(The writer is a best-selling author and corporate advisor. He was Director of Tata Sons and Vice Chairman of Hindustan Unilever).

Email: rgopal@themindworks.me

In two previous columns, I had recounted the initial responses of Hindustan Lever and Tata Group respectively to the shocks of the 1991 liberalization. In this column and the next, I propose to summarize how both steadied their boats.

Hindustan Lever undertook what I call QICA efforts—Quality, Innovation, Collaboration and Acquisitions. The key lesson to remember is that transformation efforts demand upgrading the car engine while it is running.

In this brief article, I have highlighted only those activities that could not be undertaken earlier due to restrictions. The QICA issues may appear to be ordinary when viewed through a 2021 lens, but they were a novel way of thinking at that time. It also demonstrates how far Indian management has moved in terms of strategy in the three decades.

Four key initiatives were:

Quality: A major product quality drive by benchmarking locally produced products with imports, pointing to the urgent need for upgradation. HLL internally proselytized techniques like TPM, and considered imports of machines and packaging materials, as required, an activity that was near impossible earlier.

Innovation: Next was the special emphasis on product innovation and the setting-up of a second international R&D centre at Bangalore, the first one having been set up in Mumbai in the 1970s.

Collaboration: Then there were multifarious business collaborations with the parent Unilever. Earlier Unilever could not be remitted brand, technical or service fees, but such expenses could now be paid under the new dispensation. For example, being a global leader in ice creams, Unilever had for long been very keen on establishing an ice cream business in India. Under the license-permit raj, dairy ice cream was reserved for the small-scale manufacture, being one out of some 750 items so reserved. Claiming vegetable fat-based product, which was called frozen dessert by HLL, was different from dairy ice cream, Brooke Bond Lipton set up a spanking new investment at Nashik and launched Walls Frozen Desserts. This became very controversial at that time, though the controversy died a natural death with subsequent de-reservation of several reservations, including ice cream.

Acquisitions: M&A was a relatively new activity in the 1990s for India Inc. After acquiring TOMCO, HLL went on to acquire Lakme from Tata after both companies undertook relevant governance processes. HLL also divested its phosphate chemicals business to Tata Chemicals. The acquisition of the public sector company, Modern Bakeries, followed. Later HLL divested its hair oil brand, Nihar, and purchased an ayurvedic hair oil brand called Indulekha. Cadbury’s ice cream operations were acquired by Brooke Bond Lipton. The company entered a hugely complex deal to acquire four independent Kwality ice cream entities, all of which used a common brand name. This could help Unilever to establish an ice cream business in India. Kissan tomato products business was acquired from the flamboyant Vijay Mallya, as also the Zahura tomato plant from PepsiCo India. It was an appropriate vehicle for the ambitious plans that Brooke Bond Lipton’s foods business had.

When I was the Managing Director of Brooke Bond Lipton, I found a company whose employees had experienced as many as ten mergers within just the previous four years: first Brooke Bond acquired Lipton, then Doom Dooma Assam and Tea Estates India, followed by Kissan, Milkfoods, Zahura and four differently owned Kwality entities. All this was possible in such a short time because of liberalization. I might point out that the resultant company suffered from some indigestion and loss of morale.

In a quandary about how to handle management morale, I casually asked an assistant hailing from Kerala what the future bore for the company. Being a trained astrologer, he promptly cast the company horoscope after ascertaining the date of birth from the company’s registration certificate and pronounced, “This company has so far behaved as a man and has given its own name to those he married. The company will get peace of mind by behaving like a woman, and by taking the name of a husband whom she should marry.”

His astrological opinion did not influence the subsequent decision to merge Brooke Bond Lipton into Hindustan Lever! It became the biggest merger of that time and was also highly controversial because it led to some legal cases.

Before liberalization, India was quite insulated from global media, trends and thinking. The winds of liberalization brought in global ideas into business.

In the case of HLL, this began in the mid-1980s, a tad ahead of liberalization. HLL strived to be productive, not only in economic terms but also in terms of benefitting the environment. HLL started the first experiment with Chhindwara in Madhya Pradesh where it began to recycle significant quantities of treated effluent back into process or on land for irrigation. This saved costs for the company but ensured that HLL’s operations would not strain the rural environment. The chemical engineers in the factories explored the possibility of designing zero effluent factories long before it became a part of sustainability programs. Re-forestation attempts at Khamgaon in Maharashtra were started for similar reasons.

Did Lever transform itself successfully by repairing the car while its engine was running? In 1991 HLL earned a revenue of USD 700 million, which has grown to over USD 7 billion now. The company’s market capitalization has grown from USD 900 million to over USD 75 billion currently.

The post Transformation after liberalization: HLL appeared first on The MindWorks.

• Publisher: HBR Press, 2021
• Date of Review: 2nd Nov 2021
• Reviewer: R. GOPALAKRISHNAN

Humans yearn for a simpler world, yet we coexist with contrasts: the humble and the pompous, the good and the bad, the greedy and the generous. According to Chinese philosophy, those who master the balance of yin and yang, combining complementary opposing forces, conquer the world.

In the corporate realm, opinions about businesses range from viewing them as greedy bloodsuckers to praising them as forces for good. Throughout my career with Unilever and Tata, spanning fifty years, I’ve engaged in initiatives that created employment, reskilled staff, and delivered fair incomes, expanding economic activity significantly. Did I serve the nation? Undoubtedly, and perhaps more than many others, echoing Alfred Marshall’s 1910 sentiment that “if India had a score or two of men like Mr. Tata, India would soon be a great nation.”

Hubert Joly’s new book, The Heart of Business, categorizes as one praising the goodness in corporations. It discusses how corporate leaders can create companies that are humane and passionate, which, as a byproduct, achieve impressive growth and great profits. Unfortunately, stories of good deeds often garner less interest than those of misdeeds, as seen in Netflix’s lineup or the daily news.

