Anuj, Rishi and Aditya Khanna have shown that change need not always be accompanied with conflict and chaos. Using collaboration and consensus, they have given C&S Electric, their family’s 46-year-old electrical and power products company a modern, mint-fresh look. 

Adjectives can't often paint a true picture. For example, a nearly five-decade-old family business manufacturing electric controls and switchgear seems anything but exciting. But nothing could be farther from the truth at C&S Electric, India's premier electric and power products company. A market leader in the switchgear business, the Rs1,100-crore company has had quite a decade. Ably supported by their fathers, C&S Electric's second-generation owners have transformed their family business well and smooth, one focus area at a time. It's a journey India's large swathe of family enterprises could learn much from. 

Focus#1: Accountability & Restructuring
In 1998, when Anuj and Rishi Khanna came back to India from the United States to join their family business, C&S Electric was roughly a Rs100 crore business with seven factories in Delhi NCR. Their main products were LV controlgear and switchgear, busducts, alternators and connectors. Brothers Ravi Khanna and Ashok Khanna, Rishi’s and Anuj’s fathers respectively had built a team of talented engineers but the promoter-duo directly controlled most of the functions. As Ashok Khanna puts it, “Informally, we had an unsaid agreement that Ravi looked after the finances and marketing, and I took care of operations and manufacturing.” In their first few years in business, Anuj and Rishi were also attached to different functions such as marketing and finance. 

That philosophy has been in constant evolution since. As the company grew, professional CEOs were brought in to head each of the business units. “Today, each business unit is accountable not only for its own balance sheet, but also its own P&L. Also, from being cash-focused, we’ve moved all our seven business units to be focused on return-on-capital-employed,” says Aditya, Ashok Khanna's younger son. “This has led to a huge impact in accountability. Because P&Ls are not affected by us, people have to own their performances.” These have seeded the company with a competitive spirit. Different business units compete for the company’s annual awards—instituted to recognise performance on core focus areas like growth, cost savings and green initiatives. “It’s great how the culture we began setting for ourselves has flown. Awards or flak, our CEOs raise their hands to own up,” says Anuj. “Modernisation is a loaded word but really this transfer of control and responsibility from the family to professionals has been the biggest change,” concludes Rishi. They didn’t stop at that. Having carved out autonomy and accountability for themselves, they went further. “After creating the larger structure, we started empowering our professional managers within each unit. It led to a more transparent, open culture of management,” Rishi explains. “Honestly, it also happened because Anuj and I did not have the same kind of hands-on experience that our fathers, who had built the company, had. So, instead of faking it, we said, we should let the people who have more experience handle those aspects. As simple as that may sound, it’s actually a very powerful tool because very often you’re not letting your people do what they are capable of doing because you’re too busy doing it yourself. That’s been an important change,” adds Rishi. The younger Khannas soon realised that this wasn’t the right approach for them. It didn’t give either them or their professional managers the opportunity to be really accountable for the result. So, the two of them put their heads together, and mooted a business restructuring to their fathers. “We restructured into business units in 2002,” recalls Anuj. “Rishi and I managed two of the larger P&Ls—LV switchgear and Power Busbars because these were core to the identity and future of our company. This exercise was really the first conscious step we took towards change.” It gave the cousins a chance to get a complete grip—right from product development, manufacturing and labour issues to marketing and sales. “The accountability for our unit’s growth and performance came right up to us". 

Focus#2: Capital Restructuring

Making the business a single entity was a big aspect of modernisation. It was considered cool to have a large number of companies, and a big business group. That never rung with us." -Aditya Khanna

Aditya Khanna, the youngest of the three, joined the company in 2005, after a six-year stint with Ernst & Young in London. A chartered accountant by training, Aditya initially worked on a joint venture. But his finance background ensured he naturally gravitated to look at the capital structure of the company. Even till the mid-2000s, although they’d organised themselves in business units, the C&S Electric we know today was actually split across five to six different companies. The younger Khannas knew this didn’t make sense. A consolidation of both the balance sheets, and a singular identity was long overdue to give benefit to all the stakeholders such as bankers, promoters and employees. The trio also started thinking that there was good opportunity to bring equity to the company for them to grow. “That thought gave a lot of direction to what we were going to do, and how things played out,” recalls Aditya. “Making the business a single entity was a big aspect of modernisation. At that time, it was actually considered cool to have a large number of companies, and to have this big business group. Somehow, that never rung with us. We wanted to have a single brand with a single focus,” adds Rishi. 

What followed was a complex process of integration and consolidation. It culminated in two big events—the company’s rechristening to C&S Electric, and the infusion of private capital in the form of GE Capital picking up nine per cent equity for Rs100 crore in August 2008. 

