Sec­onds to Break

The Economic Times - - Deep Dive - Kala Vi­jayragha­van, Li­jee Philip & Satish John

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 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.”

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