In a world often focused on the negative, Joly’s book shines like a lone candle in the darkness. Drawing on his experiences and lessons from turning around Best Buy between 2012 and 2019, the content resonates with other influential works like Good to Great, Conscious Capitalism, and Firms of Endearment.

Joly asserts, “I firmly believe that it is business’s business to get involved in societal issues.” This belief is tested in the challenging realities of India, where a firm’s progressive advertisement can provoke backlash from conservative quarters, risking damage to its properties. This dichotomy challenges Joly’s conviction, especially in Indian contexts.

Many Indian firms need a turnaround. Unlike typical literature on the subject, Joly advocates a unique approach: “Always start with people, always end with people, and generate human energy.” This perspective informed his successful strategies at Best Buy.

Applying the Joly formula to Air India as Tata prepares to take over might focus on revitalizing the company by prioritizing its people, which aligns with the century-old Tata ethos. This human-centric approach might seem soft to left-brained, analytics-driven commentators, yet it could very well succeed.

Joly also recounts learning from Jean-Marie Descarpentries, CEO of Honeywell Bull, whose approach emphasized prioritizing people over business and finance. If such ideas are implemented in Air India’s turnaround, the current employees, though initially stunned, might become curious and eventually energized, significantly contributing to the turnaround efforts.

Lastly, Joly addresses the challenges when a company grapples with its majority shareholder, using his own experiences at Best Buy after the retirement of founder Dick Schulze. Schulze’s attempt to take the company private led to a decline in share prices and morale. Joly’s approach to resolving conflicts with Schulze involved establishing a firm boundary about taking advice but not directions, which ultimately led to a substantial return to shareholders by the time of his retirement in 2019.

Reviewing The Heart of a Business has been a delightful journey into understanding the softer, yet profoundly impactful, side of corporate management.

The post Book review: The Heart of Business appeared first on The MindWorks.

The disconnect between the fundamentals of several companies and their market valuations has widened over the last year. While this exuberance may well prove to be justified for a few companies, for most, it will be judged to have been thoroughly misplaced.

Disruption is to be welcomed; it is a fantastic event. As history shows, the line between disruption and mania is thin—remember Tulipomania (1636), Mississippi Scheme (1719), and South Sea bubble (1720). Nick Leeson’s last few trades brought the mighty Barings Bank down. Gordon Gekko could not imagine his protégé, Bud Fox, double-crossing him. Harshad Mehta betted one trade too far before he got caught out. For my former colleague, the late Dilip Pendse, the world collapsed while trying to cover some trading steps gone wrong.

I worry that the hard-earned savings of middle-class investors could be at risk. The odds are decidedly stacked against such investors if the quality of companies getting listed —and the grey market premiums getting accorded to them —are anything to go by.

I have learnt useful things through my conversation with capital markets cognoscenti. Capital market activities impact Indian citizens, much like cricket does: It irrationally depresses or excites people. Unlike in the case of cricket, however, capital markets can be cruel and punishing if investors don’t check their instincts. Fortunately, there are three simple rules worth following to avoid financial heartburn.

1. Know what you own. These words are so simple, but such is the power of greed, that it can often overcome one’s long-term resolve to follow this rule.
2. Know how much to own. A basic rule of thumb when investing in early-stage initial public offering (IPO) companies is to invest an amount wherein if you lose everything, it will not negatively impact your lifestyle. Unfortunately, most investors at the height of the mania do just the opposite: They invest as large a proportion of their net worth as they can, hoping to maximize their wealth in the shortest period. The reality is that for successful investing, you must be alive, and for that you must first survive.
3. Own your decisions. At the end of IPO manias, postmortems are always done on what the listing company, the investment bankers, the regulator, or even the government could have done to protect small shareholders. The conclusion is always the same: The buck —a euphemism for losses —always stops with the investor, however large or small.

What makes the upcoming IPOs unusual is that many of them defy conventional valuation methodologies. Companies have always been valued on cash generation, successful financial history, and distinctive pricing power. These help earnings growth to be reasonably projected. Several loss-making companies valued at billions of dollars today, however, do not generate any cash flow, don’t have any history of earnings, lack any modicum of pricing power. Yet, miraculously, and magically, they are expected to grow revenues exponentially with a hazy route to cash generation. They are also expected to generate a profit at some point in five years and positive cash flow in 10 years!

The reality is that while a lot has changed over the years, basic valuation techniques have not. As one successful entrepreneur, Alan Mitz, is reported to have said, “Turnover is vanity, profits is sanity, but cash is reality”. This adage must reflect in valuations at some time, and very few companies will live up to expectations.

To appreciate why, count how many companies worth more than a billion dollars have been established over the last 15 years that are profit-making? Contrast this to the number of unicorns out there and ask yourself: Have business fundamentals changed overnight?

What makes investing appear so simple to those outside the profession is the perception that there is a 50 per cent chance of either success or failure on every investment. You wouldn’t say the same thing about other professions such as pilots, surgeons, dentists, engineers, and so on! Although investing appears simple, it is not.

India is a tough place to earn profits. In India@75, there are about 250 listed companies with a market capitalization of $1 billion or more. Several became profitable only after enduring tribulations and heartbreaks. However, loss-making start-ups are nowadays valued at over $1 billion, initially through private transactions, but lately through public markets. In 2021, India celebrated and welcomed a new unicorn, a $1 billion company, every 10 days! Sheer ecstasy for a few, but will it be delayed pain for many?

This is best reflected in research published by Professor Hendrik Bessembinder of Arizona State University that shows that from 1926 to 2016, over half of all the net wealth created in the US stock market was created by only 90 companies, just 0.3 per cent of all companies. Small investors need to understand the asymmetrical outcomes and the probabilities involved in such payoffs.

