When Analjit Singh sold 26% stake in Max Healthcare to Life Healthcare, South Africa’s second-largest hospital chain, many wondered if this was the beginning of another exit. But Analjit says he’s not exiting, he’s no serial entrepreneur, and has moved up in life to build and try and leave a legacy. He’s putting in place board-governed structures and embraced change at a scale that would surprise many. In an candid interview with Ranju Sarkar , he shares his transformation, from a serial entrepreneur to a champion of good governance. Excerpts:
How would you explain the Life Healthcare deal in view of the kind of things you have been trying to do in Max India, strengthening boards and governance...?
It’s not a deal in itself. It’s sits in the larger strategy and journey of the second horizon of the Max Group, which started in 2000. We reinvented ourselves, exited nine businesses and started from scratch all-over. The vision was to convert the company into an all-services enterprise, strive for service excellence, and get into businesses of life or businesses of social good. We identified four areas: insurance, healthcare, education, and hospitality. For the past ten years, we were focused on insurance and healthcare. These are long gestation, capital-intensive business. Obviously, they have become longer gestation and more capital-intensive businesses than we thought in 2000.
It’s fair to say that the first eight years (2000-09) have been spent on building critical mass and size, in terms of footprints, capacity (offices, agent advisors and distributors), capacity in healthcare is number of beds, clinical outcomes. From 2008-09 onwards, we have been focused on profitability. It is little wonder, that in 2010-11, we became profitable in both; not hugely profitable, but the journey to profitability has started. Now, the focus is on refinement, efficiencies.
We are still a year away from listing Max healthcare, which won’t happen before 2013-14. We need capital to grow in this business. The answer was to find a strategic investor, who is also in the healthcare space, understands the business, has a large network of hospitals, is financially successful, and know how to make the network work, using IT, clinicians, governance models. We have found a marriage in Life Healthcare; it’s a coincidence their name is also Life.
We found they are very similar in ethos, operating principles, in understanding first things firsts, in understanding the special nuances which are typical of the healthcare sector, which means how do you make clinicians and management work together. It may sound very simple, but it is very difficult to reconcile these two set of people. Life saw Max as a good platform to enter India. I could not control the exit of Warburg, but as usual, the God’s hand was on me.
Having established the critical mass, we are focusing on efficiencies, profitability, and therefore, the deal well-timed as Life Healthcare will help us go to the next level in efficiencies and profitability; it is like a hand-in-glove kind of fit. I talked to many people, but they were the most suited to our style of working.
How do you see this deal in the context of what you are trying to do today–build businesses, institutionalise, and what you did in phase one? Is this a partial exit?
There’s no exit. At 74% ownership, how can there be an exit? There’s no exit. We run the business, morning, afternoon, evening, and night we run the business (laughs). If there’s exit, you can run the business in the morning, but not at night.
Is there any understanding with Life that you would exit at a future date?
I am not exiting. The true answer is that having started in 1985 to 1998-99, it took me 15 years to figure out where my heart really lies. In 1998-99, with the exception of telecom, I did not want to be in those businesses. I was not getting the “joy” of an important part of my life, which is about impacting life. Which is why this whole expression of businesses of life, businesses of social good came from. We exited those business—nine of them in the 1998-2000 period to free up capital, bandwidth, to be able to devote time to the new businesses.
The reasoning of exits those were not typical of my business mantra, which is invest, build, sell, exit. No, that was pertinent to that stage of my life. And don’t forget, in 1998, 13 years ago, I was 46 year old. The game was different. I made some assurances to my colleagues that these (new businesses) are not only in the business of life, but also businesses for my life. The businesses are not going anywhere. These businesses have to go after me, and not in my lifetime. But within that we could list, bring in a PE, or a strategic partner, or sell more.
