Collaboration Across Vast Networks: Lessons from the Marwaris

OVERVIEW

Published on: 27 August, 2019

The Marwari community serves as a case study of durable and extensive collaboration without the need for a dominant leader to oversee such an endeavour. This sort of community-based collaboration provides richer insights than B-School paradigms into why some teams succeed and others fail.

“…read the sub-text and you will find that it spells ‘family’. It is the tie that has underpinned these businesses and is, often self-admittedly, the force that powers the risk-takers to…take risks….the Marwaris take the family in ‘family-owned business’ seriously. The most powerful industrialist will, even in the boardroom, rush to touch an elder relative’s feet as a greeting. Deferring to the older generation may be an archaic notion, but it is also a sign of respect that prevents the delicate balance of commerce and emotion from unravelling…”–Abhilasha Khaitan in the 17th March 2014 edition of Forbes India

Looking at collaboration from a different angle
Usually when the question “Why do some teams collaborate whilst others don’t?” is asked, the reflexive answer which pops into most of our minds is “It must be because some teams have great leaders and other don’t.” This tendency to see the world through the prism of the individual, her abilities and her greatness is a by-product of the liberal values which have been hammered into our heads courtesy the westernised education systems which most of us (in India and elsewhere) have grown up in.

However, seeing successful collaboration amongst teams, within companies/societies/countries, through the prism of leadership doesn’t get us very far. Yes, Abraham Lincoln was a great leader and he steered America through the dark days of the Civil War by building a brilliant team (as described memorably by Doris Kearns Goodwin in her book “Team of Rivals” and as enacted by Daniel Day Lewis in the Oscar winning movie). However, a lesser man than Lincoln would have struggled to hold together the team that Lincoln built. The average CEO is likely to be in deep trouble if he followed Lincoln and built a team of rivals.

So, what are the broader societal values/qualities which lead to some teams/companies/societies pulling together so cohesively so that end result is much greater than the sum of the parts? We look for answers in the rich literature that has sprung up around India’s small (there are fewer than 9 million Marwaris in India) but spectacularly successful Marwari business community (for a table of prominent listed Marwari firms, see http://www.forbesindia.com/article/marwari-power/top-100-listed-marwariowned-companies/37407/1).