The only antidote to irrational exuberance is rational humility combined with a deep sense of self-awareness. In times like today, it will help protect one’s wealth, health, and happiness.

The writer is a bestselling author and corporate advisor. His latest book, Pivots for Career Success: Unleashing People Power, has just been published by Rupa. He was Director, Tata Sons and Vice Chairman, Hindustan Unilever during his career.

(rgopal@themindworks.me)

The post Irrational exuberance and rational humility appeared first on The MindWorks.

‘Transforming organizations’: a series in New Indian Express.

Transformation after liberalization: Tata   

R Gopalakrishnan* 

(*The writer’s latest book title, “Pivots for Career Success—unleashing people power”, coauthored with R Srinivasan, has just been published. He was Director of Tata Sons and Vice Chairman of Hindustan Unilever). 

Email: rgopal@themindworks.me

In the last three columns, I reviewed the immediate and the after-response of Hindustan Unilever to liberalization, as also the immediate response of Tata. Here is the after-response of Tata.

The Tata group seized the opportunities presented by the reforms and embarked on a remarkable journey that has transformed it into a vibrant and global business house. Tata executed a program of transformation after liberalization through four ‘welding’ mechanisms:

• The setting up of the Group Executive Office, GEO.
• The setting up of a common, unified brand
• An explicit code of conduct, which had been implicit all the earlier years
• A set of operating requirements for companies that used the brand

The group increased ownership in the major companies and re-established Tata Sons as the focal point of the group, an opposite action to what JRD Tata had done earlier to comply with the MRTP legislation. Where increase of shareholding was not possible, as in the case of Associated Cement Company, Tata shareholding was sold. 

Some group companies were divested from Tata. There were multiple companies in the same market space, and, over time, attempts were made to rationalize them. Public sector company CMC Ltd was acquired by TCS and later merged into Tata Consultancy. 

The serial mention of these moves does not mean that the decisions were easily accepted. Each one required a de novo debate with directors of different boards, each one was perceived at the time to be a ‘non-Tata way’ of solving a problem, and there followed a sequence of cajoling, determination, and grit while implementing. 

The external impression was that Tata was less nimble than others, more resistant to change and extremely set in its ways. Unless Tata companies were bench-marked against the brightest and the best, the probability of change was going to be low. Ratan Tata observed candidly, “We have yet to seek excellence in all that we do. We hang a picture slightly crooked and live with it for ten years; this should bother us the first time we see it and keep on bothering us until it is set right.”

The Tata group adopted the Tata Business Excellence Model (TBEM), based on the quality improvement framework developed for the Malcolm Baldrige National Quality Awards. In February 1995, the first batch of assessors met at the Tata Management Training Centre for in-depth training on the Baldrige model. They assessed twelve Tata companies, and the average score was an abysmal 215 out of a maximum score of 1,000 (now, the major Tata companies have crossed 600). The journey was to be long, painful, exhausting, but rewarding.

The first winner of the JRD Quality Values Award for performance within the TBEM framework, was Tata Steel in 2000. The company went on to win the Deming Prize in 2008, and then the coveted Grand Deming Prize in 2012. Indeed, TBEM set the tone and created the foundation for a critical transformational exercise in the group. It has also been the glue in binding the group together and enhancing the Tata brand. The opening up of the economy, the removal of unnecessary restrictions relating to investments and the relaxation in foreign exchange rules created new capabilities within Tata companies. 

Two are particularly worth mentioning. The first is the dramatic restructuring undertaken by Tata Steel during the 1990s. Within a decade Tata Steel had been transformed by downsizing the workforce to less than half of its starting size. The plan was implemented with empathy and humaneness, symbolic of how to do disagreeable things in an agreeable way. The plants were modernized with new technologies and a management mindset was instilled, one which could dream and execute big transformations. 

The second was to press ahead with a Tata Consultancy Services (TCS) IPO. This set free an aggressive TCS, then ranked beyond 30th rank among global I.T. players in 2000, to break into the top 10 globally. The company had worked with Professor Pankaj Ghemawat but, in a sense, stumbled onto this audacious goal through its internal brainstorming. The company set about its task through a huge organizational transformation to help its people think globally about customers, work processes and quality. 

Had MRTP continued, Tata could not have implemented its TBEM or the Code of Conduct. The adherence of Tata companies to both the TBEM process and the Tata Code of Conduct was permanently enshrined in the Brand Equity and Business Promotion Agreement. Each Tata company subscribed to this agreement in order to secure the right to use the Tata brand. This played an immense role in presenting to the world Tata products and services that stand for performance and trust. Beginning with Tata Tea’s acquisition of Tetley in 2000, the group made several significant overseas acquisitions.

This eventually led to the formation of the Tata Group Innovation Forum in 2007, and the celebration of the group’s pioneering instincts through annual Tata Innovista Awards. The group’s increasing number of patent applications reflected the rapid progress that the group was making. 

The unshackling of the Indian economy led to dramatic changes within the group, though its core ethos and emphasis on ethical business practices and its commitment to the communities in which it operates did not change. The journey since the reforms process began has been exciting for the Tata group, which has rejuvenated existing businesses, entered new ones, aggressively expanded in the overseas markets, and launched breakthrough products. The companies in the Tata group are now building Brand India across the globe. 

The post Transformation after liberalization: Tata    appeared first on The MindWorks.

To appear on 6-1-22

‘Transforming organizations’: a series in New Indian Express.

When the CEO really matters    

R Gopalakrishnan* 

(*The writer’s latest book title, “Pivots for Career Success—unleashing people power”, coauthored with R Srinivasan, has just been published. He was Director of Tata Sons and Vice Chairman of Hindustan Unilever). 

Email: rgopal@themindworks.me

The short answer is ‘matters a lot’, if the chosen leader is unfiltered, and ‘matters a tad less’, if the chosen leader is a product of fine filtration.

