02-Nov-2012 5:44 AM
Every now and then, Fabindia Managing Director William Bissell is a man possessed. Images linger before the 46-year-old Indo-American that haunt him from time to time.
There was this time he walked into a store to see an old HP printer being used as a foot-rest. Instead of repairing the printer, the staff had this couldn't-careless attitude. Ironically, Bissell owns the same model and it has been with him over the last decade. "This really drove me mad because if it were their printer, they would have got it fixed," he says.
Then there was the employee to whom he gently showed the door, as he was quite a "dullard". A few years later, the same employee turned up to gleefully narrate his entrepreneurial experience post-Fabindia. He had set up shop on Fabindia's turf. "What struck me was how do you get a person to switch those natural instincts in a job. I was prepared to offer him a job again," he says.
The third image Bissell has is of an old Mahindra jeep that he sold to an employee. Upon buying the vehicle, this person exited the company. The jeep is still up and running, ferrying people from one place to another. He was again taken aback by the entrepreneurship of his own people. Simply put, Bissell is possessed by the idea of ownership within companies.
Fabindia has 1,000-odd employees and 16 community-owned companies (it started out with 18 in 2007, but two ran aground) or supplier region companies (SRCs), as they are called, employing 86,000 artisans at the grassroots. It's a revolutionary business idea wherein eventually, the artisans will own a piece of Fabindia, either directly or through the SRCs or the clusters they belong to. On its 50th anniversary, Fabindia took the leap of making all the 842 employees shareholders. Bissell wants to reverse the traditional models of capitalism by widening the base of shareholders and what that means is his own stake is diluted every time the number of shareholders goes up.
But the professorial Bissell is fine with that as long as the company stays true to its vision. For him, the company is a social enterprise that's looking for legitimacy through equitable ownership, empowered workers; a company that eschews some of the ideals and beliefs that society stands for but yet commands a premium over competitors.
Bissell's working style and his vision for Fabindia are a curious mix of a Fabian mission with capitalist goals. Personally he works with American professionalism, has a Marwari's acute sense of business and also possesses unparalleled compassion that endears him to the artisans who work for Fabindia.
THE TRUST FACTOR
And William Bissell burns the proverbial midnight oil these days as he wrestles with a different kind of dilemma. According to the chief executive, Fabindia's inherent strength lies in the trust that it has built with its stakeholders and customers. But can that trust be transformative for the business? If yes, how can it be channeled to propel Fabindia into the next orbit? Since the last few months, Bissell has an unsettling feeling of ennui, even though growth has been at a fast clip. With the company touching Rs 1,000 crore in annual sales, Bissell feels the time is just right for another breakthrough. In the ensuing months, the team at Fabindia will work towards weaving 'trust' into Fabindia's business model in a way that works for employees, artisans - and, of course, the company's bottomline.
Co-operative Capitalism
PE-NANCE FOR BROADENING THE BASE
Armed with a degree in philosophy, political science and governance from Wesleyan University in the US, Bissell knows the value market-based mechanisms can trigger at the bottom of the pyramid (where artisans form the base of his supply chain). So if Wolfensohn Capital Partners, led by former World Bank chief James Wolfensohn, picked up 8% stake in Fabindia in 2007 and exited last year, L Capital, the private equity arm of the world's biggest luxury conglomerate LVMH Group and Azim Premji's PremjiInvest, are the new PE players who've posited faith in Bissell's model of inclusive capitalism.
The PE companies bring a different kind of legitimacy to Bissell's business model, with financial recognition, good management practices, tech transfers, and in some cases, like in the case of PremjiInvest, a huge amount of credibility. Despite Fabindia's business model having a social ring to it, investors flocked. That's heartening for Bissell who is now well set on expansion and raring to take a dilution of his family's majority stake in the company. "Actually, when it comes to taking a dilution to admit the poor, then you are voting with your wallet. Voting with your wallet is much more serious than voting with your tongue, and they (PE investors) voted with their wallet," he says.