You asked me if I have a deal with Life Healthcare if they would buy the business 100%, No. But just like I have a deal with New York Life, if FDI changes, they can go up to 50%, not 51%. If Life asks me if I will sell a higher stake, I will say, well, if you make me a good partner, we will talk about it at the right time, but not 51%. If your intention is to take control of this business, then I will suggest don’t start the journey because you are not going to complete it.
When I started in 1985, there were different family pressures. That time the game was to establish independence... So, my focus was what can I do to get scale, get reasonably financially strong, and establish Max and therefore my family. Having done that, I said hang-on guys. I am going to go about building my life in a different sort of way, because I have the base to do it. Therefore, we cannot compare the rules of horizon 2 with the behaviour of horizon 1.
If the game was to build and sale, then 2006-07 was a good time; we have seen what happened in life insurance in 2009. The Max share was trading at Rs 240; today, whether my share is Rs 200 or Rs 100, I am not selling. But we may harvest. We own 74 per cent of the life business. If some Indian comes along, and gives me a fantastic valuation to take 10%, why not? But not 51%.
You have been good at creating value for yourself and your company. What’s been your philosophy towards value creation? People cerate value in different ways, some do it at stock exchanges?
For me, value creation is a derivative. The upfront ingredients is quality—be the best, not be the largest, have the right people, build international class. … Willy-nilly, if you do the right things, you get the right outcomes. Then the market recognises it. When New York Life, Bupa, Life healthcare recognises it, then you get value. Because these people use this as entry point to India. They know they are getting a good platform; they know this partner is not going to screw them. If you do the right thing, value gets created, and then you use the value right.
My biggest regret is that we have gone off the dividend list longer than I have wanted because of the long gestation nature of the business. By 2012-13, we hope to back on track on that.
How has your approach towards business changed in phase 2, post-2000? What was your approach in pre-1999 days?
In the 1985-2005 timeframe, we were more an executive-managed and governed company. In the last six years, I would call us a substantially board-governed company an executive managed company. The governance piece has moved away from executive to board. In the last two years, we have inducted 10 independent directors on our two boards. Barring one, I did not know nine. I did not know of the them. Every board member has to chair a sub-committee. These are not just eminent people who sit here having cups of tea; they specifically chair some subject or function of the company; all nine ten of them. Second, my board meetings run typically in a two-and-half day process.
Why did you do what you did in the second phase? Was it need of the business or you wanted to prove to the world, that you too can build institutions?
I found the business and business environment getting too complex. And conventional wisdom was no longer adequate. Therefore, you needed collective wisdom from a very sound lot of people rather than make systemic errors because when you have your buddies on board, and only eminent people on board, there’s a natural tendency of yes-ing. But if you have independent professional directors, they will say hang on, this does not sound right; these are our options; if I was you, I would not do it that way.
I wanted less pressure on myself. I was sick and tired of being the sole owner of a decision, right or wrong, and trying to figure it out on my own. And I said, no. I need other people to help me decide. We are very participative company—we are not a despotic kind of company.
Were these the need of the businesses? What was the goal in mind when you went for these changes? Strengthen the organisation?
Good talent gets attracted to company where there are better-governed processes rather than the whims and fancies of the promoter owner. I don’t wear a promoter hat in the company; I wear a promoter hat at home. When I am at work, I don’t think myself as a promoter of Max; I think of myself as a responsible custodian for Max; for investors, employees, society.
Two years ago, I appointed a former colleague who has been on the board, Ashwani Windlass, as the nominee of the family on the board of Max India. I have investors like Goldman Sachs who have some covenants, rights on the company. Till two years ago, the family which owns 42 per cent of Max India had no rights, no covenants. Two years back, we introduced the same and the family now has formal rights like the investors. In the board meeting, the promoters’ interest is voiced by Ashwani; not by me. I don’t sit in my office or on the board as promoter; I sit like an independent non-executive chairman.
What was the genesis of this change process?