Over the last eighteen columns, I have written about vital and relevant aspects concerning organizational transformation and institution building, both of which are driven by three imperatives, one, the pace of change in the company’s industry; two, how urgent it is for the organization to respond; and three, the choice of the leader who has to implement the transformation program. 

Does the company need major organizational change? If yes, how does the board identify the ideal leader who can successfully supervise to make the transition? Does an individual leader matter at all, or is it the organizational momentum and history that determines outcomes? Do circumstances create individual leaders or do individual leaders make their own circumstances? Answers to these questions define who is an unfiltered or filtered leader.

Lately I have been reading several books on leadership talent. The Rare Find by George Anders was on talent in sports, and how exceptional talent makes a dramatic difference. The book has anecdotes on how coaches wagered successfully on a player despite contrarian indicators. The Master by Christopher Clarey is the ‘official’ biography of tennis star, Roger Federer. It describes episodes when several talent spotters decided to back Federer despite doubts on whether he was a top-class, exceptional tennis player. 

However, for determining leadership in a company, how can a board decide who might make an exceptional leader? Indispensable, by Prof Gautam Mukunda of HBS, is enlightening. The contents resonate with my own experiences in Unilever and Tata. What does Prof Mukunda narrate from his research?

There are companies that practice a well-honed LFS, which stands for “Leadership Filtration System”. For example, HUL has an explicit process to identify talent and groom managers for future roles of leadership. No wonder HUL churns out leaders so frequently. Its system filters out the odd ball, seemingly eccentric manager. After a fruitful service record in the organization, candidates for the top job emerge. 

Filtered leaders tend to resemble each other. Obviously, they are not identical, even though they have passed through the same filters.  Recall how in 1981, Reginald Jones, GE Chairman, selected his successor when Jack Welch was selected. Or 2002, when Jack Welch set up a process to select Jeff Immelt from internal candidates. From an external perspective, it could be argued that it really did not matter which of the internal candidates was selected because they all had the potential to be equally successful CEOs. 

In HUL, from an outsider’s perspective, Prakash Tandon was selected in preference to Kalyan Sunder Basu, or Ashok Ganguly over Susim Datta. There were obviously good reasons for the selections. But to be fair, either of the aspirers, could have done a correspondingly top-class job. In short, LFS candidates, according to Prof Mukunda, tend to be interchangeable. They represent the median of the talent pool in a company, where the median is quite rich because of the efficiency of the filtration system.

The HUL patten though is an exception in corporate India. Indeed, even in HUL, T Thomas could be considered as an unfiltered leader, because for some years in between, he had left to join his family company. At a senior level, he arguably escaped the rigorous LFS of HUL. When Thomas was recruited back by HUL, perhaps it was because he was a lateral thinker with different ideas. The condition of HUL at the time of his selection as chairman was life-threatening. A major portion of the company portfolio was under severe price controls; the government wanted to reduce foreign shareholding to 40% or less; worker unions were very militant. Such external circumstances made it imperative to identify a leader with unconventional ideas, which Thomas had in plenty. Thomas was a very successful CEO. He could be thought to be an unfiltered leader.

In the year 2005, the Unilever global board desired a dramatic change in the global organization’s unwieldy structure. For the first time, Unilever recruited an external CEO in Paul Polman, who turned out to be an unqualified success.

In Tata, talent management was within the domain of individual Tata companies. Tata Steel, Tata Consultancy and Titan have a well-developed talent filtration system; for many decades, managers advanced from among those who had passed through the internal filtration system. Long-time insiders become potential candidates for the top job, and, finally, one was selected from among very close candidates. 

This was not so when it came to the group. Group leaders changed rarely. When JRD Tata appointed his successor in 1991 after fifty-two years of his own chairmanship, Ratan Tata became the fifth chairman in 120 years. There was no rigorous system of internal talent filtration at the group level. Anyway, changes in group leadership were rare. Almost every appointment involved selection of an unfiltered leader, including the appointment of JRD himself in 1939, followed by the choice in the 1970s, of Minoo Mody from AF Ferguson as the first CEO of Tata Sons. 

I feel confident that when I was appointed in 1998 as an executive director of Tata Sons, I was perceived as an unfiltered leader in the group, though Ishaat Hussain must have been seen as a filtered executive director. Ratan Tata’s successor, Cyrus Mistry, was clearly an unfiltered leader within the Tata group. That succession did not end well. Chandra is far more a product of the intensive TCS LFS. 

In future articles, I propose to explore whether any rules can be set on the slippery subject of CEO selection. These rules can be applied and tested: in other private sector companies, in PSUs, in family businesses, and even in political institutions.

The post When the CEO really matters     appeared first on The MindWorks.

Can a professional CEO be entrepreneurial? And the converse?
By R. Gopalakrishnan*

(rgopal@themindworks.me)
(The writer is a bestselling author and corporate advisor. His latest book, “Pivots for career success: unleashing people power,” has just been published by Rupa. He was Director, Tata Sons and Vice Chairman, Hindustan Unilever during his career.)

India Inc needs many more entrepreneurial and professional CEOs. It is not a ‘this or that’ framework.

Legend has it that choosing the right CEO counts among the board’s most critical roles. Succession planning is a subject that is forever in the air—at startups, family businesses, PSUs, and at some of India’s biggest listed companies. There are those who favor ‘promoter-CEO’ appointments; equally, there are those who subscribe to ‘professional-CEO’ narratives. Both are deficient because they are slaves to a single narrative. Questions that arise are complex and intertwined:

• Who is better as a CEO, a family member or a professional?
• Are family members and professionals different?
• Should an internal candidate take the top job?
• When is it better to explore outside candidates?
• With a professional CEO at the helm, who will be in charge—majority shareholder or the CEO?
• Can the majority shareholder exercise influence and control after yielding autonomy to the CEO?

These are some of the questions that boards wrestle with. In this article, I propose to explore the nuances of a promoter CEO and a professional CEO.

