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Old 21st August 2017, 17:12   #1
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Default Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

By now, surely everyone and their neighbor knows about the unfortunate Dr Vishal Sikka episode.

This happened in the recent past with TATA as well.

Following are some large companies but still have their promoters quite actively involved: Reliance Industries, Tata Consultancy Services, Infosys, Kotak Bank, Bharti Airtel, Wipro, Sun Pharma, Ultratech, Mahindra, Dr Reddys, and so on.

A question: are our home-grown large promoter driven companies finding it tough to cede 100% control to professionals?

Would love to hear opinions from this community!

Last edited by avdhesh15 : 21st August 2017 at 17:13.
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Old 21st August 2017, 18:05   #2
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Default re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

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Originally Posted by avdhesh15 View Post
A question: are our home-grown large promoter driven companies finding it tough to cede 100% control to professionals?
Absolutely. Indian promoters are indeed finding it difficult to let go of the control they have on their companies. This is very much in contrary to what usually happens in the West.

I think it's more to do with emotions than the 'ego', which is what majority are concluding as.

They would have built the company from literally nothing to a $ 10+ billion worth Multinational Corporation. They would have been striving over 30 years to achieve this. And finally, when someone else comes in, bringing in a lot of cultural change, it's difficult to digest.

I am not debating that the person coming in and bringing in the changes, is wrong. It's just the Indian mentality of getting attached emotionally and reluctant to face changes.

Of course, I am neither tall enough nor in a position to advice or suggest anything to the two stakeholders in this particular incident. These are just my 2 cents.

Anyway, thanks for bringing up this topic here in TBHP.
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Old 21st August 2017, 20:44   #3
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Default re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

I dont know whether it is just emotions or the fear of diminishing importance or the fear of losing control of the company itself once they cede control of the management.

I have lived through an example of a start-up whose founder (with a very strong educational background) refused to raise more capital for growth if it meant cedeing control despite the start-up's professional management recommending equity raise. He kept funding the growth through debt and was eventually arm twisted into relinquishing control by the lenders anyway.

Last edited by Rehaan : 22nd August 2017 at 14:55. Reason: Adding a paragraph break :)
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Old 21st August 2017, 22:01   #4
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Default re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

We should not believe that professional management is necessarily more competent or delivers better results than promoters or founders. There are enough examples of excellent management and great financial results on both sides of the line - HDFC & Wipro! - and so many more. The challenge often lies if you choose to transition from founders to professionals. The transition from grah prastha to van prastha does not come easy to most - ego, culture, but we always did it this way, my baby - what the hell are you doing to it, our attachment to the importance and sense of being the organization gives us and so on. Here my empathy is with Sikka having known two stalwarts of Infosys (both CFOs) who left. But I don't want to blame NM alone. This is a very difficult path. My kids have their own career interests and while the scale is a fraction of Infosys I am confronted with the issue of succession in my business. And there are no easy answers even if I shut my ego and indispensability in a box. This reminds me of a saying attributed to Charles de Gaulle, "The grave yards are full of indispensable men"
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Old 21st August 2017, 22:29   #5
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Default re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

It's the classic Indian sentiment of not giving something away that was once near & dear to one...

If the founders really had that inclination they should have remained as non executive board members post 2014, keeping an eye on all proceedings especially when they knew the next CEO was to be a non founder.
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Old 22nd August 2017, 00:23   #6
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Default re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Any insights as to why Infy promoters own only 12% of the company? Were they selling Infy shares all through? Why did they sell when TCS, HCL Tech, Wipro, TechM etc promoters held on to them?

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Originally Posted by avdhesh15 View Post
A question: are our home-grown large promoter driven companies finding it tough to cede 100% control to professionals?
Almost all private sector banks were once promoter owned - but they are now managed by professionals.
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Old 22nd August 2017, 10:17   #7
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Default re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

The original promoters of Infosys followed the textbook approach to running a professional company but they took it too far. Textbook professionalism sounds good on paper but for the most part never works. They should have held onto the management like most corporates in India and maybe avoided a lot of heartache.

The new management took over with huge cash reserves and naturally became extremely extravagant in their ways - a very small example - whereas earlier promoters would travel economy, the new didn't travel business or first but chartered private jets. Add to this an increase in salary to 48 crores in the second year itself along with a CEO salary that is 283 times higher than the average median salary of Infosys employees. Retention management strategy involved 600% salary increases in many cases.

All of this before the new management could show sustainable increases in long term profitability.