SMALLER STAKE OF A LARGER PIE
Nevertheless, as Bissell unravels his grand plan from Delhi's tony N-block Greater Kailash master store of Fabindia, it becomes evident the way things stand. He started looking at a more legitimate model of public ownership, ownership by people who are impacted by the work of the corporation. In the case of Fabindia, they were the people associated with the company who were impacted by the work it did. "From a purely capitalist business standpoint, increased legitimacy can most likely lead to increased market cap and from a business point of view, it makes sense because if you have wide legitimacy, you have a wide market cap, even if the capitalist has sold out some of the equity for it," he says.
It still makes sense because whatever is left is worth far more than a larger piece of a smaller pie, "better to have a smaller piece of a much more valuable pie." And in doing so, Bissell is not averse to drawing lessons from the best of the world. He was once having a chat with an English customer whom he asked if the same product were available in four stores, where would he go and buy it. He said John Lewis without batting an eyelid because 'the company stands by some of the ideals and beliefs our society should stand by'.
At John Lewis, the largest partnership in the world, all employees are partners of the company, and yet it is one of the most successful year-on-year UK retailer. "It is a cooperative, in the truer sense of the word, and a complete socialistic dream, owned by the workers, profits are shared in equal portion, there is 15% disbursement of profits, the MD gets 15%, the packing boy gets 15%. It is an amazing concept, and yet year after year, it outperforms other companies and that is because I think it attracts to it the quality person, both in the management and who run the company on a daily basis."
EMPOWERMENT AT PLAY
In 2007, Bissell started setting up the SRCs for not just a better grip on the supply chain and contemporariness of products but also for artisans to have more say in the goods they produce. Each SRC has about 20-30 clusters and every cluster comprises thousands of artisans. So each artisan became a shareholder in their respective SRCs. And being public limited entities, these SRCs could borrow money from banks more easily against orders from a privately-held Fabindia.
Around the same time, Bissell created the Artisans Micro Finance Private Limited (AMFPL) fund, a fully-owned subsidiary of Fabindia, which invested in the SRCs. According to a typical shareholding pattern in a community-owned company, AMFPL would own 40% stake, the artisans make up 30% and other investors would pick up the remaining 30%. "This is like buying shares of something that is giving you livelihood and it is a very different relationship (from owning equity in the share market) because you are connected to the company through your associations," says Bissell.
In other words, as of now, 30,000 of the 86,000 artisans indirectly own a part of Fabindia through AMFPL's holding across the 16 SRCs. The plan really is to enlarge the shareholding base of Fabindia by integrating the other artisans either directly or indirectly in the Fabindia family. "The ultimate shareholding will happen through merger and that requires court approval. So through a court order, we will merge the SRCs with Fabindia," says Bissell.
TREADING WITH CAUTION
There is a desire for people to create wealth that goes beyond the individual.
Vineet Rai, founder and CEO of Aavishkar, a micro venture capital fund that until recently was invested in an SRC, says AMFPL bring in legitimacy to the business: "It has created both a financially strong backend and given teeth to Fabindia in terms of keeping the artisans abreast with designs, quality, creativity- the whole backend is now geared to the frontend." "One of the issues the retail industry suffers from is poor supply chain, and backend infrastructure - socially conscious businesses like Fabindia however stand out in this respect" adds Sanjiv Krishnan, executive director (transactions group), PWC.
However, Rai also throws in a caveat pointing out why two of the communityowned companies downed shutters. "There are two things here. One, you have to make the backend strong enough financially so that it does not depend on Fabindia completely but the two companies were 100% dependent on Fabindia. Two, the supplier companies could not keep pace with changing design, quality and creativity." Bissell may take risks but while scaling up, he needs to be careful, warns Rai.
Executive Director Sunil Chainani, who has been with the group for a decade, claims that the idea of merging the SRCs or clusters with Fabindia could come to fruition in the next couple of years as the company gears to take the most effective route to that end. He is quick to admit that unless there is a major liquidity event, there may not be any room for dilution. "If we go for a major acquisition or IPO to raise money, we'll go in for a further round of dilution," he elaborates. In 2009, Fabindia acquired a 25% stake in the UK-based retailer EAST LLC and today wholly owns the company with about 108 stores in Great Britain. Bissell narrates a conversation he once had with a prominent businessman who tried to convince him against stakeholdership at the bottom of the pyramid.
