Wednesday, 12 June 2013

Opinion: Murthy is to Infosys as Mistry is to Tata

In 2012, long after NR Narayana Murthy had stepped down from Infosys and the Bangalore-headquartered firm was busy implementing its ill-fated Infosys 3.0 strategy, the CEO of a leading company made a very interesting point to this writer in a private conversation. The CEO knew both Murthy and Nandan Nilekani and was well-connected with top leaders in the technology industry.

The problem, he said, is not that Infosys missed the leadership skills of Narayana Murthy or a Nandan Nilekani, but that it lacked a great brand ambassador, a person of stature who can open doors and turn casual meetings with overseas clients into business opportunities. "Nandan can chat up a Bank of America CEO at an event and tell his team to follow it up the next day for a sales pitch," he said.

The CEO stopped short of saying the obvious: Infosys was paying dearly for the lack of charisma.

This should be remembered when assessing NRN's return to head Infosys. The decision has been panned by media and corporate governance experts. Murthy has been criticised for relying on the founders-becoming-CEOs-by-rotation policy, widely believed to have been behind the current crisis.

NRN has also been blasted for inducting his son Rohan Murty as his executive assistant with critics smelling the possibility of a backdoor entry into top management for Murthy Jr. Infosys shares rose sharply on Monday after the announcement but have since shed gains as the enormity of the challenge facing Murthy sinked in.

But what if the critics are off target? Murthy is returning to the firm he and his friends founded to set things right after a chaotic three-year reign during which the stock crashed and rivals gained market share. This is neither unusual nor wrong.

His return should also be examined in the context of the challenges facing Indian promoters: leadership and succession planning. When do promoters who have built the company to a massive scale let go? Should the boards of these companies replace them with professional managers when they decide to hang up their boots? Counter-intuitively, one may also ask if the founding family should let go at all. After all, they have a bigger stake than anybody else in ensuring growth and prosperity, and who is to say that the incoming professional manager will do a better job.

These questions are important in the Indian context as many successful family-owned companies dominate the landscape and the issue of succession is important. Management gobbledygook would have us believe professional managers are somehow more important or successful than family members. That is largely untrue. If the history of India Inc post-liberalisation is a guide, family-owned companies that have kept family members in top positions, while hiring bright managers, haven't been unsuccessful.

Ratan Tata answered the question to some extent last year when the Tata Sons board appointed Cyrus Mistry, the son of shareholder Pallonji Mistry, as chairman of the conglomerate. Tata chose family over an outside professional - the decision is not as surprising or bad as it seemed at that time.

The signal that Tata was sending was very clear. Mistry, as the family representative and part-owner, is responsible for strategy and for holding CEOs accountable. Managers are there to deliver performance, implement strategy, etc. The owner can fire the CEO is if things go wrong.

It is important in the Indian context to realise that the owner or his representative has to stay in the company for things to work. His or her skin in the game matters. It provides the necessary urgency, impetus to decision-making. Warren Buffett, the Oracle of Omaha, said recently that his son Howard would become the non-executive chairman someday. Not because he had great insights into Berkshire but to ensure Berkshire had the right CEO.

That was what went wrong with Infosys' rotating CEO strategy. KV Kamath, an outside manager, was brought in to oversee the work of two founder-CEOs. It was an unequal relationship. Kamath would have found it difficult to take tough decisions when things went wrong, which, in this case, happened right from the beginning.

Murthy, on the other hand, will helm Infosys almost as promoters of family-run companies do: he will attempt to revive his company. There's more right than wrong in that strategy.

No comments:

Post a Comment

Total Viewer