Ratan Tata’s return to Tata Sons at the age of 78 as interim chairman on Monday is the second time in India Inc’s recent past that retired hands have been pressed into service to pull chestnuts out of the fire.
Infosys founder NR Narayana Murthy took a similar decision in May 2013, making a comeback as the company’s executive chairman at the age of 68 about a decade after demitting office, to revive the IT giant.
Just as Ratan Tata has promised to step down in four months, once a replacement is found for Cyrus Mistry, who has been removed as chairman of Tata Sons, Murthy too had moved aside in a year, when Vishal Sikka was appointed CEO of Infosys.
Talent from overseas
While Infosys went for Sikka, a US citizen who had built his career entirely outside of India, Tata Sons, in 2012, had chosen Cyrus Pallonji Mistry to take the reins from Ratan Tata. Though this was the first time that someone outside the founding family of the Tata empire was selected for the position, Mistry was perceived as a risk-free and pragmatic choice at the time, given that he is the scion of the Shapoorji Pallonji family that remains the single largest shareholder in Tata Sons with an 18% stake.
An Irish citizen, Mistry’s experience was primarily in handling his family’s construction business in India. He was appointed as the head of India’s most storied, diversified, and global company after a well-publicised headhunt that lasted more than a year. The five-member search committee headed by the then chairman Ratan Tata considered no less than 14 potential candidates from across the world.
The unceremonious dismissal of Mistry, 48, as the chairman of Tata Sons on October 24 is no less odd than his appointment as Ratan Tata’s successor.
There was nothing spectacular about his record at the time of appointment, nor was it dismal when he was sacked. The declining fortunes of Tata Steel, for instance, can in large measure be attributed to the bloodbath in the global commodity markets. These are some of the most challenging times for businesses in general and particularly for those with a high degree of global spread.
The problems faced by a handful of these large, non-promoter-driven Indian corporations in finding CEOs or identifying successors indicates the lack of homegrown talent nurtured by India Inc.
For instance, engineering giant Larsen and Toubro’s long-serving chairman, AM Naik, 74, slated to retire in 2012 finally announced his successor in August, who will take over in October 2017.
Over at tobacco giant ITC, the mystery endures over the replacement of 70-year-old YC Deveshwar, who is stepping down as CEO in February next year.
India, the world's CEO foundry?
In August 2011, Time magazine had zeroed in on India’s leading export item. It was not textiles, information technology, yoga or Bollywood dancing, but CEOs. The piece drew heavily on pop-sociology (muliti-culturalism, resource constraint, competitive environment), and the late management guru CK Prahlad's assertion that “growing up in India is an extraordinary preparation for management” to explain the large number of Indians and Indian-born execs heading global corporations.
Remember, this was way before Satya Nadella had taken over the top job at Microsoft and and Sundar Pichai at Google.
Even if we were, for a moment, to buy the somewhat dubious argument that India produces an unusually large number of global CEOs relative to its socio-economic strength, what keeps our domestic market parched of such leadership talent? As the case is with other commodities, do we end up with Grade B, having shipped out Grade A?
A 2014 article in Harvard Business Review by Pankaj Ghemawat and Herman Ventrappen debunked India’s mythical status as a CEO factory:
“A systematic analysis of mid-2013 data on the world’s largest firms by revenue, the Fortune Global 500, shows that at that time only three non-Indian firms were led by Indian CEOs: Arcelor Mittal (Lakshmi Mittal), Deutsche Bank (Anshu Jain), and PepsiCo (Indra Nooyi). That was exactly the same as the number of non-Brazilian firms run by Brazilian CEOs, and short of the five non-South African firms led by South African CEOs.”
Interestingly, a vast majority of global CEOs of Indian provenance are products of the western higher education system and Wall Street, City of London, or the Silicon Valley business environment. India may have certainly played a part in their formative years, but India Inc none whatsoever.
In the current global Indian origin CEO crop comprising Google’s Pichai, Microsoft’s Nadella, PepsiCo’s Nooyi, Adobe’s Shantanu Narayan, or liquor giant Diageo’s Ivan Menezes, not one has worked in India or held a job with an Indian company (Nooyi worked very briefly for Johnson and Johnson in India). Ajay Banga, the worldwide CEO of MasterCard is an exception, having worked many years with Nestle and PepsiCo in India.
Too many chiefs, not enough Indians
So why does the talent pool at home seem inadequate?
"The quality of leadership talent produced by Indian companies is grossly inadequate to manage megacorps that deal with global complexities," said R Suresh, managing director, RGF, an executive search firm. "That is partly because the technology and processes that Indian CEOs are exposed to are rather rudimentary in comparison to global standards. What makes a CEO in India successful is the ability to get the government to do something for you. More often than not, you only have to please one majority shareholder. All this won’t cut it in a global leadership role.”
CEOs and business leaders who are part of the promoter family have a distinct advantage. They have a greater chance of prospering on the global stage because of the unfettered freedom they have as owners. They usually report to a pliant board, and there’s plenty of room to make mistakes and learn from them.
The Indian business press, when not indulging in unicorn safari, or the shikaar of sundry mergers and acquisitions stories, undertakes the search for India Inc’s "CEO factories".
Large companies that allow their managers an unreasonable degree of operational freedom foster a hustler spirit usually found in startups and whose senior executives are finished articles fit to occupy the corner room elsewhere are accorded the high honour of being a leadership or CEO factory. It’s the kind of good-news story at the end of which everyone goes home happy.
The American giant GE remains the gold standard for CEO factory spotters. Various companies in India have been bestowed this honour by enthusiastic members of the pink press. One of the earliest was DCM Data Systems, from whose cracked mould emerged Shiv Nadar, his five friends and HCL Technologies in 1976, which is today one of the four biggest Indian IT firms.
Then came Hindustan Unilever. Its senior execs, steeped in the Anglo-Dutch consumer products giant’s successful playbook, were in very high demand. Wipro and ICICI Bank too have made the cut.
The efforts of such companies to chisel out leaders, while admirable, may only be a case of producing giants among midgets. “If the question is, can the CEO of a homegrown Indian firm readily take over the reins of a frontline global corporation in the similar sector, the answer is an unequivocal no,” said Suresh.