All he said was that artisans and their ilk are only interested in the money and would cash out once the share price goes up. It was a commitment issue he raised. Bissell, who considers his artisans far more committed than most others, sneered and retorted-"Now let's talk about your company. You consolidated your holdings nicely and then you had a good family fight. Your sons and daughters are having a nice fight, now you split the company this way and that way, the stock market with laugh at you, and that is the story of every second company."
BALANCE PROPS UP LEGITIMACY
Well, dilution can wait until the system evolves. At the moment, though, the need is to create a governance structure so that there are productive outcomes. "Otherwise, everybody will be yelling at each other and you will end up having paralysis. You need to give the process legitimacy, which is what most people have not been able to do," says Bissell. He's quick to contrast the Indian polity with the American primary saying that while the former has no legitimacy as names of political heavyweights are pulled out of the hat, the latter does confer legitimacy.
"So what we need to do in our processes, like for example, who is going to head a cluster, what authority does that person have in the affairs of Fabindia, how you determine the weightage of their board, i.e. how many shareholders are there in the cluster, how many shares those people hold."
In effect, Fabindia has created a mechanism of representing its artisans on the basis of a couple of criteria - people's preference or popular choice and a performancerelated criteria. "One way of measuring a person's actual hard work is whether he has actually gone out and slogged and brought in new shareholders and developed them, and then you have the popular choice. But it is a combination of the two because if you only have people's preference, muscle power tends to creep in. So we have developed a hybrid system as you have to balance the two," says Bissell.
On the ground, Navneet Gaur is a working director with two SRCs - Supplier Regional Company, Bijnore (1400 artisans)and Uttar Pradesh Artisans' Sutradhar Ltd (2700 artisans). Since 2007, he has been coordinating elections every year for artisan directors of each company. Every month, there's a review meeting in which the artisan director discusses distribution of work, advances and other sourcing issues. Gaur owns 2,000 shares , each of Rs 100 face value. While he can sell 200 shares, he can't do so with the remaining 1,800 since they are tied to his performance.
Only if he achieves 90% of his target, will the company release 10% of the shares every year. But for Gaur, business is good. In 2010-11, Bijnore did business worth Rs 13-14 crore. "The suppliers are happy as they get assured work on healthy margins of 15-20%," says Gaur.
Have the artisan-investors benefited? Mohammad Hafiz of Kasim Handloom in Bijnore, a Fabindia supplier for the last 10 years, invested Rs 15,000 in 2008. "I have already got my capital back from the dividends," he says. Dividends for FY09-10 were 25 %, FY10-11 (30%), FY11-12 (35 %). Though the artisans can sell to outsiders too, most don't. "We get conned by traders from larger cities and we have to chase them for payments. Fabindia has very clean dealings," says Hafiz.
A PURITAN'S PASSAGE TO INDIA
Fabindia was founded 52 years ago by William's father, the late John Bissell, an American working for the Ford Foundation who was passionate about India's art and craft. Though the last mile coverage giving value to the artisan for what he produced was John's dream, he lived and worked in an era of license raj and controls. When William took over the reins of the company after John's death in 1998, the company had a turnover of Rs 12 crore. "My father lived at a time when businesses couldn't grow legally and there were too many fetters. There was no word called private equity in the dictionary.
Therefore, there were no valuations. So he was operating in a different timescape," says William. The Bissell family hails from Canton in Connecticut, where Fabindia was incorporated. They can trace their ancestry to the ship that built America, to the Mayflower when hard-working Huguenots (Pilgrim Fathers) docked in America and transformed it into the land of liberty through strong Calvinist ethics. Today, descendant William Bissell, in his own way, is weaving a strong ethical foundation to his business and beyond.
William's Way
Company should stand by some of the ideals and beliefs our society stands by
Business models can be built on novel ideas
Integrity has a premium in the marketplace
Wide-scale sweat and equity participation leads to committed workforce and greater shareholder value
Systems and processes need constant evolution and fine-tuning
Tone for the culture of the company is set at the top
A socialist company doesn't mean less hard-nosed negotiators
Governance structures with wide-scale participation need some regulations
Better to own a small pie of a large company than a large piece of a small company
Draw lessons from multiple sources and adapt
There was this time he walked into a store to see an old HP printer being used as a foot-rest. Instead of repairing the printer, the staff had this couldn't-careless attitude. Ironically, Bissell owns the same model and it has been with him over the last decade. "This really drove me mad because if it were their printer, they would have got it fixed," he says.
