By Shabana Hussain| Nov 24, 2014
Dr Prathap C Reddy seems on course to navigating succession issues by trusting the mutual respect shared by his four daughters. Even as a model of rotating chairmanship is being proposed, the Reddy sisters are only focussed on the secure future of Apollo Hospitals
More often than not, first-generation entrepreneurs have been known to flounder on the succession issue. Not only is it a touchy—even volatile—subject, it is also left unresolved till too late due to either oversight or complacence. But Dr Prathap C Reddy, founder-chairman of Apollo Hospitals, is not shirking this responsibility. The 81-year-old promoter has been preparing for the future for a while now, grooming his daughters into various leadership positions in the hospital chain set up by him, while he continues to play an active role.
And they haven’t let him down. “My daughters got passionately involved in the business. They did everything,” says the proud father. “They even printed the first brochure of Apollo Hospitals, which was so good that people in the US didn’t believe it was made in India. They were involved right from that level.”
This commitment from the entire family has proved to be the accelerator Apollo Hospitals needed. Consider that from a 150-bed hospital in Chennai in 1983, Apollo has grown to an 8,617-bed hospital chain with 100 clinics and 1,600 pharmacies across the country. Its consolidated revenue for 2013-14 grew by 16.3 percent (year-on-year) to Rs 4,384.2 crore and it hopes to close this fiscal with Rs 5,000 crore, continuing its four-year run of 20 percent CAGR (compounded annual growth rate). Debt, meanwhile, is comfortable at Rs 700 crore with a debt-equity ratio of 0.3.
Confident in the growth momentum, the family felt the organisation needed to be revitalised. “We are a 31-year-old brand. It can be tiring sometimes, so we thought it is a good time to refresh it,” says Shobana Kamineni who, at 54, is the third of Reddy’s four daughters.
In July this year, then, a seven-member family council headed by Reddy, and including his four daughters and two professional advisors, met to decide the best way to rejig the structure. The council concluded that the most effective approach would be to redefine the role of every family member; this would give everyone a clear focus. “There is no point in everyone doing everything. We needed a focus so that we could perform our roles well,” says the oldest daughter, Dr Preetha Reddy, 57.
In the reorganisation that followed, Preetha and Shobana were promoted to executive vice chairpersons; Suneeta Reddy, 55, was made managing director and Sangita Reddy, 52, joint managing director.
There was another, more vehement, message embedded in this restructuring exercise. The family wanted to assert that the Reddy sisters were not ‘Daddy’s little girls’. “I have often heard people say that we are a shadow of our father,” says Shobana. “We want everyone to realise that we are serious professionals. I have created the pharmacy and the insurance businesses. Suneeta has raised more money than any chief financial officer in the country. People needed to understand that,” she points out.
More significant, however, was handling the delicate question of succession—as is the case with all family-run businesses. In this instance, the promoter family holds a 34.35 percent stake in Apollo Hospitals; 11 percent is with IHH-Healthcare Berhad, a leading international provider of premium health care services, and the balance is in the hands of foreign institutional investors and the public.
There is no immediacy since Reddy isn’t stepping down anytime soon; however, the family council felt it prudent to have a succession plan in place. “One of the ideas that have been mooted is a rotating chairmanship model, in which each of the sisters will get the chance of being the chairman for a few years,” says Reddy. This also manages the issue of choice since, as he points out, “I won’t say X or Y is more capable than the other because they are equally capable.”
As if on cue, just as he touches on the topic of succession, Preetha walks into his office, at Apollo Hospitals on Jubilee Hills, Hyderabad, to meet her father. “This is our superstar Preethu,” he says as she goes up to kiss him on the cheek. “Meeting over?” he asks her. “One down and one more to go,” she says with a laugh. “See,” says Reddy, pointing to Preetha, “this is what I like about my daughters. They love what they do and don’t treat it as a business.”
What is perhaps even more reassuring for the patriarch is that the sisters share a genuine bond—one that has allowed him to make these ambitious, and out-of-the-box, succession plans.
The Ties That Bind
The Reddy sisters rarely get to spend time together; more often than not, their schedules keep them apart. Which is why, they tend to make the most of any opportunity to “catch up on the gossip”. A few months ago, Preetha, Suneeta, Shobana and Sangita were all in the US to attend a family event. “We spent an entire day together, holed up in a room, talking and teasing each other,” says Shobana. “We are each other’s best friends. It helps that there is not much of an age difference between us.”