Whether the new or the old would have been better for Infosys could always be debatable but at the end of the day the original promoters should have not completely handed over the company to professionals.

All those committees (corporate governance, audit etc) can't do much beyond a certain point and are again good for the textbook.

Most of the large corporates as mentioned in an earlier post are still family owned. Tata is another case of how things go wrong proving yet again that text book professionalism does not work well in India.

Even in the west, most well known companies are still largely original promoter driven - Tesla, Amazon, Apple, Dell, Uber (until recently - we haven't heard the last of it yet). Where companies have been completely professionalised - IBM, GM, etc - they aren't really doing all that well.

For the most part, management is more sustainable in the long term with the original promoter connection. Textbook professionalism is better left to text books.
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Old 22nd August 2017, 10:29   #8
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Talking re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

May be a coincidence, indeed raised similar questions earlier on the long running Tata thread. Thanks to find the separate one, T-bhp never ceases to amaze :

http://www.team-bhp.com/forum/indian...ml#post4255424 (Cyrus Mistry out : N Chandra in as Chairman of Tata Group)

Quote:
there are many similarities between Tatas and now the saga at Infosys. The overly criticism, bad mouthing and allegations resulted in Vishal Sikka deciding to resign finally. At least this is how it looks at the surface/from outside.

I felt the inabilities of founders/promoters from taking a backseat and giving freehand to the chosen professional does need lot of improving in corporate India. Today it is easy for the founders to use their bigger than life size image , tough business context and typically longer time for RoI , thus all together pans unfair to the guy already have big shoes to fill.

I felt except of Mistry been removed, while Dr. Vishal Sikka stepping down are subtle and simple differences. What does the knowledgeable bhpians thinks about this whole episode?
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Old 22nd August 2017, 10:51   #9
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Nice thread, Avdhesh .

When you build something great from scratch, you'll obviously have your heart & soul in it. We see so many Indian companies where the founder or his descendants continue to control the company. In fact, these far outnumber companies where founders have handed over control to professional managers. But then, it's less than 30 years since our economy really opened up. A time will come when the 3rd / 4th generation is simply not interested in the business and might have a hands-off approach.

This isn't specific to India though. In the USA, Michael Dell actually took his company public -> private, Bill Ford hired Alan Mulally (after an unsuccessful stint himself) and Steve Jobs returned to Apple in the late 90s.

Quote:
Originally Posted by interest View Post
I have lived through an example of a start-up whose founder (with a very strong educational background) refused to raise more capital for growth if it meant cedeing control despite the start-up's professional management recommending equity raise. He kept funding the growth through debt and was eventually arm twisted into relinquishing control by the lenders anyway.
Wow, interesting story. If it's in the public domain, please share links. Would love to read.

Quote:
Originally Posted by V.Narayan View Post
We should not believe that professional management is necessarily more competent or delivers better results than promoters or founders.
Well said. At least until the original promoters or founders are still competent & tuned in to market conditions.
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Old 22nd August 2017, 16:55   #10
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

I have this nagging question in my mind regarding the Infosys episode.

The outgoing CEO talks about strategy, and how the distractions are preventing him from executing his vision for future.
The outspoken promoter talks about corporate governance, finance misappropriation and generally in terms of values.

Is the outgoing CEO, and his side saying that being a professional and having a strategy for future entitles them to 100% financial autonomy on what to do with what ?

I am not in the promoters side, if the objective is to grab control back. But I just don't get the point of why the largest shareholder's opinion on finance of the company is viewed as an attack on professionals. Isn't that some sort of arrogance from the executives if they act as if being a professional entitles them to something totally different from the culture of the company ?
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Old 22nd August 2017, 17:33   #11
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

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Any insights as to why Infy promoters own only 12% of the company
very valid question, do you mean that will they now start buying shares from the market? little OT, is Infosys good bet at current rates and how does this buyback offer works, what will be record date and say if we buy something tomorrow can we sell under buyback.

Last edited by Turbanator : 22nd August 2017 at 17:34.
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Old 22nd August 2017, 18:32   #12
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

What's caused (or will cause) the most damage, is the flip-flop on management.

Hiring a non-promoter mgmt. team will always mean relinquishing control and letting the new guys run the show while holding them accountable as appropriate by stakeholders.

Handing over the reigns to someone else, then publicly second-guessing their intent and competence at every step just leads to an overall loss of credibility for everyone.

If the founders want to do this again in the future, they'll have the double disadvantage of appearing not to know what they exactly want, and competent external professionals not wanting to take the job because of the constant meddling.