Then there was the employee to whom he gently showed the door, as he was quite a "dullard". A few years later, the same employee turned up to gleefully narrate his entrepreneurial experience post-Fabindia. He had set up shop on Fabindia's turf. "What struck me was how do you get a person to switch those natural instincts in a job. I was prepared to offer him a job again," he says.
The third image Bissell has is of an old Mahindra jeep that he sold to an employee. Upon buying the vehicle, this person exited the company. The jeep is still up and running, ferrying people from one place to another. He was again taken aback by the entrepreneurship of his own people. Simply put, Bissell is possessed by the idea of ownership within companies.
Fabindia has 1,000-odd employees and 16 community-owned companies (it started out with 18 in 2007, but two ran aground) or supplier region companies (SRCs), as they are called, employing 86,000 artisans at the grassroots. It's a revolutionary business idea wherein eventually, the artisans will own a piece of Fabindia, either directly or through the SRCs or the clusters they belong to. On its 50th anniversary, Fabindia took the leap of making all the 842 employees shareholders. Bissell wants to reverse the traditional models of capitalism by widening the base of shareholders and what that means is his own stake is diluted every time the number of shareholders goes up.
But the professorial Bissell is fine with that as long as the company stays true to its vision. For him, the company is a social enterprise that's looking for legitimacy through equitable ownership, empowered workers; a company that eschews some of the ideals and beliefs that society stands for but yet commands a premium over competitors.
Bissell's working style and his vision for Fabindia are a curious mix of a Fabian mission with capitalist goals. Personally he works with American professionalism, has a Marwari's acute sense of business and also possesses unparalleled compassion that endears him to the artisans who work for Fabindia.
THE TRUST FACTOR
And William Bissell burns the proverbial midnight oil these days as he wrestles with a different kind of dilemma. According to the chief executive, Fabindia's inherent strength lies in the trust that it has built with its stakeholders and customers. But can that trust be transformative for the business? If yes, how can it be channeled to propel Fabindia into the next orbit? Since the last few months, Bissell has an unsettling feeling of ennui, even though growth has been at a fast clip. With the company touching Rs 1,000 crore in annual sales, Bissell feels the time is just right for another breakthrough. In the ensuing months, the team at Fabindia will work towards weaving 'trust' into Fabindia's business model in a way that works for employees, artisans - and, of course, the company's bottomline.
Co-operative Capitalism
PE-NANCE FOR BROADENING THE BASE
Armed with a degree in philosophy, political science and governance from Wesleyan University in the US, Bissell knows the value market-based mechanisms can trigger at the bottom of the pyramid (where artisans form the base of his supply chain). So if Wolfensohn Capital Partners, led by former World Bank chief James Wolfensohn, picked up 8% stake in Fabindia in 2007 and exited last year, L Capital, the private equity arm of the world's biggest luxury conglomerate LVMH Group and Azim Premji's PremjiInvest, are the new PE players who've posited faith in Bissell's model of inclusive capitalism.
The PE companies bring a different kind of legitimacy to Bissell's business model, with financial recognition, good management practices, tech transfers, and in some cases, like in the case of PremjiInvest, a huge amount of credibility. Despite Fabindia's business model having a social ring to it, investors flocked. That's heartening for Bissell who is now well set on expansion and raring to take a dilution of his family's majority stake in the company. "Actually, when it comes to taking a dilution to admit the poor, then you are voting with your wallet. Voting with your wallet is much more serious than voting with your tongue, and they (PE investors) voted with their wallet," he says.
