Why India is struggling to produce CEOs like Nadella, Pichai at home

One of the great things about the periodic visits by marquee Indian-origin chief executive officers (CEOs) such as Alphabet and Google’s Sundar Pichai and Microsoft’s Satya Nadella is that they leave middle-class Indians basking in the warm glow of reflected glory. Both usually pay obligatory obeisance to that ultra-scarce resource in India: Human capital. Mr Nadella on his recent visit said: “There is no denying that anyone who does not tap into India’s human capital is making a choice to not be competitive.”

 

At one level, Mr Nadella’s statement can be read as an urgent message to the incoming Trump administration not to monkey around with the H-1B visa system that Silicon Valley has so profitably exploited for decades. It can also be interpreted as a reflection of the emerging global capability centres in India that enable US corporations to deploy IT-educated Indian “human capital” at minimal cost. This is the usual understanding of such complimentary statements. What few successful Indian-origin CEOs choose to address is why Indian businesses have not produced equivalents to Nadella, Pichai and others like them in the Indian business environment. After all, there is no shortage of top quality graduates from India’s premier engineering and management institutes in Indian companies.

 

Many bytes have been expended over the decades on the structural limitations of Indian economic policy and bureaucratic red-tape that have constrained Indian business. These are valid arguments up to a point. But they do not explain the constraining management ecosystem that Indian businesses appear to adopt by choice. One of the less acknowledged points is the general absence of a genuine merit-based system in the Indian business environment. India’s largest businesses are family-owned and their strategic management ecosystem remains within the founder family. It is not that we lack dynamic and even top-class managers. But organisations with senior reporting structures that are disproportionately weighted in favour of the boss’ son, daughter, spouse, brother, niece, nephew and all other kinships in between can have a discouraging effect on managerial innovation.

 

The point to note is that many of the US companies that Indians now head were also founder-driven at some point — from Google to Microsoft to Adobe, Pepsi, IBM and so on. But unlike India’s largest businesses, no one would classify them as family managed. But most founders gradually step back, subject their startups to market discipline, transform their management into professional meritocracies (among the FAANGs, Amazon and Meta remain relatively youthful outliers) and create an enabling environment for talent and innovation.

 

That may explain why the faster growing and innovative Indian businesses are emerging from the startup universe where young people can operate outside the suffocating environment of family management. That applies equally to corporate boards. Where boards in the West are known to have jettisoned poorly performing CEOs and founders — Apple, HP, Yahoo and Uber being good examples —  no board in a conventional company in India has been so bold as to dismiss its promoter or CEO, even those with proven records of shenanigans. Whether Satyam or YES Bank, both led by powerful founder CEOs, it’s been the job of the regulatory agencies to show them the door. 

 

It is not as though Indian startups are managerial models by any means. Entries on Glassdoor.com attest to the toxic atmosphere that founders create in many of them. But two factors act as checks and balances to the broader transgressions of powerful founder-CEOs. The first is the fact that co-founders tend to be a bunch of professionals and friends who have banded together to create a business, so meritocracy is the default standard operating procedure. Second, since they raise their money from venture capital (VC) and private equity (PE) funds, they are subject to a degree of scrutiny that India’s narrow capital markets somehow do not. The contrast is noticeable. In 2015, the board of housing.com sacked one of its founders and CEO Rahul Yadav for his erratic conduct. In 2022, BharatPe co-founder Ashneer Grover was dismissed by the board for various acts of omission and commission. 

 

In contrast, consider Byju’s, the meteoric online education firm. Now swamped by debt, court cases and insolvency proceedings, it remained an essentially family-driven outfit with the founder, his wife and brother running the show. Independent board members quit after it became clear that their advice was being ignored. This, again, is a rarity in most Indian boards, where independent directors remain comfortably dependent on the promoters’ goodwill and obligingly rubber stamp their plans.  

 

A critical mass of creative, innovative management is a key “human capital” resource that countries need just as much as a well-educated and healthy workforce. India lacks both, which may explain why Indian businesses remain minnows in global corporate waters.