Nobody wins.
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Old 22nd August 2017, 19:13   #13
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

I have seen one transition from founder to professional management up close. Here is what I observed:

1. Founder has company car Corolla, traveling economy class (even though older). stayed in budget hotels. Very frugal. Professional CEO pretty much maxed out all the perks: high end luxury car, business class travel, everyone stays in 5-star hotels and so on.

2. Founder was very careful about cashflow, would expand conservatively and is not tempted by the cash in the bank. Professional CEO talks a lot about strategy and does not rest until elaborate plans are made to spend all the cash in the bank in every possible way (buying companies, fancier buildings, renovations, etc.)

3. Founder has a very lean team, high accountability, customers get speedy resolutions. Professional CEO hires many "heads", accountability is diluted. Customer requests go into blackholes.

4. Thought not proven, lot of allegations/whistle-blowing about money being taken out.

The basic pitch offered by the professional CEO is that the founder was being too conservative and the company needs to move forward into 20th century and his vision will result in short term disruption, slower growth but set up the company for a bright future.

Getting a professional management with high integrity is extremely hard in India. This is the reason why many promoter companies are family owned and even MNCs try to keep their own country men as CEOs for India operations.

I am not a fan of NRN but I can appreciate his pain as a founder when their legacy of frugality and integrity is so severely undermined in the name of professional management. Not a big fan of the US culture of professional CEOs coming in with a promise to do amazing things, making tons of money while buying time and eventually getting kicked out and finding another CEO gig. The argument given is you can't hire a decent CEO without such contracts but I think this model is terrible.

The lesson for founders is to groom the future leaders from within the ranks to carry forward the values and culture.
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Old 22nd August 2017, 19:15   #14
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Quote:
Originally Posted by autospeaker View Post
They would have built the company from literally nothing to a $ 10+ billion worth Multinational Corporation. They would have been striving over 30 years to achieve this. And finally, when someone else comes in, bringing in a lot of cultural change, it's difficult to digest.

I am not debating that the person coming in and bringing in the changes, is wrong. It's just the Indian mentality of getting attached emotionally and reluctant to face changes.
True, but I'd think that at their ages, that some of these leaders or ex-leaders (not mentioning anyone's names) would've had the experience, foresight and maturity to handle such changes. Why not?

I think that those who're unable to let go or keep going back to their companies even after handing over control to other people, are those who've not accepted this simple reality - change is natural, even if its a father to son handover, and it WILL happen.

The best way to leave is to think of their time at work as something spiritual - something that had to be done simply because they needed the money and needed to do what they set out to do.. and after doing it long enough one should let go because their heart is not in it anymore, that they feel a new thinking and new leadership should indeed be in place for the company to move.. whether forwards or backwards no one can predict and they should accept that as well.

I guess until the 80's people had it easy, there was a concept of hanging up the ties and shoes at age 60 or so. Today with the emergence of tech and with businesses being conducted over phone, computers and cloud, people are simply too much in touch with their official life and somehow it never seems to separate from themselves. I'm barely a decade into my career so I don't know exactly what the feeling would be to leave a company that one has been a part of for over 3-4 decades, but I guess the simple answer to that would be don't leave until the mind says so, and if it does, leave in totality.

Of all businessmen, I admire Mr.Premji (for his rather modest way of life and his total hatred for publicity), I guess he and his son Mr.Rishad are doing it the right way by keeping control and not having to wash dirty linen in public over and over again. In the end its about keeping the unit running.. keeping employment going and keeping the liquidity flowing. Who is on top isn't important in the larger scheme of things.. according to me people should be aware of when to quit/give up against everything that they learnt during formal education.. sometimes new beginnings can be awesome.
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Old 22nd August 2017, 20:53   #15
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Default Re: Promoter-driven companies unable to cede control to professional managers (e.g. Infosys)?

Thank you for starting this thread. I've been thinking about this ever since the news broke out. It is a very important event in the history of Indian businesses. While there has been a lot of angst about the departure of the CEO, very few people have paid attention to the fundamental reasons behind this development. It is much more than an issue of interference- it is a clash of cultures. Infosys was founded by people who wanted it to be an engine of financial growth and social change. It was never meant to be a corporation that simply served the shareholders. That's not the case anymore. I believe that the promoters felt it was becoming too American in the way it operated.

The departure of one person rarely brings a major shift in the way the organization operates in the Indian context. There are many checks and balances in the system that make it slightly resistant to abrupt change.
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