SMALLER STAKE OF A LARGER PIE
Nevertheless, as Bissell unravels his grand plan from Delhi's tony N-block Greater Kailash master store of Fabindia, it becomes evident the way things stand. He started looking at a more legitimate model of public ownership, ownership by people who are impacted by the work of the corporation. In the case of Fabindia, they were the people associated with the company who were impacted by the work it did. "From a purely capitalist business standpoint, increased legitimacy can most likely lead to increased market cap and from a business point of view, it makes sense because if you have wide legitimacy, you have a wide market cap, even if the capitalist has sold out some of the equity for it," he says.
It still makes sense because whatever is left is worth far more than a larger piece of a smaller pie, "better to have a smaller piece of a much more valuable pie." And in doing so, Bissell is not averse to drawing lessons from the best of the world. He was once having a chat with an English customer whom he asked if the same product were available in four stores, where would he go and buy it. He said John Lewis without batting an eyelid because 'the company stands by some of the ideals and beliefs our society should stand by'.
At John Lewis, the largest partnership in the world, all employees are partners of the company, and yet it is one of the most successful year-on-year UK retailer. "It is a cooperative, in the truer sense of the word, and a complete socialistic dream, owned by the workers, profits are shared in equal portion, there is 15% disbursement of profits, the MD gets 15%, the packing boy gets 15%. It is an amazing concept, and yet year after year, it outperforms other companies and that is because I think it attracts to it the quality person, both in the management and who run the company on a daily basis."
EMPOWERMENT AT PLAY
In 2007, Bissell started setting up the SRCs for not just a better grip on the supply chain and contemporariness of products but also for artisans to have more say in the goods they produce. Each SRC has about 20-30 clusters and every cluster comprises thousands of artisans. So each artisan became a shareholder in their respective SRCs. And being public limited entities, these SRCs could borrow money from banks more easily against orders from a privately-held Fabindia.
Around the same time, Bissell created the Artisans Micro Finance Private Limited (AMFPL) fund, a fully-owned subsidiary of Fabindia, which invested in the SRCs. According to a typical shareholding pattern in a community-owned company, AMFPL would own 40% stake, the artisans make up 30% and other investors would pick up the remaining 30%. "This is like buying shares of something that is giving you livelihood and it is a very different relationship (from owning equity in the share market) because you are connected to the company through your associations," says Bissell.
In other words, as of now, 30,000 of the 86,000 artisans indirectly own a part of Fabindia through AMFPL's holding across the 16 SRCs. The plan really is to enlarge the shareholding base of Fabindia by integrating the other artisans either directly or indirectly in the Fabindia family. "The ultimate shareholding will happen through merger and that requires court approval. So through a court order, we will merge the SRCs with Fabindia," says Bissell.
TREADING WITH CAUTION
There is a desire for people to create wealth that goes beyond the individual.
Vineet Rai, founder and CEO of Aavishkar, a micro venture capital fund that until recently was invested in an SRC, says AMFPL bring in legitimacy to the business: "It has created both a financially strong backend and given teeth to Fabindia in terms of keeping the artisans abreast with designs, quality, creativity- the whole backend is now geared to the frontend." "One of the issues the retail industry suffers from is poor supply chain, and backend infrastructure - socially conscious businesses like Fabindia however stand out in this respect" adds Sanjiv Krishnan, executive director (transactions group), PWC.
However, Rai also throws in a caveat pointing out why two of the communityowned companies downed shutters. "There are two things here. One, you have to make the backend strong enough financially so that it does not depend on Fabindia completely but the two companies were 100% dependent on Fabindia. Two, the supplier companies could not keep pace with changing design, quality and creativity." Bissell may take risks but while scaling up, he needs to be careful, warns Rai.
Executive Director Sunil Chainani, who has been with the group for a decade, claims that the idea of merging the SRCs or clusters with Fabindia could come to fruition in the next couple of years as the company gears to take the most effective route to that end. He is quick to admit that unless there is a major liquidity event, there may not be any room for dilution. "If we go for a major acquisition or IPO to raise money, we'll go in for a further round of dilution," he elaborates. In 2009, Fabindia acquired a 25% stake in the UK-based retailer EAST LLC and today wholly owns the company with about 108 stores in Great Britain. Bissell narrates a conversation he once had with a prominent businessman who tried to convince him against stakeholdership at the bottom of the pyramid.
