That Will Be My Chair

In a sea of “Lala” Indian companies, those lucky few working for an Indian professional company—Levers, Infosys, ITC, L&T, Tata Motors and so on—always stood out. Manager attrition rates have typically been much lower in these firms that encouraged a collegiate but competitive race to the top. How should one react then when two ageing—and successful—CEOs of blue-chip professional firms stretch out the inevitable search for a successor?

Infrastructure jumbo Larsen and Tou­bro (L&T), one of India’s oldest and most successful professional compan­ies, has had one chairman for 12 years since ’03—A.M. Naik, 72, who’s also been CEO and MD since 1999—squashing any other top dog’s ambition to be L&T boss. Nor is it a stretch to say that ITC, another colossal professional company, has had Y.C. Deveshwar at the helm for a yawn of a time—18 years now. His reappointment earlier this year as chairman until September ’17 was, in a way, a rebuff to corporate watchers who had been shak­ing their heads disapprovingly.

To be fair, both companies have made noises about succession planning. But are their successors in sight? Naik says he is “absolutely confident of meeting the 30-month deadline of a seamless succession”. The all-powerful L&T board set this deadline in February. Naik will then be 74, a considerable age for someone heading a professional business, where talent (at least theoretically) is plentiful. Deveshwar has also dodged the successor question for until February 2017, when he will be 70. “It’s not until 2017 that we will announce someone,” says Nazeeb Arif, vice-president at ITC.

Frankly, it’s all a bit up in the air. That Naik had humble beginnings as an idealist school teacher’s son in rural Gujarat and Deveshwar shepherded ITC out of a legal-political-corporate storm in the mid-to-late ’90s are indisputable. In 1999, L&T was far from today’s $14 billion giant, diversified from bridge-building now into financial services and even IT. ITC’s $8.31 billion turnover is also imp­r­essive—over the last 15 years, it’s crafted a diversification despite a near-monopoly over its core tobacco business.

Management consultant Rama Bijap­u­r­kar says the hold of these two men over their companies is an “eternal mys­tery”. “If your chairman is sitting on a success story, outsiders find it tough to question his continuing. It also becomes tempting for the chairman himself to want to stay on,” she says. Remember, both companies have no clear owner.

But there’s a unique dna that ITC and L&T share—and that is the important role played by the government. L&T gets a bulk of revenues from government proj­ects, and it is expanding into financial services, skilling and more. In L&T, if at all there is an owner, it is the financial institutions and the government, which owns 25 per cent. BAT, which attempted a hostile takeover of ITC in the ’90s, still owns around 30 per cent, government institutions another 30-odd per cent.

***

***

“In every large or successful company, the chairman should have a fixed tenure and a very clear succession plan shared with shareholders. Every company needs to take into account the aspirations of senior people who would be contenders for the post,” says Nripjit Chawla, who once worked in ITC's top management. It is vital for any company to groom talent before they desert the ship for another where their ambitions might flower. Both firms have not officially divulged which in-house or outside talent is being groomed.

Prof Krishnamurthy Subramanian of the Indian School of Business—an exp­­ert on corporate governance—ackn­o­w­ledges that financial success can keep investor-shareholders (SUUTI and LIC) at bay, but this silence is better explained if incumbents are managing the business environment well. “Particu­larly in India, the ability of large players to control reg­­u­lations is significant. Maybe the L&T and ITC boards feel they’ll lose ben­efits if men at the helm leave,” he says. L&T board members did not respond to phone calls, or declined comment.

In the absence of regulation mandating tenures at the top, corporate governance experts stress the government’s role. Even minority shareholders would have little role, considering the clout of both firms. “It’s worth examining if fiis controlled by the government are quiet about top appoi­ntments because they don’t look beyond dividend payouts,” says Virendra Jain, founder of SEBI-registered investor firm, Midas Touch.

It is indeed a cosy relationship these companies share with the government. Take ITC, which derived 90 per cent of its $2 billion profit from its cigarette busin­ess in 2014. It uses these profits to bankroll its many diversifications. “Essentially, the Indian government doesn’t like hostile takeovers—not just BAT’s overtures to ITC, but remember Lord Swraj Paul and DCM,” says one former ITC honcho. What he means is, the government helped ITC outwit BAT, and thanks to that the company now retains a quasi-monopoly in tobacco, which delivers massive profit.

Shriram Subramanian, MD of InGov­ern, a corporate governance research firm, says ITC has also been tinkering with its internal governance rules. For instance, it has appointed ex-employees as directors. “If you appoint somebody who owes something to the management or chairman, it is a problem. It also looks like this has been engineered carefully,” he says. The former ITC man says it shows that “good boys are being rew­arded, quite like the government does”.

In L&T’s and ITC’s case, as annual reports show, the pivot is the economy. One industry watcher goes so far as to say that L&T is a separate “sector” in itself—a national sector, as opposed to government or private—drawing 60 per cent of revenue from state and central projects (apart from a large, growing international presence).

The two CEOs in question are clear about this legacy. As Naik put it in an interview in 2011 to Business Today: “You find a man in the world who will kill himself four times a day...has sta­r­ted more than 60 per cent of the company himself with devotion and pas­s­ion, and not bothered about his own family. The day you find such a man, he is my suc­c­essor.” Also in 2012, Deveshwar told the same magazine: “My gran­d­ch­il­dren, when they grow up, they sho­uld be able to get employment in ITC.” Looks like a plan, doesn’t it?