Tomorrow, an expatriate managing director at a company of one of India’s most hallowed conglomerates will address the business press. He will talk about the progress made in turning around the beleaguered operation since he slipped into the hot seat in mid-February 2016. He may perhaps also unveil a new brand identity for the company. And there’s one more thing he will do: scotch speculation that he is leaving.
Guenter Butschek, who will turn 57 in October, was appointed managing director & CEO of Tata Motors after a two-year search and rejection of numerous candidates at Bombay House, the headquarters of the Tata Group. An auto industry veteran, Butschek had spent 25 years at Daimler AG, and was Airbus CEO before joining Tata Motors.
The trucks and car maker was in dire straits. Market share in both segments was falling, Tata Motors was in the red on a standalone basis (excluding Jaguar Land Rover) and, in the April-December 2015 period, it had been edged out of the top three — Maruti, Hyundai and Mahindra — which together controlled 70% of the market.
One of Butschek’s mandates was to bring the company back into the top three with contemporary models, snazzier designs and an eagle eye on efficiency metrics. The other was to stop the erosion in market share in the bread and butter business of commercial vehicles (CVs) and make it a global player to reckon with. Tata Motors didn’t need just a turnaround. It called for a transformation.
A little over two years before Butschek bid adieu to Toulouse (the Airbus HQ), one of India’s information technology (IT) bellwethers was seeking something similar. Not that transformations weren’t tried before at Infosys — from the traditional labour-arbitrage model to consulting, for instance, was one shift attempted in the previous decade. Results, though, were meagre and mixed.
Vishal Sikka’s appointment as CEO in October 2014 indicated that Infosys was looking for change of the radical kind. For one, he was the first non-founder CEO. For another, it coincided with the exit of founder NR Narayana Murthy as executive chairman. KV Kamath, the lead independent director who would take over as non-executive chairman, summed up Sikka’s appointment well. “At this point, we need transformation. We basically had a bias for teem-— from performance than fancy and often meaningless designations: AGM, DGM, SVP, AVP, et al — on their calling cards. In India, a no-designations policy could well result in mini-revolutions at most workplaces; and at Tata Motors it evidently was leading to a loss in morale. “Indian culture is a complex culture. A small change in designation every year goes on to be a big motivator for a lot of people every year,” G Ramakrishnan, MD at Avanteum Advisors, told ET recently. “Money is not everything.” By end-July, the designations were back internally, and a key prong of Butschek’s transformational game plan had hit the brick wall of culture and tradition.
“Western managers find it difficult to deal with the many problems of India and they don’t understand the values and culture. Even Indians who have been out of India for too long don’t understand the new India,” says Vivek Wadhwa, distinguished fellow, Carnegie Mellon University’s College of Engineering at Silicon Valley.
It’s in this context that Wadhwa reckons that Indian companies don’t need to bring in outside management. “There is a deep and highly experienced pool of talent available in India which is better than what you find anywhere in the world. This is why Indians lead some of America’s top companies: if you can make it in India, you can make it anywhere. The reverse doesn’t apply.”
To be sure, a clutch of Indian founders and owners has done wonders to build world-class businesses. In IT services, Murthy & cofounders, Wipro’s Azim Premji and HCL’s Shiv Nadar took India — and its workers — to the US; Ratan Tata gave his group’s beverages, steel, chemicals, automobiles and hospitality operations an international lustre. But in a world of rapid and radical change, homegrown solutions aren’t always enough.
“Indian businesses have built an amazing industry with a very strong culture. This has served them well up until now when they need to change,” says Peter Bendor-Samuel, CEO, Everest Group, a Dallas, Texas headquartered outsourcing advisory.
Bendor-Samuel, though, thinks that culture may have outlived its purpose, and may even be counterproductive in today’s climes. “This culture, like all strong cultures, fights outsiders and we can see this at work at Infosys . If Indian firms are going to successfully integrate western talent in mass and or bring in strong outside leaders they are going to have to work hard to change things such as their view on compensation, travel and benefit policy, as well as the kind of investment they are willing to make.”
Bendor-Samuel is, of course, referring to the monetary packages and perks in the Sikka regime — a Rs 16.01 crore annual package for the CEO in 2016-17, a severance package of over Rs 17 crore to a former CFO, and a $200 million acquisition of a software firm in Israel called Panaya that was loss-making. It’s such apparent extravagance that’s at the core of Murthy’s gripe with Sikka’s management style, his evident lack of values, sensitivity to (local) culture and transparency in transactions.
As one of the founders who collectively still own 12.75% of Infosys, Murthy may reckon he’s justified to air his concerns about the company that he built from scratch in the early ’80s. The question, then, though, is: why didn’t he stay back on the board?