Many founders and families believe that professionals lack skin in the game, and, therefore, don’t have the stomach to take long-term bets. They believe that professionals take a Q-Q view, whereas founders and families take big bets. This is partial truth.

As opposed to this narrative, many professionals believe that founders and families don’t adequately respect process and governance norms; that they are more motivated by personal gain for themselves. This is also a partial truth.

With such a mental demarcation, boards get one or the other because, in their minds, the circles representing promoter and professional CEO have no overlap. This is not a correct mental model.

I can think of promoter family members who are solidly professional in terms of their education, career, and management approach. Mukesh Ambani is both—as solidly entrepreneurial as professional. So also with Rajiv Bajaj, Rishad Premji, and Pavan Munjal. Further, there are promoters who have made explicit that their successor is either already from outside the family or will not be one necessarily in the future—for example, Anand Mahindra at M&M, Harsh Mariwala at Marico, and Uday Kotak at Kotak Mahindra Bank.

Conversely, there are professionals who are very entrepreneurial and take long-term bets. Think of Dr. DV Kapur at NTPC, or V Krishnamurthy at BHEL amongst PSUs as examples. Recall Darbari Seth of Tata Chemicals or Sumant Moolgaokar at Telco. Consider Anil Naik at L&T, who mounted an entrepreneurial defense of L&T when a takeover was attempted; through his Project Lakshya, Naik decoded the levers of change required to improve his company’s market value. Recall the spirited defense of Hindustan Lever, with a clear eye on the long-term, by T. Thomas and Ashok Ganguly, to retain Unilever shareholding, and diversifying into nationally desired sectors like fine chemicals, fertilizers, and exports. Consider Ajit Narayan Haksar, who as early as the 1970s, diversified ITC into hotels, paper, and agribusiness, with his eye on reducing the company’s dependence on tobacco. His successors, J.N. Sapru and K.L. Chugh, continued to develop an entrepreneurial, professional culture. Even Yogi Deveshwar began his term similarly, but, according to some, he became more promoter than professional in the later part of his term.

Thus, India Inc has experience of entrepreneurial, management professionals—not common, but known to perform well. Any of the names mentioned above belongs right there, irrespective of origins as a professional or promoter. The truth is that India Inc needs many more entrepreneurial, professional CEOs. It is not a ‘this or that’ framework.

Some commentators on India Inc seem to be obsessed with the idea of ‘control.’ Control of the affairs of the company? It is the executive management and the board that is in control. It is neither the CEO nor the majority shareholder, though, undoubtedly, they have considerable influence.

Of the 6,000 listed companies in the stock exchange, ten companies account for 90% of the profits. The top companies by market capitalization are all led by entrepreneurial, professional CEOs—Reliance, TCS, HDFC Bank, Infosys, HUL, ICICI Bank, HDFC Ltd, Bajaj Finance, SBI, Bharti Airtel, Wipro, Kotak Mahindra Bank, HCL Technologies, Asian Paints. Not one of them has a “stodgy, resistant-to-change professional” as the image of the professional is thought to be; equally, none has the “fanciful, buccaneer entrepreneur.” On the flip side, review the top NPA companies in 2020—Gitanjali Gems, Kingfisher Airlines, ABG Shipyard, Rei Agro, Winsome Diamonds—all strongly promoter-led.

In future columns, I hope to touch upon the making of the entrepreneurial professional leader—based on my experiences at Unilever and Tata, as also as an independent director of several listed companies in India and abroad.

The post Can a professional CEO be entrepreneurial? And the converse? appeared first on The MindWorks.

To appear 9-2-22 

Psychopathic founders need an ‘Asoka moment.’ 

(rgopal@themindworks.me)

(*The writer is a bestselling author and corporate advisor. His latest book, Pivots for Career Success: Unleashing People Power, has just been published by Rupa. He was Director, Tata Sons and Vice Chairman, Hindustan Unilever during his career.)

There are disturbing company reports of pathologically destructive leadership behavior—poor governance, discernible fudging, intemperate language, overweening ambition, perpetually boastful talk and so on. To my simple mind, psychopathic is like behaving in a toxic, megalomaniac or narcissistic manner.

Not every founder’s behavior is psychopathic, but as the cases keep coming, one wonders whether founder-CEOs are prone to this malaise—for example, BharatPe, PayTM, and Zee. Other examples have been Rotomac Pens, Pan Parag, RDAG, Kingfisher, Gitanjali Gems, Café Coffee Day, and Housing.com. Sometimes, the funders drive the founder into psychopathy.

During my career, I served as non-executive director of a start-up company with a founder as MD. It took the board seven long years to be convinced that the founder-CEO was a psychopath with hallucinations about who he was and what he was worth. It took the board another three years to ease him out since they desired no public controversy. I learnt a lesson about the tenure of founder-CEOs: if in doubt, pull the trigger sooner rather than too late, quite the opposite of the view of many founder-CEOs.

The drumbeats around the Indian start-up sector are loud and deafening. Every senior government official lauds the emerging ecosystem and the response through Start-up India. According to a recent NASSCOM-Zinnov report, between 2011 and 2021, India added 25,000 start-ups; 2,250 in the last year when India attracted USD 24 billion of equity investments. 6 lakhs direct and 34 lakhs indirect jobs were created by such enterprises. This array of statistics is overwhelming. 

Silicon Valley has its share of psychopaths. In 2020, Maelle Gavet, a veteran of the tech industry, wrote a riveting book, Trampled by Unicorns: big tech’s empathy problem and how to fix it. The book offers an account of the world’s tech start-up—Amazon, Google, Facebook, Twitter, WeWork, Tesla, Airbnb, Uber, not to forget Theranos. 