All he said was that artisans and their ilk are only interested in the money and would cash out once the share price goes up. It was a commitment issue he raised. Bissell, who considers his artisans far more committed than most others, sneered and retorted-"Now let's talk about your company. You consolidated your holdings nicely and then you had a good family fight. Your sons and daughters are having a nice fight, now you split the company this way and that way, the stock market with laugh at you, and that is the story of every second company."
BALANCE PROPS UP LEGITIMACY
Well, dilution can wait until the system evolves. At the moment, though, the need is to create a governance structure so that there are productive outcomes. "Otherwise, everybody will be yelling at each other and you will end up having paralysis. You need to give the process legitimacy, which is what most people have not been able to do," says Bissell. He's quick to contrast the Indian polity with the American primary saying that while the former has no legitimacy as names of political heavyweights are pulled out of the hat, the latter does confer legitimacy.
"So what we need to do in our processes, like for example, who is going to head a cluster, what authority does that person have in the affairs of Fabindia, how you determine the weightage of their board, i.e. how many shareholders are there in the cluster, how many shares those people hold."
In effect, Fabindia has created a mechanism of representing its artisans on the basis of a couple of criteria - people's preference or popular choice and a performancerelated criteria. "One way of measuring a person's actual hard work is whether he has actually gone out and slogged and brought in new shareholders and developed them, and then you have the popular choice. But it is a combination of the two because if you only have people's preference, muscle power tends to creep in. So we have developed a hybrid system as you have to balance the two," says Bissell.
On the ground, Navneet Gaur is a working director with two SRCs - Supplier Regional Company, Bijnore (1400 artisans)and Uttar Pradesh Artisans' Sutradhar Ltd (2700 artisans). Since 2007, he has been coordinating elections every year for artisan directors of each company. Every month, there's a review meeting in which the artisan director discusses distribution of work, advances and other sourcing issues. Gaur owns 2,000 shares , each of Rs 100 face value. While he can sell 200 shares, he can't do so with the remaining 1,800 since they are tied to his performance.
Only if he achieves 90% of his target, will the company release 10% of the shares every year. But for Gaur, business is good. In 2010-11, Bijnore did business worth Rs 13-14 crore. "The suppliers are happy as they get assured work on healthy margins of 15-20%," says Gaur.
Have the artisan-investors benefited? Mohammad Hafiz of Kasim Handloom in Bijnore, a Fabindia supplier for the last 10 years, invested Rs 15,000 in 2008. "I have already got my capital back from the dividends," he says. Dividends for FY09-10 were 25 %, FY10-11 (30%), FY11-12 (35 %). Though the artisans can sell to outsiders too, most don't. "We get conned by traders from larger cities and we have to chase them for payments. Fabindia has very clean dealings," says Hafiz.
A PURITAN'S PASSAGE TO INDIA
Fabindia was founded 52 years ago by William's father, the late John Bissell, an American working for the Ford Foundation who was passionate about India's art and craft. Though the last mile coverage giving value to the artisan for what he produced was John's dream, he lived and worked in an era of license raj and controls. When William took over the reins of the company after John's death in 1998, the company had a turnover of Rs 12 crore. "My father lived at a time when businesses couldn't grow legally and there were too many fetters. There was no word called private equity in the dictionary.
Therefore, there were no valuations. So he was operating in a different timescape," says William. The Bissell family hails from Canton in Connecticut, where Fabindia was incorporated. They can trace their ancestry to the ship that built America, to the Mayflower when hard-working Huguenots (Pilgrim Fathers) docked in America and transformed it into the land of liberty through strong Calvinist ethics. Today, descendant William Bissell, in his own way, is weaving a strong ethical foundation to his business and beyond.
William's Way
Company should stand by some of the ideals and beliefs our society stands by
Business models can be built on novel ideas
Integrity has a premium in the marketplace
Wide-scale sweat and equity participation leads to committed workforce and greater shareholder value
Systems and processes need constant evolution and fine-tuning
Tone for the culture of the company is set at the top
A socialist company doesn't mean less hard-nosed negotiators
Governance structures with wide-scale participation need some regulations
Better to own a small pie of a large company than a large piece of a small company
Draw lessons from multiple sources and adapt
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