Ajay Piramal channels Warren Buffett. He follows him in his entirety. With all his warts and moles; idiosyncrasies and ingenuity.
A copycat? What’s wrong in it though?
But it will be an insult to Piramal to merely call him a blind follower. He is a true believer in the ethos of Buffett and Munger.
He just doesn’t limit their teachings in business, but mixes it liberally in his life and the way he conducts himself.
Take a moment to think about it. Why do we exactly adore Buffett?
We may adore Munger for his extreme wisdom, rapier wit and piercing observations.
But why Buffett?
Because he is a billionaire?
Because he is the most successful investor- a true rags to riches story?
Because he embodies self-sufficiency?
Perhaps. And perhaps not. There are umpteen other people with similar stories. We might not accept it but we adore him because he inspires trust.
He shows amazing consistency in his behavior, words and belief. He surrounds himself with people of similar impeccable integrity and prevents the use of legalese as a crutch for trust.
This is perhaps the least highlighted aspect of Buffett. He is extreme in identifying and cutting needless costs. And legal experts, consultants are nothing but that.
He rightly understands that human beings can and will game the system, and a legal document cannot protect him. What he employs is empathy, trust and marks human relationships as the bedrock of business.
He is known to acquire companies based on mere handshake. In contrast compare that with Daiichi -Ranbaxy deal. Plenty of investment consultants, plenty of legal documents and still plenty of hassles.
In economics there is a concept called signalling mechanism. Someones actions not only has a direct outcome to it, but also gives off an information. That is every action also implies something.
Legal documents signal something as well. It implies- “I don’t trust you”. It implies- “I trust the legal guys, the investment consultants with skewed incentives far more than the person on the other end of the table.”. Humans are born with a superb skill set to game existing systems. Call it ingenuity, call it creativity. You just dont want to be on the receiving side of it.
And this signal subconsciously “inspires” unethical behaviour. Traditional ideas of buyers beware kicks in. The seller subconsciously understands that trust is not expected of him. And he might as well game it.
Which brings us to two important mental models– Expectation and Seamless web of deserved trust.
As natural beings, we are programmed to reciprocate. And when we tell someone not only in words but also in action that we trust and thus we expect him to cooperate and trust us back- we don’t make him/her our adversary- we make that person our ally.
And what does lack of trust do?
Lack of trust led to World War I.
Lack of trust lead to arms races.
Lack of trust is costly.
Seamless web of deserved trust ought to be the bedrock of business. What does it mean? It means trust generated through one’s own action, and hence deserving. “Seamless web” means consistency. Consistency in every aspect of one’s conduct. So trust generated through consistency.
Its a tough way, especially when perverse incentives exist; but try distrust once and you will understand what I mean.
Which brings us to Ajay Piramal’s knack of doing business efficiently.
Take a look at this article:
Specifically this line:
When they met, Pirmal, who had stitched more than 20 deals without using any bankers, expressed reservations.
20 deals without using any bankers! That’s a substantial confidence, huge amount of trust and an inordinate amount of cost saving.
Cost saving not only in banker fees, but in potential headache down the line. This action signals something.
It signals- “I trust you”
The article continues:
It also marked the beginning of a personal relationship that was rooted in financial services, but routinely sidetracked into business values, classical music, maths and spirituality, among other things.
Whoa! How many business deals take place like this? I have seen hardball i-bankers conduct negotiations with their one hand sms-ing under the table .
To do course correction on ball busting !
“Swati Piramal says her husband also has a unique ability to bring a personal touch to business relationships. For instance, on the eve of the deal with Shriram Capital, the Piramals hosted Thyagarajan and his family to a meal of South Indian delicacies prepared at home in Piramal House. Many of the deals he does are based on a personal equation, she says.”
Emphasis mine. Last quote taken from here