Later, in early August, the sisters were back in Hyderabad to attend a family wedding. “Suneeta didn’t want to attend it but we coaxed her into it. We asked her to make it even if it was just for three days,” says Shobana, “and she didn’t regret it even once!”
The closeness of the sisters can be a peeve for the third generation in the Reddy family. “Our children constantly complain that speaking to one of us is like speaking to all of us because we share everything with each other,” laughs Shobana. “It works to their disadvantage but sometimes they cleverly use it too.” Her daughters Upasana and Anushpala are closer to their aunt Sangita than they are to her, she says. “Our children understand the bond that exists between us and it is very important to them,” says Shobana.
And she isn’t exaggerating. In the family, the glue that binds is the sisters’ love and respect for each other. Mention this to any one of them and the standard response is a quick knock on a piece of wood, to ward off bad luck. “Is that all you find common among us?” Shobana asks, surprised, when we point out this similarity to her. “We even speak the same language and, funnily enough, we sometimes use the same words.”
Shobana was the first among the siblings to join Apollo Hospitals in 1982, as a liaison and project executive. “I graduated in economics from Stella Maris College in Chennai and then did an accelerated course from Columbia University in hospital administration, which was useless because I don’t like administration,” she says with characteristic candour. She preferred working on projects and took charge of large hospital constructions. “My most useful experience was working with architects, builders, etc,” she points out.
Shobana also shrugs aside the philosophy of ‘loving what you do’ as “luxury”. “It is more important to know how to deal with the cards that you are dealt.” She points to her career as an example. “I got the most ‘uncool’ space of pharmacy whereas running a hospital is more romantic,” she says. “Nobody wants to be a shopkeeper.” But, today, Apollo Pharmacy contributes 32 percent of the company’s revenues. “When we started Apollo Pharmacy, nobody in the company gave us the time of the day. And then, five years back, suddenly everyone, including the CEO of Apollo, became interested. It is a profitable division today,” says Shobana.
Her journey—from a place where she implemented projects to heading Apollo Pharmacy, the fastest growing division in Apollo Hospitals—mirrors that of her sisters, all of whom worked their way up and around in the organisation.
Preetha recalls how all of them started their careers by spending time in various departments of Apollo Hospitals—from housekeeping to food and beverages to working with doctors. “We felt that our father was working very hard so we wanted to help him out in whichever way we could,” says Preetha who heads international business verticals and leads the organisation’s focus on quality improvement processes. In fact, she was instrumental in pushing for Apollo Hospitals’ accreditation by Joint Commission International (JCI), a global gold standard for patient safety and quality improvement for health care organisations. (Eight Apollo Hospitals now have this gold standard.)
Given the diversity of experience they had, it took a while for the family council to narrow down the roles that each sister would perform. Shobana admits that it wasn’t the easiest of times. “Restructuring was one of our biggest challenges because we have never confronted each other on our roles and then, all of a sudden, you have this restructuring,” she says. “It taught us dispute resolution and the need to be frank with each other about what we want.”
Not that the sisters claim to be above a fight or two. “We are very different people. Suneeta is an introvert; Sangita is someone who thinks things through. We are not like peas in a pod. We understand that and are respectful of boundaries,” says Shobana. In this respect, a ground rule set by their mother Sucharitha Reddy has proved particularly useful. “Mom said that even if you fight, don’t sleep on a fight. She taught us to say sorry before sleeping, irrespective of who is at fault,” says Sangita who has led the group’s retail health care foray, which includes Apollo Health and Lifestyle Ltd. A firm believer in technology, she is also working on the digitisation of all patient records and making Apollo a paperless organisation.
Vinayak Chatterjee, chairman of Feedback Infrastructure and an independent director on the board of Apollo Hospitals, has known the Reddy family for over a decade. He says he is yet to see sibling rivalry among the sisters. “In contrast, there is sibling support. I have seen occasions where one comes to support the other,” he says, adding that Reddy has been a positive and galvanising force. “In many senses, the sisters draw a great inspiration from their father who is almost God-like to them.”