Understanding collaboration as an incentive co-ordination game

A clear common goal: Aristotle said, “Man is by nature a social animal; an individual who is unsocial naturally and not accidentally is either beneath our notice or more than human. Society is something that precedes the individual.” What Aristotle seems to be driving at is that most of are naturally wired to collaborate to achieve common goals. Our parents, our teachers, our colleagues, our mentors are all collaborators in ensuring that we get the best that they can give. The clearer the common goal, the more aligned it is to our interests, the easier it is for us to collaborate with those around us.
Alignment of interests: Over a hundred years ago, and long before agency theory was developed by academics in American business schools, the Great Marwari Firms which controlled trade in India’s Ganga-Yamuna flood plains had created a system of incentives which aligned their managers’ interests with the promoters’. “Until the First World War, the Tarachand Ghanshyamdas office or gaddi at 18, Mullick Street in Calcutta took up an entire floor….There were 89 clerks working there. The head manager, Chhaganlal Bhavsinghka, was paid the princely sum of Rs 250 a month…Besides their pay, the managers often received a share in the profits of the firm. Jainarain Poddar, the chief manager, testified in court that he received Rs 2-3 lakhs annually over a period of several years, probably his share of profits. Other branch managers had variously defined share of profits. The exact arrangements differed from firm to firm.” (Source: ‘The Marwaris: From Jagat Seth To The Birlas’ (2014) by Thomas A.Timberg)
Complimentarity of skillsets/interests: For a team to collaborate over an extended period of time to achieve a common goal there has to be avoidance of duplicating skillsets and responsibilities within the team. As soon as two people in a team realize that they have similar skillsets and responsibilities, politics kicks in to vitiate the atmosphere in the team. Long before HR managers had discovered ‘strength finders’ and skill maps, the Marwari Great Firms had figured out a unique solution to this problem: “Managers and clerks in 1914 were mostly Shekhawati Aggarwals like the Poddars themselves….Some other Great Firms preferred Brahmin clerks to those from their own caste because it was perceived that they would be less likely to enter into competition with the original firm…The managers were regularly rotated and promoted. Harduttrai Prahladka joined the firm in 1860 in Calcutta and moved to the Mathura and Ramgarh branches, before leaving the firm. He returned as a branch manager in 1896.” (Source: ‘The Marwaris: From Jagat Seth To The Birlas’ (2014) by Thomas A.Timberg)
Monitoring of performance alongside rules which provide rewards & punishments: In her book ‘Business Maharajas’ (2000), Gita Piramal uses a quote from the industrialist Shashi Ruia to explain why the late Aditya Birla was so successful: “The key to Aditya Birla’s success in lay in his ability to organize himself and everyone around him.” She then quotes Birla himself as saying “What do you do to attract people? You give them tremendous powers and independence whilst monitoring their performance…Watch the financials, intervene if necessary, decide what next industry to get into, and which ones to withdraw from.”
Willingness to look beyond personal financial incentives: Several centuries before the term ‘to network’ became a verb, the Marwari community had understood the power of co-operation across vast networks. In common with what the Jews did in Europe, the Marwaris therefore groomed their children in a specific way: “Communities and castes with a history of involvement in business orient their children…to the trade, applaud success and know how to help each other in business. It is for this reason that the psychological make-up of those who run businesses in crowded markets is often marked by n-affiliation (a psychological orientation to work social networks, as politicians do) rather than n-achievement [refers to an individual’s desire for significant accomplishment, mastering of skills, control, or high standards]. In a study of small engineering shop owners in Howrah, Raymond Owens demonstrated that members of the Mahasiya caste, who were prominent among owners of shops, had high n-affiliation since their business success was dependent on networking with caste fellows. The other entrepreneurs who came from a wide variety of castes, usually upper-class ‘service castes’ (Brahmins, Kshatriyas, Baidyas), had high n-achievement…Everything in the environment of these young Marwari men assisted them in being successful in business. They had a first-class support network constituted by their traditional family firms, business groups and the community. When they arrived in a new place, they found a basa, which provided boarding, lodging and society. Their friends and relatives were already in business and could help them.” (Source: ‘The Marwaris: From Jagat Seth To The Birlas’ (2014) by Thomas A.Timberg) [Square brackers and emphasis in bold is ours]

The leader’s key roles in the context of a collaborative endeavour revolve around the creation, implementation and governance of the carrots & sticks highlighted above. In her book ‘Business Maharajas’ (2000) Gita Piramal quotes the late Aditya Birla making a specific reference to Ratan Tata but one which is more generally applicable: “If you don’t have systems, any individual will fail, and if you have systems but if don’t have a leader to lead the system, it will fail…I’m sure the Tatas have very good systems…I think there is a need to take some hard decisions which doesn’t come from guidance alone…Success is knocking confidence into Ratan.”

That being said, complex collaborative endeavours cannot sustain just because of the leader. As elaborated above, the Marwaris are a supremely successful business community with proven ability to collaborate with each other within India and across national borders. And yet the Marwari community does NOT have a leader per se.

Investment implications
The most interesting aspect of meeting the management team of a company is NOT the meeting with the promoter. They are in fact the meetings, first with the layer of management which has direct contact with the promoter (usually the CEO and CFO) and then the meetings with the 4-5 people who report into the CEO. What we try to assess is whether the collective works together just because of the dominant leader or because they are bound together by a common purpose & values, by complimentary skills and by a clearly laid out system of carrots & sticks.

Like most useful things in life, this construct is simple enough for us to explain it to you but as most company’s the world over have discovered, it is hard to successfully sustain this construct over long periods of time.

To read our other published material, please visit https://marcellus.in/blog
Saurabh Mukherjea is the author of “The Unusual Billionaires” and “Coffee Can Investing: the Low Risk Route to Stupendous Wealth”.

Note: the above material is neither investment research, nor investment advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services and as an Investment Advisor.