Big tech has progressed humanity’s most noble pursuits but has to grapple with destructive empathy deficit. Gavet says, “We need tech, but a more empathetic tech.” She quotes research by FBI that companies managed by psychopaths tend to decrease productivity and create low employee morale. Gavet argues that psychopathic leaders’ behavior trickles down and creates psychopathic companies by nurturing an “infantilized culture”, where employees become accustomed to working in “hyper-privileged bubbles in which their every whim is catered to and every need anticipated.” Her view about Steve Jobs, whom many founders try to emulate, is that his legacy has “cultivated an indelible association between being a jerk and a genius.” The 2011 Walter Isaacson biography and the 2015 Netflix movie purport to bring out the real Jobs. I asked a few Indian founders about the negative reports about Steve Jobs. Their response was, “He did not build Apple by being humble and caring about people.” 

According to the Hare Psychopathy Checklist, the universally accepted diagnostic tool used to assess this, includes traits such as “a grandiose sense of self-worth, lack of remorse or guilt, poor behavioral controls, pathological lying and a lack of empathy.” 

Thus there are two diametrically opposing narratives. Genius-like entrepreneurs who are out to change the world on the one hand, yet who are susceptible to toxic behavior on the other. There are far far more psychopathic founders than real geniuses. Further, every founder, like medicines and corporate CEOs, has a “use-by date.” The skillsets of a founder-CEO and a profitable-growth CEO are not necessarily the same. 

The psychopathy of founder CEOs is not yet at a crisis point for India. The Indian entrepreneurship flower can be nurtured. A former Verizon CEO details ‘watch-for bad habits’—not building trust and integrity, focusing on things that don’t matter, shirking being a role model, not reinforcing what is really important, trying to be popular, getting caught up with self-importance, burying one’s head-in-the-sand, and not fixing root cause of problems. 

Entrepreneurship associations and training institutions can help by emphasizing positive behavior as a necessary adjunct to the innovation role, like SINE at IIT Bombay and TiE do through their mentorship network and counselling. I tried to make a small contribution through a 2021 book, Wisdom for Start-ups from Grown-ups.  An empathetic Indian start-up atmosphere is desirable.

It is instructive to read the book, Myth of the Entrepreneur, by Ravi Kailas with Cathy Guo. He was a serial entrepreneur who built and scaled ventures spanning telecom, software, financial options and more. During the hustle and bustle of his journey, he got his ‘Asoka moment.’ After excelling as a traditional king or eight years, King Asoka watched with great pain his destruction of the fertile lands of Kalinga. This set Asoka, as is well-known to Indians, on a journey to express his inner revolution. 

Likewise, entrepreneur Ravi Kailas realized that the pearl jewel is formed around a grain of sand. That grain of sand catalyzes the pearl into being. Once the beautiful pearl has been formed, the grain loses its identity. The grain of sand is then significant only by its absence.  Indian founders, who created long-lasting enterprises, did exactly the same—Jamsetji Tata, Jamnalal Bajaj, Pirojsha Godrej, and Ghanshyam Das Birla. 

The post Psychopathic founders need an ‘Asoka moment.’ appeared first on The MindWorks.

(rgopal@themindworks.me)
(The writer is a bestselling author and corporate advisor. His latest book, “Pivots For Career Success: Unleashing People Power,” has just been published by Rupa. He was Director, Tata Sons and Vice Chairman, Hindustan Unilever during his career.)

Ideally, corporations should be run so that they acquire respect as well as love from stakeholders. Loving a corporation is not personal; it can be emotional, not necessarily of the physical or familial kind that we have for a family member or a pet.

For example, we connect emotionally with sportspeople. Rafael Nadal, Roger Federer, and Novak Djokovic have all won a record-breaking twenty Grand Slams in tennis, eliciting great admiration. Two of them, however, also arouse a warm emotional response from fans. When Nadal became the first-ever winner of 21 Grand Slams, Federer posted, “To my heartfelt friend and rival, hearty congratulations for being the first man to win 21 Grand Slams…. I am sure you have more achievements ahead, but for this moment, enjoy this one.”

A company earns respect and admiration by consistently delivering on the promises it makes to customers. These emotions transform into love when a company does things that tug at the heartstrings of a community, for example, through socially relevant or humanitarian acts. A wise leader creates a company that is respected, admired, and, most difficult of all, loved.

During my executive years, I asked managers to name five corporations that they respected. Spontaneous responses threw up names that were iconic and highly recognizable. Then I would ask them to name five corporations that they not only respect but also love. Love? How could you love an inanimate entity, some participants argued; a company is a money-making machine, others said. However, corporations can be personified in the minds of customers to the extent that if the corporation runs into unexpected difficulty, unfair controversy or does something heroic, people feel for that company. As the debate progressed, some participants would hesitatingly suggest a few names — Amul? Asian Paints? Bajaj? HDFC? Tata?

Interestingly, the list was short as the group broke through mental barriers. People exhibit love by exulting when something good happens or feeling bad when something bad happens to the company. I cast my mind to events that I have experienced.

After the terror attack in 2008 at the Taj Mahal Hotel, there was a flood of unsolicited letters received at both Tata and Taj. Emotional letters, for instance, about how the writer got married at the Taj, or celebrated a wedding anniversary, or some other life milestone. Some even enclosed cheques to help restore the Taj—small, yes, but touching as a significant expression of love. How much emotional attachment people had for the Taj Mahal Hotel!

Some years ago, I was being driven home by my company chauffeur. On Cuffe Parade, a policeman flagged us down. Apparently, we had jumped a red light at Wodehouse Road. To resolve the dispute, I offered to pay the fine for the alleged infraction. At that stage, the traffic policeman noticed my driver’s epaulet and asked me what work I did in Tata. A hitherto bellicose policeman softened and said, “In that case, I will not fine you.” I was mystified.