And the respect the sisters have for their father manifests in many small ways. For instance, if Preetha enters her father’s room when he isn’t present, she is careful not to sit in his chair. “It is the chairman’s chair,” she says.
But Reddy underplays his own importance and, instead, credits his wife for the close bond between their daughters. “Their mother has played a key role by quietly understanding what they need to know without being forceful. She does it so subtly that you hardly notice it. I think that is why they love her more,” he says with a laugh.
The Rejig That Mattered
Tough as the experience was for such a close-knit family, the rejig was also an unavoidable exercise. Not the least because it had become imperative to send a strong message to Apollo’s investors; that though the chairman was getting older, there would continue to be stability in the company. And Apollo Hospitals would follow the same value system. That, however, does not mean that Prathap Reddy has taken a backseat. He continues to work eight hours a day, including on the weekends. “The only break I take is when I go home for lunch on Sundays,” says the octogenarian who looks far younger than his age. “He is a very engaged chairman. We are empowered but we feel if it takes just a call to get his counsel, why not?” says Preetha.
On a typical work day, Reddy takes the rounds of the wards in the Hyderabad hospital. But on Sundays, he likes to talk to the laundry and kitchen staff as well as the telephone operators. “They are important people as well. They feel very happy that the chairman is talking to them,” he says. Reddy believes he has passed on the warmth he feels towards the Apollo staff to his daughters. “I have inculcated this culture in them. That’s why Apollo won the Gallup Workplace Award for 2014 for the best workplace,” he says.
Though he no longer participates in day-to-day meetings, his daughters continue to consult him before taking a big decision. “I know what is good and what is not and I guide my daughters when they need me,” he says. Reddy describes the reorganisation as part of Apollo’s strategy for the next three to five years to achieve top-of-the-line clinical excellence at all levels. “Each one has been given well-defined roles. It will help us grow the organisation,” he says.
Though the rotating chairmanship model is currently at a proposal stage—the family will have to arrive at a consensus—the model is being viewed as an optimal solution because equality between the sisters is a running theme. In the event that it does get accepted, Preetha, as the oldest, will take over as chairperson when the time comes. This will potentially be a seamless transition since she has always been seen as a leader by her sisters. “From a family head perspective, Preetha is the one,” says Sangita. “She has the personality. We all look up to her.”
But Preetha isn’t giving this much significance. “I think each one is equally capable. We will have to find a model which takes care of that. The only thing that sets us apart is our age. Otherwise, even our salaries are the same,” she says.
There is no rigidity about the order in which they assume leadership. “Right now we are using the age factor to decide. Preetha will be the first, followed by Suneeta, me and Sangita,” says Shobana. “The only thing is if, say, Sangita wants her turn faster, she can ask and we will offer it to her.”
Kelly LeCouvie, senior consultant at the Family Business Consulting Group, believes a rotating model does work in many cases but its success is dependent on many factors such as training, passion for the work, understanding of the business, personality and leadership abilities. “Naturally, the good thing about rotating that role is that it provides all the shareholders with an opportunity to lead, and to develop personally and professionally,” she says.
But she cautions of some risks. “Rotating chairmanships do not generally assure that family disputes will be eliminated. And it is definitely not the right reason to think about that model. I believe that anyone filling that role should be required to meet specific criteria, which can be established and monitored by the board.”
Sustaining The Vision
A critical question that arises out of the rotating chairmanship model is this: What happens to the larger vision of Apollo? Will it change every time there is a new chairman? Shobana only half-jokingly says, “Good. That is the way it should be. Otherwise it gets boring and monotonous.” But she also points out that it is unlikely to happen because the council will constantly engage on issues.
In this respect, it helps that the family speaks as one while defining Apollo’s vision. And the goals that Apollo has set for itself are rooted in the initial vision of the hospital, when it was set up by Prathap Reddy. “And that has not changed,” he says. “I started Apollo because I felt Indians should have the same level of health care as is available in developed countries. Our family of four daughters and, according to me, our family of 85,000 people [Apollo’s employees] are all focussed on what can we do to offer the best possible care. You don’t have to go abroad. We will give you the same care.”
