Financial Times

Esufally family still controls Hemas but not forever
The Esufally family still has dominant control of the Hemas group that went public last year, but the conglomerate's CEO, Husein Esufally, has not ruled out the possibility of the family losing control of the firm in the long run expansion of the group's activities.

More than 40 percent of the group's employees are current shareholders of the group. These revelations were made at the 10th Lanka Business Report- Lanka business online CEO forum held recently featuring the CEO of the family business, Hemas Holdings.

Speaking about the future of the group, Esufally revealed that the CEO position in the company was on fixed term contract that was under review by the board of directors. Answering a question on the time span of the contract, he remarked that although the contracts have not been signed as yet, no member in the family looked at the group management as a lifetime commitment.

The possibility of the fourth generation joining the business management was open and there was no ruling out the possibility of the family losing the controlling stake in the future. "Right now, there is no position in the group that is not in the reach of any employee," Esufally said.

The group had decided not to further invest in power generation projects, apparently because returns were not as good as anticipated. "In our core competencies we do better," Esufally said.

Hemas group did not have significant debt at the time it sought a listing, being a cash rich organization, and the power project was cited as a satisfactory reason to go public.

Esufally touched on a range of topics dealing with the success of the family business and what made Hemas excel in an environment where only 13 percent of the businesses survive for more that 50 years and only 4 percent of the businesses actually continue to grow and evolve.

The Hemas group was founded in 1948 as Hemas Drugs (Ltd) by Sheikh Esufally. The group's roots were in pharmaceuticals and chemicals. The group's 1960 decision to diversify into the manufacture of toiletries and the 1970s diversification into the travel and tourism sector saw it moving into the big league.

The 1977 liberalization of the economy saw further diversification and expansion of the group. The most significant move of the group before going public can be seen as the restructuring of the operations that took place in 1993.

Right now the Hemas group operates with the healthcare sector being its biggest component, with consumer, transportation, leisure, apparel and development sectors being the others.

The highly successful Initial Public Offering in 2003 was oversubscribed by 11 times by enthusiastic investors. Having given only 15 percent of the company's share to the public, the group still very much remains a family concern and has a market capitalization of Rs. 7 billion.

The IPO was timed to perfection at the peak of the rally in the Colombo bourse in 2003. The formulators of the IPO had been prepared for everything after all the right moves. An Employee Share Ownership Plan was designed where the staff is rewarded with regular stock option plans. Twelve percent of the IPO was reserved for the staff and 40 percent of the staff now are shareholders of the company.

Addressing the problems that family businesses undergo, Esufally detailed the challenges the Hemas group faced, pointing out that few family businesses do in fact outlive two or at most three generations. When medium sized family concerns outgrow the span of control of the original family management, inevitable problems crop up.

The four second generation families that were in the management had now reduced to two. He explained the bitter effort of trying to keep the family bonds and taking the business to the next level. The process had been hard and emotional but inevitable. The relevant course of action had gone through an arbitrator and was beneficial to all parties creating fair value. As Esufally remarked, "No one really wins in a court".

As the business evolved and became more separated from the average family concern, the members had to take different roles. Husein Esufally, who had to give up leading the healthcare range in order to get his sights on the bigger picture, was relieved to find the sector performing better under the new manager.

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