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| Shyamal Majumdar: No two-in-one promoters, please | | Rishad Premji, Ashni Biyani and others would do well to retain one of the two posts - chairman or MD - if they succeed their famous fathers |
| Shyamal Majumdar / Mumbai Sep 03, 2010, 00:48 IST |
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Rishad Hashan Premji must be extraordinarily talented to have become the chief strategy officer of the information technology business of Wipro within three years of joining the company. It may well be a coincidence that his father is the chairman, and the Premji family holds close to 80 per cent in the company.
There is also no apparent reason to doubt Wipro’s assertion that the junior Premji has not parachuted into the new role and has the right credentials for the job. Rishad, 33, has an MBA degree from Harvard and had joined Wipro after working with GE Capital and Bain. Wipro also says Rishad was promoted only after he was interviewed along with several others when the position opened up.
The senior Premji has made sure that all the right noises have been made and all procedures followed before his son gets a fast-track promotion, but his counterpart at the Future Group doesn’t believe in such niceties.
Kishore Biyani, the Founder & CEO of the Future Group, told this newspaper recently that he doesn’t believe in the hypocrisy of asking family members to join at a junior level and work their way up. The retail king is walking the talk. Daughter Ashni, 25, is already Director of Future Ideas and leads the incubation team, while nephew Vivek, 26, is director at Home Solutions Retail, the group’s fastest-growing segment.
But Biyani made an important observation: none of his family members will be in an operational role — that job will be done by independent CEOs who will be accountable for the business. The family members will only play the role of mentors and manage inter-personal relationships — a unique way of separating ownership from day-to-day business operations.
Although the tone may be different, the separation of management and ownership is also something that Azim Premji has often talked about in the past. According to him, Rishad doesn’t necessarily have to be an active CEO of the company, and at an appropriate stage he can be an active member of the board, representing ownership.
That is precisely what corporate governance experts all over the world have been advocating. And one obvious way out could be separating the role of the chairman and the MD — something that India Inc’s captains have been preaching, but not practising in their own companies.
Data show that several leading Indian promoters have indeed split the role so that promoters have become chairmen and outsider professionals CEO/MDs. Among the 30 constituents of the Sensex, the benchmark share index of the Bombay Stock Exchange, 19 have split the positions.
But data can be misleading. In quite a few companies where the role has been split, the division of powers is merely cosmetic. In one company, the son has become MD while the mother is the chairperson; in another, the elder brother is the chairman and the younger one is the MD; and in yet another, the roles have been divided between uncle and nephew.
That can be self-defeating. For, if you have the same person (or someone within the promoter family) as the chairman as well as MD, it dilutes the independence of the board, because the chairman is supposed to act as the leader of the board. But if he himself is the part of the management, they find it embarrassing to criticise the management.
Some guidance on the issue has been provided in a research paper by Spencer Stuart which said in the UK, the quest for board independence has been a 15-year journey, during which time UK-listed companies have addressed the issue of director independence with the separation of chairman and CEO roles and the introduction of a senior independent director (SID).
The 1992 Cadbury Report was famously the catalysts for the separation of the roles of the chairman and CEO in UK-listed companies, presenting the case for “a clearly accepted division of responsibilities at the head of a company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision”.
Sir Adrian Cadbury, former MD and chairman of Cadbury Schweppes, recognised that this change to the structure of boards would take effect only gradually, and recommended that where the chairman was also the CEO, “board members should look to a senior non-executive director, who might be the deputy chairman, as the person to whom they should address any concerns about the combined office of chairman/CEO and its consequences for the effectiveness of the board”.
The SID coordinates the performance evaluation of the chairman, taking into account the views of both non-executive and executive directors. The SID is required to chair an annual meeting of non-executives without the chairman present and be available to shareholders if required.
Way to go for India Inc?
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