Till now, Apollo has performed 1,59,000 heart surgeries at a 99 percent success rate, a feat, Reddy says, very few hospitals can match. And it has delivered because it has been a doctor-driven hospital with a focus on hiring the right people and staff training. Dr MR Girinath, chief cardiovascular surgeon, Apollo Hospital, Chennai, was the first doctor to join Apollo when Reddy started it. He recalls the intensity of research Reddy put in before hiring his staff. “He wanted people who could make a difference,” says Girinath, who left the railway hospital in Chennai to join Apollo with his team.
The attrition rate for doctors, who operate on a fee-for-service basis (they are consultants who are exclusive to Apollo but not on its rolls) is less than 1 percent in Apollo; the average attrition rate in hospitals is 15-20 percent.
Thirty-one years after starting Apollo, Reddy continues to be involved in hiring doctors. “Every year, I go to the UK to hire doctors. We interview 300 from which we hire 100,” he says. Apollo’s hiring is in tune with its three-year expansion plan. In addition to growing the pharmacy, clinics and boutique hospital businesses, Apollo will add 2,000 beds over the next two years. “We are totally stretched for the next two years which is another reason for dividing our roles,” says Preetha.
A Rs 2,500-crore capex plan has been allocated for the next three years of which Apollo has already spent Rs 600 crore. Growth will also come through acquisitions. “We are in a high growth phase. We have incubated new companies. We will be building more infrastructure and capacity. It is going to be very challenging,” says Suneeta.
An important part of the expansion plan is investment in technology. The hospital recently invested Rs 300 crore in a proton therapy centre in Chennai. “It will take six to seven years to get return on this equipment but it is an important technology,” says Krishnan Akhileswaran, Group CFO, Apollo. “US has 15 protons [centres]. Why shouldn’t India have one?” (Proton therapy is an advanced radiation therapy technology available globally.
Apollo’s Chennai centre will be the first proton therapy centre across South East Asia, Australia and Africa.) Such investments in technology will continue. “People trust us because of our cutting-edge technology,” Preetha says. “What we really hold close to our heart is that people trust us. And there is room to do more.”
Continuity is critical to the sustainability of any family business. “It is the main reason for having a family council,” says Preetha. The Reddy sisters, between them, have 10 children, all of whom are under 30 years of age. “We feel we are the custodians of their wealth, so we formed this council to take care of the next generation as well,” she adds.
While some of the grandchildren have joined Apollo, others are still very young. Suneeta’s daughter Sindoori, Shobana’s daughter Upasana and Sangita’s son Anindith work for the family business. Preetha’s son Karthik was involved for a while but now has his own venture.
“I think there is always the promoter’s perspective which they have because they understand the business and they talk to their grandfather a lot about it,” says Preetha. “They tell us all the time that they don’t like the way business is run. They want things quicker; they are more discerning than us and probably less tolerant than we are as a generation. But that is good because they are smarter and more agile.”
The family council is now working on framing the rules for the next generation. It will specify processes for entry into the business, terms and conditions to grow it and the methods for dispute resolution, among other things.
Shobana accepts that inducting the next generation into the business will not be easy. The bond that exists between the sisters has so far kept the family together but with the next generation, things could be different. “It will be difficult but a takeover by the next generation is still 15 years away,” says Shobana. “If the children are competent, they can be professionals like we are.”
Fortunately, Reddy’s grandchildren share cordial relationships. However, there is a rider. “They are close as cousins but I don’t know whether they will be close in running the business, which is why we have this unwritten rule that Apollo supersedes the family—always,” says Shobana.
Whenever Reddy meets his grandchildren, he asks them to talk about one good and one bad thing they did during the day. “I tell them to spend a few minutes thinking about this and the goals they have set for themselves,” he says. “This [his grandchildren] is the biggest asset we have. They love each other and they love us.”
Spend a few hours with Reddy and it is evident that while the robustness of Apollo’s numbers may satisfy him, the quintessential family man is more thrilled by the bond he shares with his near and dear ones. He is currently particularly excited about his great-grandson, who is Sindoori’s son. “He is six months old. In the night, I call out to him when he is sleeping and he wakes up and insists I take him home with me,” says Reddy with a laugh. “That is how much he loves me.” That, for the big businessman, is the real achievement. And, in many ways, the true story of his success.
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