The issue of why the progeny of so many rich people are choosing to run family offices is as topical as it is important. It is topical because a month ago Uday Kotak called out this issue when he said: ““I would love to see this generation be hungry for success and build operational businesses,” Kotak wrote, worrying about a tendency among younger members of business families to “take the easy way” of managing family offices and investments. Few are into building world-class businesses.”
It is timely because across India’s boardrooms for several years now we are seeing promoters of clean, well-run companies fretting about the lack of growth opportunities available in India. Whilst their kids getting involved might not be a “cure all” for India’s promoters, it is difficult to understand how the progeny running the family office – rather than the core business – will help matters.
Sanjaya Baru, a former newspaper editor and the former advisor to the late, the great Manmohan Singh, draws our attention to a broader malaise in Indian society. The problem he says is not confined to the elite; it extends to the middle class as well and it has major ramifications for the structure of the Indian economy. Mr Baru writes:
“Even middle-class young people who secure a degree in engineering have, for several generations now, gone on to seek a degree in management or finance and sat at desks managing money rather than work on the shop floor managing production.
The ingrained caste and class divisions of our society at large also defined success in business. Dirtying hands on the shop floor was not the route to managerial success. When Japan’s Suzuki arrived in India and made managers in air-conditioned offices wear the same grey outfits that foremen on the shop floor wore, eyebrows were raised among the hoi polloi.
These social attitudes have had an impact on the larger story of Indian manufacturing. When desk jobs in front of computer screens in the services industry began offering better remuneration than factory-based jobs in manufacturing, the whiz kids from IITs and IIMs and the foreign-returned ones fuelled the services sector boom, once again leaving manufacturing bereft of adequate talent.
To manage manufacturing, the manager has to live close to the factory. That is why industrial centres came up like Bokaro in the public sector and Jamshedpur in the private sector. Governmental incentives for locating manufacturing centres in backward districts meant that many industries came up far away from the major metros. An earlier generation of business persons and managers learnt to live between city and the distant factory.
The urban-based services and financial sectors quite understandably attracted the better qualified because these jobs are also city and metro based. Who wants to be in Aurangabad if one can be in Mumbai? Even industrial activity began moving closer to urban centres, adding to the problem of urban pollution. Taken together, the incentive to dirty one’s hands and get into the making of things has been outweighed by the far more seductive incentives of making money sitting at a desk, if not reclining on a sofa.
A mix of cultural attitudes, the gap between the quality of life in metros as opposed to industrial locations and the gaps in remuneration for different types of managerial work – production, marketing and finance – have all combined to make manufacturing a last option for gainful employment. No wonder India lags in manufacturing.”
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