Corporate leadership issues routine

V Prabhu Dev, Nov 11, 2016 Nov 10 2016, 23:30 IST
The sixth chairman of Tata Sons, Cyrus Mistry, a non-Tata family member, appointed in December 2012, would have continued till 2037, when he completed 70 years of age. But unfortunately, his was the shortest tenure when on Oct 24, he was abruptly removed as the chairman of Tata Sons by Tata Trusts which holds 66% of the shareholding.

Ratan Tata has stated that Cyrus Mistry's removal was "absolutely necessary for the future success of the Tata Group." In response, Cyrus Mistry says the "total lack of corporate governance" in the business conglomerate where he was reduced to a "lame duck chairman".

Tata Sons is a $ 108 billion holding company of the Tata group which is a salt-to-software behemoth with an almost 150 year track record and survived two world wars. It is a professionally managed group of companies with strong commitment to corporate governance practices. The company has a business presence beyond Indian shores. The fact that over the last 15 decades, Tata Sons has only had five group chairmen suggests leadership consistency.

This leadership crisis at Tata Sons is emblematic of VUCA - Volatility, Uncertainty, Complexity and Ambiguity. Today, VUCA assumes relevance for the corporate leadership through the Board of Directors (BoD) and the chief executive officer (CEO) where leadership and management complement each other. The VUCA gets more intense especially in the backdrop of constantly changing dynamism and challenges affected by polity, economy and society.

The classic corporate failure of Enron and Lehman Brothers in the sub-prime global crisis, the ignominy that Satyam Computers, Hyderabad, suffered due falsification of financial statements, the fall from grace of the corporate icon Rajat Gupta of McKinsey, US, under insider trading regulations, sexual harassment cases of some corporate executives are only a few examples in the VUCA world. The leadership crises in few other companies have added another dimension.

Corporate leadership in a VUCA landscape highlights some important issues. Independence of the BoD is an impo-rtant issue. In the Satyam case, an independent director mailed a colleague to express his doubts about fudging figures in the financial statement of the company, which eventually triggered the corporate expose. Pressure on the CEO from the BoD is another issue. This is evident in innumerable cases, the latest being that of Cyrus Mistry.

The lack of synergy between leaders and their team is another issue. Everyone knows the fate of Kingfisher Airlines which was a hurried move that UB Chairman Vijay Mallya made against the advice of his BoD. Further, the lack of cultural fit between a lateral entry leader and the organisation is another issue, which again was the case with Cyrus Mistry and the old guard at Tata House.

Yet another aspect is poor succession planning. For instance, in case of Infosys, when Narayan Murthy retired, there was no clear cut strategy for long-term leadership at the company. This was strongly felt when some high profile directors exited the company in 2011.

Another issue is the trend of CEOs who returned to the organisation. For example, Steve Jobs who left Apple in 1985 returned in 1996, Michael Dell who departed Dell in 2004 re-entered in 2007, and Narayana Murthy who chose to exit in 2011 came back in 2013. Importantly, Ratan Tata exited in 2012, returned in October 2016 -- though as an interim chairman for four months.

Corporate governance

Infosys as a globally respected company is known for its high degree of corporate governance practices. During June 2014, Vishal Sikka from the SAP Board was inducted as CEO and MD of Infosys in June 2014. As a non-promoter CEO of Infosys, his appointment evoked mixed feelings of apprehension and discontentment in the company. However, his style of work showed promise.

For example, Sikka sent a pe-rsonal mail to the former Infosys employees. Also, he announced his ambitious target to hit $20 billion in revenue by March 2021 and, thus, he needed a good team to achieve these objectives. But during his two year tenure so far, six executive vice-presidents and eight senior vice-presidents have exited Infosys.

Such a large scale exodus of senior leaders in the company has the potential to hurt the company's business. Stability in senior ranks is important for pe-ople to feel motivated and passionate about the business and to be aligned with the mission and vision of the organisation.

The hallmark of a good CEO is acceptance by people in the organisation made possible through trust and respect in his/her capabilities. Therefore, trust deficit in this regard could be organisationally disastrous. In successful companies, there is synergy between the CEO and the BoD, which is a product of vision, patience, objectivity, em-otional quotient and organisational knowledge on both sides.

The CEO leverages the diversity in the organisation through a collegium form of decision ma-king along with the management team characterised by different styles, beliefs and ethos. Companies also must realise that every crisis brings an opportunity.

(The writer is Professor of Finance, Institute of Management, Christ University, Bengaluru)