Dabur – Handing Over Control of a Family Business



This post is an extension of the post Intelligent Fanatics Think Beyond Their Lifetime and the anecdote below is heavily inspired by Sonu Bhasin’s book ‘The Inheritors’ which is a wonderfully written book.

How do you ensure the long-term sustainability of your business?

One way is to first hire an outside consultant. Then you listen to the consultant’s advice and fire yourself from your own company.

Dabur is an iconic company in India which is more than 130 years old. In the mid-1880s, an Ayurvedic practitioner Dr. S.K. Burman concocted medicines for diseases like cholera and malaria. He went on to set up Dabur India Ltd in 1884 to mass-produce his Ayurvedic formulations. The current chairman, Dr. Anand Burman, and Vice Chairman Amit Burman, are part of the fifth generation of the Burman family.

Dabur today is one of India’s leading FMCG Companies with sales of more than $1 billion and a market cap of more than $9.5 billion. Building on a legacy of quality and experience of over 133 years, Dabur is today the world’s largest Ayurvedic and natural health care company.

Today Dabur is run entirely by professional management. The founding family has restricted themselves to providing strategic inputs at the board level. The family doesn’t even sign a single cheque on behalf of the company and nor does anyone in the family have any executive role. In fact, the promoter family has a family constitution, which has a rule that states that no young family member can work in the company for more than one year.

Dabur was initially an extensively family-run company. In the 1990s, the fourth and fifth generation Burman family members were all involved in various executive roles within the company.

It all started in latter part of the 1990s when the Burman family realized that if they wanted to scale the organization to the next level, then they would need to change. And so the fourth generation of the Burman family hired McKinsey to help answer two questions - 1) How to attract professional talent to grow the business non-linearly? 2) How to avoid the conflict within the family as the business continued to grow?

When McKinsey was asked to help the Burman family with the two questions, their response was that the second matter had to be addressed before the first matter could be dealt with. The McKinsey team suggested that the best solution would be to separate the family from the business. While the family would continue to be the owners of the company, only a select few, if any, would be part of managing it.

Here is an excerpt from the book The Inheritors which gives an excellent insight into the emotions and the confusions that prevailed then,

"The Burman family asked McKinsey to interview the family members to decide who should stay in the business and who should not. Easier said than done! It was one thing to ask McKinsey to interview the Burman men for a job within their own company; but it was a completely different matter getting the men to see it as beneficial to them and the company.

There were many apprehensions within the family about how all this would pan out. The main question in every Burman man’s mind was, how will the company run without the Burman men involved? How will the ‘owners’ keep track of the company’s developments? What happens if the professionals run the company by themselves? Is it not likely that the professionals will think of themselves first and not the business? What happens if the business starts to fail?

To all of this the McKinsey boys had a simple question: ‘Just because your last name is Burman, does that make you the most qualified to run the business? ’ It was an extremely uncomfortable question and it was probably the first time that anyone within or outside of the family had asked it of the Burman men. At that time, Dabur had eight members of the family—fourth and fifth generations—working in the company. They had all grown up seeing the business being led by members of the family and it was difficult for them to envisage a life without being an active part of Dabur. T

The consulting firm helped the Burman family look at the practical side of it as well. The family realized that as more Burmans joined the business, in each successive generation, it would get difficult to provide meaningful jobs to each member. McKinsey also pointed out that firing a family member for non-performance was going to be even more difficult!

What happened thereafter was unheard of in any family-owned business. Overnight, all eight Burmans quit their executive posts within Dabur. It was not easy as everyone was worried about the future. ‘But we realized that if you want to create a lasting institution and if you want to create wealth, you must have the right people in the right place,’ says Dr Anand Burman, the non-executive chairman of Dabur.

The then Chairman Ashok Burman was quoted to have said then, ’ We paid Rs 10 crore to the consultants to tell us that we must quit.’ "

The Burman family had the emotional intelligence, humility and foresight to understand that all families have conflict. The probability and impact of the conflict increases when increasing number of family members participate in the business. This maturity to understand and accept the difficult truth is rare.

Since then on the Burmans relinquished the executive side of things to the professionals and stopped drawing salaries from the company. Today no Burman family member draws a single rupee as salary. Instead they benefit from the stock price appreciation and dividends declared. And well, the strategy seems to have worked. In 1998, the market cap of Dabur was around 750cr (~110 million) compared with today’s market cap of ~$10 billion - an almost 100 bagger within 20 years.

An interesting anecdote is evidence of the freedom enjoyed by the professionals in Dabur. In 2009, the company had decided to launch a mint flavor of its key candy brand Hajmola. A young manager of Dabur gave a sample to the Chairman Anand Burman to taste before the launch. Almost as soon as he popped the candy into his mouth Anand Burman spat it out and declared that this product was bound to fail. This did not deter the CEO, Sunil Duggal who went on to launch the product backed as his decision was by the market research. The product was a huge success as it garnered record sales in the first year itself.

But how does the promoter family take care of the agency problem?

They do it through a mix of oversight and tapping into the power of incentives.

As part of the process of separating management and ownership, the Burman family created a family constitution and a family council. The constitution lays down various guidelines with respect to responsibilities towards various businesses. The family council comprises all family members who are above 25. There are four members of the family council who are part of the board of Dabur and the family is thus fully clued on to what is happening in the company. The board members fully participate in the quarterly meetings and are involved in major business decisions like acquisitions, disposal of major assets and hiring of personnel above certain level. And after each board meeting, the family council has its own meeting where the other members are given a summary of the progress of the business by the members who are on the board. Also, every three to four years Dabur has a strategic review which has to be cleared by the family.

In addition to oversight, the family ensures that the interests of the owners and the professionals are aligned by designing the incentive structure accordingly. Considerable care is taken to see to it that the professionals move away from the quarterly growth race. Dabur works on a four-year business plan and the entire incentive of the management (including ESOPs) are linked to the achievements of this four-year plan. As is the case with other successful companies, Dabur’s generosity with the top talent has created many millionaire professionals who love the culture of the company.

Given the large number of family members and the long history of operating the business, it would perhaps have not been surprising if the management decided to take back operating control. It says a great deal about the family’s maturity and cohesion that they have continued to stick to their decision. This ability to detach from the ego and give up control is uncommon and probably an essential ingredient to ensure long-term sustainability.

Sources: The Inheritors, ET article, Forbes article, Forbes article

Disclaimer: We may/may not have positions in the companies mentioned in the blog. This case study/article is not a stock recommendation. We are not SEBI registered investment advisors. Our Intelligent Fanatics Case Studies and Articles are meant to retell the stories and strategies used to create exceptional businesses so that we can learn from them.

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Never knew such a culture existed in a company that is a household name in India… Thanks…


excellent article , thanks

good example which more comapnies in india can follow , to scale up and unleash the huge potential, when they give up the illusion of control