'The organisation's interest must come before the promoter's': Harsh Mariwala

Harsh Mariwala, founder and chairman, Marico
 
Harsh Mariwala, founder and chairman, Marico, believes transparency and high standards of corporate governance—in letter and in spirit—must be the bedrock of an organisation. This is the starting point. But, nonetheless, as companies scale up and expand, governance often takes a backseat, and the interest of minority shareholders is frequently abused. But this must stop, he emphasises; shareholders, and not promoters, own the company.  
 

“There is always a conflict between an organisation and its promoter. In many cases, one doesn’t know what is right. The thumb rule I use is that the organisation’s interest comes first and then the promoter’s. If some decision is to be taken, for example, when it came to me stepping down as the managing director of Marico, I just used that thumb rule. What is good for Marico? Should I continue or should I step down? And we came to the conclusion that I must step down. Though I was not ready to step down, I did. To me that is good governance,” Mariwala says.

In part-two of an exclusive interaction on Forbes India Pathbreakers, he also talks about how Marico sees the disruption from direct-to-consumer (DTC) brands as an opportunity and not a threat, and why Marico does not aspire to be a global brand. Here’s Mariwala’s playbook on what it takes to build a world-class consumer goods company in a rapidly evolving and highly competitive market. Edited excerpts:
 

‘Have an edge in your business’

Founders and entrepreneurs need to identify what makes them win in the marketplace. Is it an innovation? Very good service? Secondly, you have to continuously work upon it. It is only a matter of time until others will copy you. So, you have to be two steps ahead of the competition. The key thing is to be the best in that area so that what you are offering to the final consumer makes sense, is innovative, and that helps you have an edge in your business.
 

‘Founders can’t go on burning money’

I feel very strongly that you cannot just drive the top line. At some point it has to reflect in the bottom line. Most funders realise this cannot be indefinite. The funding to some extent has reduced and, in some cases, become much less. Now, most funders are saying they want to see visibility of the bottom line. They are willing to wait, which is fine. I do not expect each and every business to start making money from day one in terms of profit. Growth is very important, but at some stage the business has to turn profitable. I think that shift has happened. I see many businesses, which were burning money, become a lot more cost-conscious because funders have put the necessary pressure. That is a good development. I believe the business has to be profitable. In the short-term you can pursue growth, but at some stage it has to make profit. You can’t just go on burning money forever.

Read Part 1: How Harsh Mariwala turned the tables on FMCG giant Unilever
 

‘Organisation’s interest comes first’

I think corporate governance is improving and organisations are looking at having an independent board of directors, and getting their view points. There is always a conflict between an organisation and its promoter. In many cases, one doesn’t know what is right. The thumb rule I use is that the organisation’s interest comes first and then the promoter’s. If some decision is to be taken, for example, when it came to me stepping down as the managing director of Marico, I just used that thumb rule. What is good for Marico? Should I continue or should I step down? And we came to the conclusion that I must step down. Though I was not ready to step down, I did. To me that is good governance.

If I am using some space of Marico for my personal need, it could be for a giving activity or for running my family investment office. One way is to say that the company belongs to me. But the other way is to say that, no, the company does not belong to me. I am the founder but I may have many shareholders. So, I have to differentiate this. I have to pay rent to the company for the area I am using for my personal use. To me that is governance. The problem with most promoters is that they believe it is their company (and not the shareholders’ company). The moment you have that mindset, you will do something which is in your interest and not the company’s interest. That has to change.

Change is brought about by stakeholders who are getting impacted; stakeholders like investors, advisories, employees. I think a lot of stakeholder pressure is coming in. Laws cannot have an impact beyond a point. But good, well-governed companies get good valuations. These are some market pressures that are making entrepreneurs move in the right direction.
 

‘It was a difficult decision’

Indian society is very hierarchical. Indian entrepreneurs expect their children to follow them in that role (of leading the company). But now the business has become far more complex. Comparatively, it is more difficult to win now than it was 20 years back. So, the best man must run the company. Again, the interest of the organisation comes first. It is difficult to accept that because the whole society expects your children will step into your shoes. It was difficult, but I took that decision [to hand over the company reins to an outsider and not his son when he stepped down as managing director] and I think it has worked out well, both from the point of view of shareholders, and now my family has accepted it. My son is doing his own business, which is thriving. It is a win-win situation.
 

‘Marico will not go global’

It is not our vision to be present in all countries. Looking at our portfolio of products, we realised that it will be difficult to enter developed markets. We have defined as a strategy that we want to be present in emerging markets in Asia and Africa. That’s where we will try and expand. We’ll not go global. We need to be realistic. The future of Marico will be those geographies. The business model of FMCG companies is changing. There are DTC brands. We have decided to participate. We have acquired three DTC companies and we manage them differently in a different location. These are disruptions. You have to participate in those disruptions from an opportunistic angle and not from a threat perception. That’s what we are trying to do. We would like to be an important DTC player in addition to being a traditional FMCG company. We will mainly focus on beauty and health as our areas and not go beyond that. We’ll not go into detergents, household products and things like that.