<b>Kavil Ramachandran:</b> Time to come out of the long shadow

Promoters should let their successors run the firms so long as core values are upheld

Recent developments in Infosys involving original promoters and the board of directors have come close on the heels of the Tata episode. This is when the “promoter” holding in Infosys has come down to 12.75 per cent! These developments raise questions about the self-perceived continued role of promoters in organisations that have undergone major changes in ownership structure. Also, these raise concerns about our ability to manage leadership succession at operations and board levels in large public organisations that still have the long shadows of the founders lingering, sometimes indirectly. It is sad that leaders with larger than life personalities seem to undercut their own images by shouldering over-responsibility of custodianship and get into avoidable public debate when they are not required to do so.

Why founders feel a sense of over-responsibility

Founders are passionate and possessive people, who often believe that their commitment to the enterprise they have created cannot be matched by anyone else. They think that they have to be around personally to take care of the growth and survival of their organisations. They do not easily trust outside chief executives and chairpersons, and tend to believe that such people do not share the stewardship values they have cultivated. The passion of a non-founder CEO is often different from that of the founder, particularly if the new CEO has not lived the organisation’s legacy as a “corporate family member”. In other words, the founders may not appreciate nor approve decisions that are not in tune with their own thinking. Such leaders get frustrated when their successors take independent decisions.

Illustration: Binay Sinha

 

Founders have high level of need for information on the well-being of their “corporate babies”. The gradual emergence of an assertive successor makes them feel nervous and irrelevant, none of which they are ready to accept. Adding fuel to the fire, old-time loyalists join the debate to describe how the organisation is treading on a dangerous spin. It is not surprising that such leaders tend to influence governance by getting their favourites appointed as independent directors.   

The role founders should play

Humans are mortal but institutions are not — they are eternal. Successful founders, who want to see their creations live beyond themselves and wish to nurture a unique identity for the organisation, ensure that they do enough to lay the building blocks of a strong institution in the making. They would prefer to remain in the background and help the board govern well when their creation establishes itself successfully. This involves sacrifice and surrendering one’s ego and possessiveness. This is not easy for most leaders to practise, but then institution-building is not easy anyway.

Founding leaders need to ensure five things for this to happen. One, clarity about the purpose of existence of the institution they are building, which includes vision and core values; two, clarity about the resources and capabilities required in their successors to build further; three, conviction and confidence in the suitability of the successor they have chosen that their absence would not matter; four, the board members play their role responsibly; and five, engage themselves in passionate new initiatives.  

Founders cannot and should not think that they have natural entry or access to an organisation they once controlled. Like all individuals, organisations do evolve, with multiple stakeholders including investors, regulators and the government at large. The original promoters should feel happy, relieved and reassured that there are other responsible social institutions with a larger pool of wisdom to take care of the institutions they have attempted to build.

In a dynamic society, it is natural for organisations to evolve with changes in their vision and product-marketing strategies, while retaining continued practice of core values. Founders should leave the organisations to be run by others, who will ensure that the basic fabric is not threatened. However, it is impossible to continue to do so beyond a point if their ownership stakes fall to insignificant levels, leaving their ability to influence through transparent governance mechanisms minimal.

Institutions are built over generations. Each successor leader has a responsibility to build further on the past and move forward. It is like establishing a number of towers, connected over time with great accomplishments. New leaders should be allowed to add features that are appropriate for the time they live in.

Leaders who preach high-quality governance should not forget that an empowered board is capable of taking judicious decisions. Their tendency to question the decisions of a board of which they are not members only undermines their image as people with wisdom.

The author is professor and executive director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business