Seconds to Break
WILLIAM CLAY “BILL” FORD JUNIOR, Executive chairman, Ford Motor Co
JPAWAN GOENKA, Managing director, M&M ust when a boardroom brawl at the hallowed Tata group was showing signs of ebbing, another is threatening to erupt at an equally sanctified Indian corporation. At the Bengaluruheadquartered Infosys, for long a bellwether for transparency and governance, cracks seem to have emerged between the founders and the board, with the former believing that there has been a violation of “Infosys’ core values”. The alleged violations pertain to a recent appointment of an independent director; a seemingly high severance package for a former senior executive; and a revised compensation of $11 million for CEO Vishal Sikka.
The founders are, of course, a pedigreed lot, led by the redoubtable NR Narayana Murthy, and control some 12.75% of Infosys. None of the five founders is on the board. And that sets the stage for a unique fracas between the founders and a board led by non-executive chairman R Seshasayee that seems to have thrown its support behind the CEO.
On Wednesday, Infosys put out a statement saying that “the board receives suggestions and inputs from various stakeholders, including promoters, which are evaluated with due importance…we would like to reiterate that all decisions have been made bona fide, in the overall interest of the company, and that full disclosures have already been made thereon.”
Neither the founders nor board members were willing to officially comment on the apparent face-off. But a face-off it may well be – of achievers of the past with the gladiators of the present. A senior member on the board who wasn’t willing to be named, however, said: “One generation has to give space to the new generation. Any kind of rigidity (by the founders) can break the other two (the CEO and the board).” He points out that the differences may be cultural – of two generations – in areas like delegation of power, spends on promotions, dealing with clients and partners, and spends on talent acquisition. Since Sikka took over, Infosys has moved to casual dressing for employees and now has a no-cabin culture. “The organisation has to get contemporary for the new cultural values to work out,” he added.
On the specific charge of a high severance package – of just under ₹ 6 crore – for former chief compliance officer David Kennedy, the board member said: “Globally for big corporations severance packages are not a big deal.” An independent director on the Infosys board who did not want to be identified mai nt a i ne d t h at “most of the (seven) independent directors back the CEO. Sometimes founders find it difficult to stay out of the management and give a free hand to the professional team. I n a competitive market, the board decides and backs the CEO to ensure business continuity. Values of the organisation haven’t changed, but operational issues have to be dealt with.” Cut to Mumbai where, on February 6, another boardroom battle of two generations was winding down. Cyrus Mistry was stripped of the only position he still held since being ousted as chairman of Tata Sons in late October 2016, and subsequently resigning from the boards of various Tata entities: the directorship of Tata Sons that was his since 2006. The removal was in many ways the nadir of a relationship between Mistry and his predecessor at Tata Sons, Ratan Naval Tata – a relationship that began well when Mistry was
A new leader deserves a free rein, coupled with handholding. That’s not too dissimilar from promoters bringing in CEOs to manage their businesses
selected chairman by a five-member committee in 2012 but evidently soured over the years. How the association rapidly eroded is evident in the acrimonious exchange of legal notices, affidavits and the series of extra-ordinary general meetings of shareholders to obtain their consent in easing Mistry out of the chair. How do things go so wrong between a leader-come-lately and his board, or the promoters? RNT is not strictly a promoter of Tata Sons, although he is chairman of the powerful trusts that control 66.6% of the equity in Tata Sons; this would ensure that his influence on Bombay House – the headquarters of the Tata group – and on the board of the holding company would, and will continue to, hold sway over his successor as chairman.
Accusations and counter-allegations suggest among other things a fundamental problem: the breakdown of trust – and it isn’t as if the loss of faith between previous generations and the current one happen rarely in boardrooms.
William Clay Ford Jr, the great grandson of the founder of Ford Motors, would perhaps agree to that. When Jacques Nasser was ousted as CEO of the Detroit automaker in early 2000s, one of the big reasons for the removal was his inability to forge a working relationship with the Ford scion, who had become non-executive chairman in the late 1990s. Nasser’s HARSH MARIWALA, Chairman, Marico hands-on style – in his (failed) attempt to transform Ford from a carmaker into a consumer company providing auto goods and services – wasn’t quite in sync with that of the chairman. This compelled the board to create an office of the chairman and CEO in a bid to give Ford more authority and voice. It culminated in the ouster of Nasser who was replaced by – who else but – Ford. Ford, who was in India when the TataMistry slugfest was making headlines virtually every other day, brought in Allan Mulally in 2006 to fix the broken automaker. Which he did in style, getting people across the organisation to work as ‘One Ford’ – and, yes, that also included Ford Jr, who went back to his role as the executive chairman.
“There is no magic formula,” said Ford in a recent interview to ET. “It is about two people. People have to work on relationships. One of the hardest things, any company has, is to make sure that its management is working well and seamlessly. There are lots of egos, personalities and different viewpoints.” Few boards like to be surprised, and Ford insists that’s critical to maintain the faith. “That is something I spend a lot of my time on, in making sure that there are no surprises. I don’t surprise my (current) CEO Mark (Fields) and he doesn’t surprise me,” said Ford. LORD BHATTACHARYYA, Twice member of selection panel to find a chairman for Tata Sons
What happens when the trust between founders or boards and those chosen to lead an organisation breaks down, and how to manage the delicate and often fragile relationship
The f lip side, however, is that the new leader deserves a free rein, coupled with the handholding he may require. And that’s not too dissimilar from the way promoters who bring in CEOs to manage how their businesses operate. Harsh Mariwala, chairman of Marico, a consumer products company, says whenever there is a change of leadership the division of responsibilities should be made clear. “In case of Tata Sons the board backed the promoter...One has to realise that Ratan Tata won’t stay forever. If he did not want to abdicate powers he should not have stepped down.” Mariwala adds that when he stepped down as CEO in 2014, paving the way for Saugata Gupta, his role changed dramatically. “The board asked us to write down in detail our respective roles...in terms of which investors would either of us talk to...which approvals would Saugata get from me. That helped bring in clarity. The promoters’ mindset is important,” says Mariwala . The Marico analogy of chairman and CEO may not be apt for the Tata-Mistry equation or for the apparent differences at Infosys between founders and the board. But Mariwala’s short point is that the predecessors must be willing to let go. “Shedding responsibility is just not on paper, it has to be done in spirit else complications arise.”