Here is the backstory: some five years earlier, the police station at Phaltan Road had not received government raincoats before Mumbai’s torrential monsoon due to a bureaucratic delay. Since the monsoon broke early that year, the cops faced a major problem. A visiting Tata Sons officer, upon learning of this issue, returned to Bombay House and secured 25 new umbrellas for the cops of Phaltan Road. This policeman was so grateful to Tata for this gesture, he said, that he now had the opportunity to express his gratitude. Later, I was able to verify this episode. I was overwhelmed at this spontaneous expression of love for Tata. Who said you cannot love a corporation? It takes just small acts of love and empathy to win hearts, isn’t it?

In 1990, I was posted to the Middle East, so I became especially interested in the region. Iraq invaded Kuwait that year. Many Indians will recall how 170,000 Indians were airlifted by Air India from Kuwait in what is recorded by Guinness Book of Records to be the world’s largest civilian evacuation in history! All this in just eight weeks between 13th August and 11th October 1990 with the stellar guidance of a Kuwait resident, Mathuny Mathews aka Toyota Sunny. People’s spontaneous love for Air India, even if short-lived, resulted in the making of a feature film, Airlift.

There will be a debate among strategists and entrepreneurs about whether Tata Sons has been wise to acquire Air India. This article is not concerned with that subject. After the acquisition by Tata, I posted an allegorical message that “an aunt, earlier young and beautiful, and now old, and who had left the family house 69 years earlier, had returned home.” The message was seen by over half a million viewers with hundreds of responses, expressing delight and best wishes.

A side story—in the late 1880s, Bombay Presidency’s largest textile mill, Dharamsi, was in trouble and put up for auction. Jamsetji won the auction; he struggled for seven years, and to the surprise and delight of many, turned into a roaring success a mill that he had renamed as Swadeshi Mills.

Now, the people of India want their Air India to be efficient and lovable again. The goodwill of 135 crore Indians is a huge intangible asset for the managers who will rejuvenate Air India. Who says that you cannot love a company or its brand?

The post What it takes to love a corporation. appeared first on The MindWorks.

(The writer is an author and a business commentator. His articles and videos can be accessed at his website www.themindworks.me and his email ID is rgopal@themindworks.me)

Practitioners of corporate governance are often challenged when the spiritual and material combine. One is faith-based, and the other is wealth-based. Spiritual and material tend to conflict because everyone loves God, money, politics, and sex! No wonder that Godmen have several books written about them—Khushwant Singh (2003), Bhavdeep Kang (2016) and Priyanka Pathak Narain (2017).

Ruchi Soya Industries Ltd (RSIL) recently raised equity. When RSIL started in the 1980s, I had just completed a feasibility study on soya. Subsequently, RSIL became insolvent. In 2017, it was acquired by associates of yoga guru, Baba Ramdev. In India, yoga and business have profoundly mysterious links. Godmen combine the spiritual and material, so they are able to act as power brokers. Recall Shraddha Mata, Chandraswami, and many others while our newly independent nation grew into today’s India@75.

Dhirendra Brahmachari, a hatha yoga expert, was powerful during Ms. Indira Gandhi’s tenure as PM. He built a dubious empire. So did Maharshi Mahesh Yogi and Osho Rajnish. Abhay De, better identified as Swami Prabhupada, arrived in New York in 1965 with nothing. By 1976, he owned the ISKON chain of marble and gold temples in 12 countries with assets over USD 1 billion. There exists a secret admiration for godmen’s Rasputin-like hold over important personalities. Currently, a new IPO, which links yoga with business, has been reported.

Baba Ramdev is described as a yoga guru–which he most certainly is. He is also projected as an entrepreneur–which is less obvious. His unlisted firm, Patanjali Ayurved, acquired influential television channels and is in the ayurvedic and consumer product business. The company makes bombastic claims, which upon challenge, often get retracted, but not without some high-profile publicity. Patanjali products are endorsed by VIPs like the Health Minister’s support for Coronil for COVID. Patanjali’s recent public offer had some controversies about unfair promotional tactics.

In 2015, Patanjali Ayurved was reported to be accelerating so rapidly that by 2020, its projected turnover would exceed sales of established FMCG companies, and by 2025, its revenue would be Rs. 120,000 crores! Professional equity analysts wrote effusive stories. Today these numbers appear implausible. But then who can predict the magic that may yet happen?

In 2019, unlisted Patanjali acquired visibility in the stock market when it beat an influential Adani Wilmar in a race to buy the debt-laden RSIL. Even though Adani Wilmar had bid higher at Rs 5,474 crores, Patanjali successfully raised legal objections. Mysteriously, Adani Wilmar withdrew its bid. Patanjali’s lower Rs 4,350 crores bid became the winner but with a curious twist—funding of the acquisition would be by Patanjali taking loans from the very same public sector banks that had just taken a 52% haircut on their NPA loans to RSIL. Sheer magic!

Some players have manipulated the IBC code within the regulations, so that the process and outcome leave a lot to be desired. State-owned banks have cooperated through an “accommodation transaction” according to an ex-banker. Why would public sector banks massively write down loans to a company, and then have the temerity to give fresh loans to a buyer for the purchase of the same company? Well, it seems in October 2019, the finance minister made an astounding announcement: that banks should not hesitate to extend loans to self-help groups and companies backed by spiritual leaders. Puzzling statement from any nation’s FM.

Godmen, like Russian oligarchs, have a cathartic effect on sound lending principles and sustainable enterprise building. Many, though not all, acquire disproportionate wealth through dubious means right under the nose of authorities. They appear to be shady, but nobody can quite fix their shadiness. Like oligarchs, they are perceived to enjoy such high political patronage that the system just falls in line. When the bubble bursts, the ‘I told you so’ commentators will climb out of the woodwork.