Indeed, after stepping down as executive chairman in 2006 at the age of 60, Murthy returned to the post in 2013. A year later, he stepped down — the same year Sikka came on board. The assumption then was that the new CEO would have a free hand, away from the long arm of the founder.
The founder had walked away, but the oversight lingered. “Ideally the founder should have stayed on as a board member. This would have ensured the issues didn’t get escalated outside the boardroom,” says Pari Natarajan, CEO, Zinnov Consulting.
In many ways, Murthy is more in the promoter mould, something unique to India in which family businesses own companies that are managed by professionals. Such promoter groups have evolved over time to create a distance between ownership and management. But, as happened in the past, the twain doesn’t always meet when West meets East.
“The problem may lie more with Indian promoters than with expat CEOs. The Indian road is littered with examples of CEOs who were brought in to change things and then removed by the very person who hired them,” says Rama Bijapurkar, an independent director on several Nifty 50 company boards. “There is, of course, a cultural issue. Unlike Indians, western mindsets are less deferential to age, position and success. The same applied even on the Infosys board that I knew, which had a mix of foreign and Indian directors.”
K Vaitheeswaran, who pioneered retail ecommerce in India with FabMart in 1999, cites Bill Gates as the classic founder to emulate. “When the Microsoft founder stepped down and handed over the reins to a CEO, he cut off all ties with the company. Getting rid of emotional attachment is the key. When a professional CEO is roped in to take the company to another stage of growth, the founder should move out completely, and must not be involved in any capacity, not even as a chairman emeritus or a sounding board or anything.”
Yet, if culture is a key binding ingredient, and Murthy’s shadow is going to hover over Infosys for some time to come, perhaps a pragmatic solution may well be to find a CEO in the image and likeness of the founder. “What went wrong was that they (Infosys board and selection committee) looked only at the CV, not at a cultural fit. What Infosys needs is someone who is frugal and aligned to the strong values and culture of Infosys,” says Manish Sabharwal, chairman of TeamLease Services, a temp staffing company and also a non-official director on board of the Reserve Bank of India.
Sabharwal cites the examples of Walmart, Ikea and Japanese companies that are frugal and don’t tolerate executives who deviate from the core values. “It’s a given that the CEO will be a top-notch techie,” adds Sabharwal. “But more importantly the next CEO should be put through the filters of cultural connect and whether he or she is aligned with the values of Infosys. Infosys’ culture is not toxic, but they don’t believe in private jets and so be it.”
K Sudarshan, managing partner, India, at headhunters EMA Partners International, has a similar train of thought. “The CEO can’t wish away founders. The next CEO will have to be sensitive enough to take Murthy into confidence. After all, the founders grew Infosys into a `30,000 crore company before bringing in a professional CEO and you can’t suddenly wish away Murthy from the company.” Cultural alignment, he feels, is the way to go. “Murthy believes in simple living, clean your own toilet; fly, say, seat 24C with others. Sikka is a jetset executive. These are normal things but if founders have issues with it, so be it,” adds Sudarshan. “A rock star CEO from Silicon Valley will be a misfit at Infosys. The new CEO has to realise that any transformation at Infosys will need Murthy’s blessings,” adds Sudarshan.
The counter view, of course, is that the culture spiel may only be a fig leaf for a founder who just can’t cut the umbilical cord. “If the founders are so obsessed with culture and want it their way, why don’t they take Infosys private, like Michael Dell and Ross Perot did with Dell Computers and Perot Systems, respectively?” asks a senior executive at a rival IT services firm. “The founders have made Infosys look like a Hindu Undivided Family and took turns to be CEO. Now, if they still want to run it their way, take it private.”
Another irony is that SD Shibulal, who Sikka took over from, was considered a nuts-andbolts guy, unknown to clients and customers. Sikka, on the other hand, was a global IT poster boy. In hindsight, perhaps Infosys needs more of a Shibulal than a Sikka, points out an equity analyst on condition of anonymity, wryly.
For a company that’s won virtually every award on offer — for investor relations, HR excellence and, yes, corporate governance and financial disclosures — the dirty linen that’s been washed liberally in the public domain over the past 30 months has made for painful watching. “Such open conflicts affect institutions, employee morale, create a leadership vacuum and discourage tentative clients. Both sides are equally to blame for this,” says veteran banker and HDFC chairman Deepak Parekh. Adds Kiran Mazumdar-Shaw, independent director on the Infosys board: “This public display of discord has caused serious collateral damage and must stop. The management must get back to business and the board must work expeditiously to appoint Vishal’s successor.” Expat or from inside? You can safely bet on the latter.