The behind-the-scenes of this financial restructuring was frantic and immensely challenging. Each of the five companies followed different reporting and auditing mechanisms, had different business cycles, and had never previously been attempted to be brought together. Some of the group companies were JVs. This increased the complexity of bringing them together because shares had to be bought back from the foreign partners. By 2007, a central treasury was in place. Aditya admits, “We wanted to raise private equity, which made us push the buttons faster on these processes.” But, even that wasn’t about to happen without some major heartburn. As the deal with GE Capital was coming to fruition, global capital markets turned turbulent. Yet, GE Capital remained supportive, and the deal came through in August 2008, just a month before the collapse of Lehman Brothers.  

That infusion has fuelled the company’s organic and inorganic growth, including its greenfield, switchgear manufacturing facility in Nantong, China; and the acquisition of Dutch firm, Etacom. “This really has been a huge area of improvement for us. We didn’t have a corporate finance structure earlier. Putting that in place has enabled us to effectively deploy capital, and to make our expansion possible,” confesses R. N. Khanna. 

Focus#3: Branding & Image

The great benefit of “looking” like a corporate set- up has increased their ability to attract top-notch talent.

The conversations set off by the need to consolidate the many companies, and come out with a stronger, single entity gave a huge fillip to the company’s corporate branding. Over the course of 2005 and 2006, Anuj, Rishi and Aditya had several discussions to sculpt their ideas into shape. “We didn’t just want to do something, we wanted to conceptualise the change,” they say. The first tangible manifestation of these ideas was in evidence at the Elecrama 2007. Elecrama is the power and electrical industry’s biggest annual soiree. C&S Electric always had a big presence at the exhibition. But its stall was a “big mela” till 2007, the three confess. There were multiple banners, each of which had different logos, different company names, or names of JV partners on them. “There was no focus.” In the 2007 edition in Mumbai, they unfurled the new name, C&S Electric because Controls & Switchgear, the name of the flagship company, was too long, generic and didn’t capture what they aspired to do. Armed with a new name, their Elecrama stall that year showcased their divisions; and was hugely appreciated by both employees and customers. 

The branding led to a cohesive identity. It prompted bonding and sharing between employees, many of whom might have worked in the same office but didn’t share information and experiences. Of course, this necessitated the massive task of migrating everybody to a set of uniform human resource policies, and creating buy-in to bring parity in designations and compensation. “We did this by building a culture of consensus, and by convincing people about the benefits of parity,” says Anuj.  

What also helped was formally articulating our vision and mission, Rishi says. “It’s not like those ideas weren’t there. Of course, our fathers also envisaged growth and expansion. They also had a lot of pride in the made-in-India label, and wanted it to get global recognition. It’s one of our definitive vision areas. But, putting it out there—in our presentations, brochures and website enables these ideas to reach all our stakeholders,” he adds. 

The great benefit of “looking” like a corporate set- up has increased their ability to attract top-notch talent. "It isn’t hard for us to take somebody out of a larger company, and some of the CEOs of our business units could easily be from giants like ABB, L&T and Siemens," he says. The overall corporate branding, and the attention they’ve got in the industry after their financial restructuring (see page 29) brought in private equity four years back and has also ensured that C&S is well-known beyond the electrical and power products industry.  

The camaraderie between the trio is hard to miss. "We hunt in a pack" says Aditya Khanna only half in jest.

Focus#4: International Expansion & Product Development
 Along with the corporate finance structure, one of the most dramatic impact areas of change has been how the company’s revenue mix has changed over the years. Sample this: its exports to more than 78 countries contribute to 20 per cent of the total turnover. C&S Electric is amongst the largest exporter of electrical switchgear products from India. “Till the mid-2000s, there wasn't much focus on this. But, our vision became bigger. We started focusing on international business. Rishi lived on an airplane for a couple of years,” says Anuj. They claim that C&S Electric has become India’s biggest exporter of industrial power distribution and control equipment. Two milestone events best symbolise this spreading of wings—first, the acquisition of Dutch firm Etacom in December 2011. Etacom, which had a turnover of €20 million, is a globally acknowledged brand in cast resin busbar with a very strong presence in applications where high performance is required. On its part, C&S Electric had pioneered the market for busbars in India and is a market leader in this segment. The combined entity has now become a global leader in the busbar markets, and helps C&S Electric establish a base to service the demand in Europe and the Middle East. Clearly, the successful acquisition has given the second-generation entrepreneurs a lot of confidence. “We’ve realised that in our line of business, acquisitions are going to be something we’re going to do more and more in the coming years,” Aditya says, matter-of-factly. Their switchgear plant in Nantong, China which came up in 2010 is also a part of the strategy to establish the C&S Electric brand globally.  Along with this expanding global footprint, the company's recent success with new products has also been heartening, says Ashok Khanna. Today, 20 per cent of the annual turnover comes from products launched in the last five years. Product development and R&D have been embedded in the company's culture. "We ensure two per cent of the C&S Electric turnover is invested in R&D across its four research centres," they say.