The Ukraine crisis highlights the classic example of oligarch Abramovich who became a billionaire from being a poor orphan. Abramovich made his first killing from dealings in the automotive sector. He then befriended and partnered Berezovsky, a well-connected and established oligarch. Using Berezovsky’s powerful contact with Boris Yeltsin, the duo proposed that the Russian government first merge a public sector crude oil producer with a public sector refinery–and then, hand over the enlarged business to their partnership. In return, the oligarchs offered to fund and promote a pro-Yeltsin television station. In 1995, the 29-year-old Abramovich invested USD 19 million in equity plus USD 220 million loans, to acquire 90% of the merged giant. Intriguingly, he managed to sell the company back to the public sector Gazprom for a profit of US $10 billion!  Similar tactics helped Abramovich to acquire interests in aluminum and steel.

Abramovich and Patanjali share some features. Both are led by leaders of similar age, both are close to ruling leaders, both run influential television stations, both buy major shareholding in listed assets at depressed values and flog the same assets for a huge profit. Both attract admiration from some, but also deep suspicion from many. When business logic is stripped of political associations, something crumbles.

As Alice in Wonderland exclaimed – ‘It gets curiouser and curiouser.’ Before we have our own Zuccotti Park-like Occupy Wall Street, lenders, investors, and regulators must avert the risks of a heady mix of business and spirituality.

The post When the Spiritual and the Material combine appeared first on The MindWorks.

To appear on 21-4-22

‘Transforming organizations’: a series in New Indian Express.

The role of luck in organizational transformation

By R Gopalakrishnan

(The writer is an author and business commentator. His articles and videos can be accessed on his website www.themindworks.me and his email ID is rgopal@themindworks.me)

How important is luck to achieve transformation goals? Luck is controversial. Some believe that reliance on luck makes people easy going. Others believe that luck is an indisputable reality. But change agents should not rely on luck to deliver results. The reality is that we must do our very best, come what may. Luck may play a negative or positive role in the result. 

Kent Evans and Bill Gates were very close at school and were buddy computer geeks. Kent Evans died prematurely in a mountaineering expedition, while Bill Gates went on to found Microsoft. Bad luck for Evans, but surely not good luck for Gates. In the film, A Streetcar Named Desire, Stanley Kowalski (Marlon Brando), said,” You know what luck is? Luck is believing that you are lucky, that’s all…to hold a front position in this race, you’ve got to believe that you are lucky.” Was he right?

Psychologists have identified four moods produced by luck. If we have bad luck, we feel that we had no control over that event.  If we have good luck, we believe that our actions had a lot to do with the result. If someone else has good luck, we feel jealous. If another person has bad luck, we may feel a mean sense of joy, what the Germans call schadenfreude. The absence of causality in matters concerning luck is clear to the discerning.

Every month since August 2020, I have written on organizational transformation. The greatest challenge that leaders face—whether companies, hospitals, clubs, or governments—is how to adapt to a rapidly changing environment.  Leaders were required to possess intelligence (IQ) before the 1980s; then came the era of empathy (EQ), but, of late, there seems to be a tendency towards adaptability (AQ). For leaders of tomorrow to possess high IQ, EQ, as well as AQ is surely the future challenge of leadership. In this series, I have touched upon pitfalls to be avoided, people strengths that should be leveraged and illustrated the principles through the examples of how Hindustan Unilever and Tata responded to challenges posed by liberalization.

Did Lever, Tata, or any other organization succeed in the transformation purely because of their strategies? Largely, yes. If someone else followed the same actions, can success be assured? Not assuredly. Transformation programs do not follow the laws of physics, so there is no cause-and-effect relationship between inputs and outcomes. To quote Sir Isaac Newton, “I can calculate the movement of the stars but not the madness of men.” 

In great companies, continuous adaptations over decades have produced the dramatic and compounded effect of adaptability. We should not underestimate the benefits of compounding over a long period of time.  Warren Buffet created wealth by investing cleverly over a long period of time–most of his wealth accumulated from the time factor, not the cleverness factor. That is not plain luck!

Independent India has successfully executed multiple transformation programs. With the hindsight of time, India has been reasonably successful with these programs, a privilege not applicable to its South Asian neighbors, who sought immediate pleasure in the arms of China. Some examples of India’s success are a constitutional democratic framework, five-year planning schemes, population control programs, green revolution for food grains, white revolution for milk, and so on. All imperfect but bearing positive signs of sustainable success. Debates will, of course, be ongoing. 

Recently launched public transformation programs are doubling farmer incomes by 2022, achieving GDP of USD 5 trillion by 2025, improving ease-of-doing business on the ground, and more effective cooperative federalism between the union and the states, just to name a few. Not enough time has elapsed and, anyway, there has been the bad luck of covid, lockdowns, and Ukraine. 

It is useful to contemplate the role of luck in transformations. One published study in 2018 examined the impact of luck versus talent. The study showed that sometimes the most talented individuals are not the most successful. Individuals with a ‘median’ level of talent, but who enjoyed luck, experienced higher success. A paper by Cornell University suggested that while western culture places a high value on effort, talent, and risk taking, a large proportion of success can also be attributed to luck and random chance. (Boyer Law Firm Blog, 11th March 2021). 

In another article titled Are Great Companies Just Lucky? (HBR, April 2009), the authors asserted that the high-performing companies owe their success to luck, not smart practices. The analytically oriented consulting firm, McKinsey, however, argued that there are indeed seven principles for achieving transformational growth (McKinsey Insights, 22nd April 2021). 

These are bewildering array of conclusions and hypotheses. That is the reason why managers should reflect on what luck is, is there a difference between ‘earned’ luck and ‘unearned’ luck, does luck play a role, and how should a change agent think about luck? These are worth exploring in the next few articles, and I propose to do so.

In my book titled, Six Lenses, published in 2016, I had devoted a whole chapter to the subject of luck. A reader from Goa criticized me for doing so, considering that I bear credentials of being an educated and enlightened student of physics, engineering, and management. Why not devote a couple of my monthly columns to the subject?

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