hungry for
good shares. Banks also were keen to loan money. A new generation of
businessmen, at their head Dhirubhai Ambani, began building large enterprises.
In 1981, Aditya Birla, then 37, told
his father BK he wanted to expand Indian Rayon by issuing convertible
debentures. BK agreed. When GD found out, he was aghast and confronted his son.
BK did not back down and Aditya had his way.
Lesson IV:
Conservatism does not
stand still. Know your environment and where you stand in it.
BK writes in detail how pragmatically
the Birlas split their empire after GD died. There is much material here and I
will return to it in a future piece.
My friend Shashank Jain, also a Baniya,
says the accounts-based approach of management is from another era.
Today, more skill is
needed, including modern ideas. How remarkable then that the Baniya has adapted
to this also better than others. One of India’s smallest castes, he occupies
numbers 1. Mukesh Ambani 2. Lakshmi Mittal 4. Savitri Jindal 5. Sunil Mittal 6.
Kumar Mangalam Birla 7. Anil Ambani 8. Dilip Shanghvi and 9. Shashi and Ravi
Ruia in the list of India’s 10 richest people.
We can all learn from
Baniyas, and take from them what it is our culture and our caste misses.
Aakar Patel is a writer and a
columnist.
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