Focus#5: Corporate Governance
Along with the corporate finance structure, one of the most dramatic impact areas of change has been how the company’s revenue mix has changed over the years. Sample this: its exports to more than 78 countries contribute to 20 per cent of the total turnover. C&S Electric is amongst the largest exporter of electrical switchgear products from India. “Till the mid-2000s, there wasn't much focus on this. But, our vision became bigger. We started focusing on international business. Rishi lived on an airplane for a couple of years,” says Anuj. They claim that C&S Electric has become India’s biggest exporter of industrial power distribution and control equipment. Two milestone events best symbolise this spreading of wings—first, the acquisition of Dutch firm Etacom in December 2011. Etacom, which had a turnover of €20 million, is a globally acknowledged brand in cast resin busbar with a very strong presence in applications where high performance is required. On its part, C&S Electric had pioneered the market for busbars in India and is a market leader in this segment. The combined entity has now become a global leader in the busbar markets, and helps C&S Electric establish a base to service the demand in Europe and the Middle East. Clearly, the successful acquisition has given the second-generation entrepreneurs a lot of confidence. “We’ve realised that in our line of business, acquisitions are going to be something we’re going to do more and more in the coming years,” Aditya says, matter-of-factly. Their switchgear plant in Nantong, China which came up in 2010 is also a part of the strategy to establish the C&S Electric brand globally.  Along with this expanding global footprint, the company's recent success with new products has also been heartening, says Ashok Khanna. Today, 20 per cent of the annual turnover comes from products launched in the last five years. Product development and R&D have been embedded in the company's culture. "We ensure two per cent of the C&S Electric turnover is invested in R&D across its four research centres," they say.

When we first got the Rs100 crore funding from GE Capital, I signed that cheque. It was quite a moment. Then, I realised that it was crazy that I was single-handedly allowed to sign on a cheque of that amount."- Rishi Khanna

A key decision the trio took in 2007 was to institute the discipline of board meetings. “Honestly, we didn’t have them before,” says Aditya. "Whatever was decided between our fathers was it." When GE Capital came in, Rishi, Anuj and Aditya decided to make this a focus area as well. Today, their Board meetings are held every quarter without fail. To make the Board meaningful, they’ve also brought in independent experts to the Board, which now has a total of nine members (one each for the five Khannas across both generations, and four independent directors). 

In their last Board meeting, for example, one of the independent directors asked them to look beyond quarterly figures, and annual targets, and tell the Board their five- and ten-year vision. “We were asked what we   were thinking, and if we had a game plan to get there? It made us think hard—about what we want to do in the long term. We have to present our thoughts at the next Board meeting.” Former MD of the State Bank of India, Sanjay Bhattacharya is the Board’s most recent addition. He joins P. R. Khanna and V. C. Koura. This composition has led to robust discussions. “Our Board meetings have seen some really great conversations. For example, in the process of acquiring Etacom, we were greatly challenged by our Board. They would constantly ask us why we were doing this acquisition,” explains Aditya. “How you react to this is your prerogative. One can think, oh! This is my company, and I’ll do what I want. Or, you can use it as a catalyst to push yourself. We use it like that—their questions made us second guess ourselves—are we just thinking whimsically? Or do we know why we really want to acquire this?” 

The ideas thrown up in these meetings have led to other subtler, but equally important changes. For long, the trio say their company accounts would look like they were printed on “toilet paper”. As a private company, C&S Electric does not have to declare its results. But, one of the independent Board directors urged them to “present their accounts with pride.” 

Over the past couple of years, C&S Electric has been bringing out a complete annual report which is well-designed and printed on quality paper. They admit the impact has been tangible and positive. Aditya says, “When I gave Mr Bhattacharya our annual report in his office as he was about to retire, he told me he was thrilled to see what we’d put up. That we’d made the effort to create something we didn’t need to, shows our pride in the company.” But, their corporate governance efforts go beyond the hygiene factor of having regular Board meetings. They have extended corporate governance to make sure both the company’s financial processes, as well as their individual powers are regulated and well-defined. Aditya recalls an event that served as a catalyst to some of these decisions. 

“When we first got the Rs100 crore funding from GE Capital, we had to transfer it to liquid funds. I signed that cheque. It was quite a moment—a Rs100 crore cheque! I took a photograph and sent it to Rishi. The next day, I realised that it was crazy that I was single-handedly allowed to sign on a cheque of that amount.” 

The three of them sat down to change that, and to put limits on their financial decision-making powers— as a group, and as individuals. Now, any cheque transaction that goes beyond the figure fixed requires each of them to get one of the other two as a co-signatory. “Putting those controls on yourself is difficult, but it’s very important to do so. Many families in business are not able to differentiate between the company and their personal entity. We’re clear about that,” says Rishi.   

The mandate for governance issues is bound to get larger for them in the future. To fund their ambitious growth plans, C&S Electric needs more equity to come in.. There are definite IPO plans in the not-so-distant future. “If that’s the next step of evolution—what goes around it? We know at some step we might need a professional MD, somebody possibly from outside the company. That’s a further step away from management for us. It will become a personal evolution—what do we then, how do we structure ourselves, should we farm out into other areas?"