I think the simple answer is it’s just me. Nobody came and told me, I did not have a bad dream. It’s just my personal evolution. (If you ask me how we did it, it was totally by Tony Singh, Max’ vice-chairman and management guru Ram Charan) But nobody came here to say hey Analjit, you are not working right; you should change the way you are working. That came from within. Once I started to feel that way, and asked how to do this, and then enter all these different people. Ram has obviously guided me a lot.
What’s the role Ram Charan has played in this change process?
His role is not confined to this change. His role has been to make us an all-round better company. Ram has taken many sessions, creating awareness, teaching people about how business are reviewed, how business are run, the role of the board, the role of directors, how to measure success, how to track success, how to improve efficiency... The things you are asking are not quick-fix solutions—Ram comes, lectures, and the share price goes up. It’s a part of a total process, evolution. I think myself as responsible, credible person. When you examine the environment around you, you try to do new things or the same things differently...
What made you embrace change at this level?
The business is getting complex—insurance and healthcare are very complex. Look at the list of all the sub-committees of the board. The amount of depth those sub-committees bring to the board, I cannot provide nor can I buy it off the shelf. …One likes to have continuous refinements and improvement both a businessman and leader, then you go and find the right people to deliver it. Those right people are people like Tony and Ram.
If one maps your career, one sees a different approach to business in the first phase (marked by exits) and the second phase (attempts to build businesses)...
If you ask my family, they will tell you, forget about business and Max, he has changed a lot as a person. I don’t keep doing the same things all the time. I conform to change very nicely, conform to times very well. Two, I am very process oriented. I always want to show that it is collective wisdom and thinking that is driving things. So, I try to make sure that I get the right kind of people. When others see that you are doing the right things with the right people, then more right things and right people happen.
I am an introspective person, who likes to keep improving himself every which way. Not only in the way I run my business. So, I am thinking, I am reading the leaves, I am seeing the complexities in my business. I don’t like to do the same thing for too long. I need to demonstrate to people that we are right-minded, right-thinking, right-speaking people. These are all manifestations of that.
When you talk about value, I am not someone only being driven by money alone. It is very important to me is how we work and how we are seen to work, how do people judge us with our values and characters. In one word, reputation capital is very important to me. If you see the governance process, and the kind of people that are there, these are things that help you build reputation capital... If we were hugely profitable, but didn’t do anything for the society, I would consider myself a failure. I feel business has a responsibility to build societies around it.
In the first phase, my goal was to get established, to get financially independent, that was limited focus. Having done, it was escalated to governance, values, to operating principles around you, and also creating value. I am not besotted by creating only value. Just because we built and sold some businesses, there’s an impression out there, that Analjit is a serial entrepreneur. All he does is building value by building business and selling them for profit. That’s a very wrong reading of me. (An executive interrupts to say that Analjit now devotes a lot of time in governing Doon School, ISB Mohali, or IIT Roorkee). That’s my way of and my company’s way of contributing to society. So, I am not after this ‘value’ you are talking about, which is another bad word for profit.
I am not chasing only financial value. If I am chasing reputation capital, the drivers are governance, empowering management, is getting board-governed processes in place, getting in place high-class people who are not just eminent but specialists, is retaining talent, is building society. Both vectors are important.
Did you stay invested because you knew that these are long gestation businesses, and you can’t cash in without making them profitable first?
I did not know that. Earlier, my estimates were that we should have been profitable in five years. I did not know that it is going to be ten years. One felt good year on year of being in these business even as they took longer to get established, and chewed up more capital than we thought. But we said no we are going to complete the journey here. We want to reach the point of arrival. I want to reach a point of arrival where someone gets off at the airport, or a station, and tells the scooterwala , that please take me to the Max hospital, that chap is not asking where’s it. I needed to live that to make it happen.
You have done a lot of work on governance; you have FIIs on board who own 26% of Max India. Do you think the work is reflected in the stock? And why so?
No. Part of the reason is that it is has taken too long to be profitable. We have gone off the dividend list for too long (10 years) but now it is showing. We have declared a profit, and the stock is back again. On March 31, when we declare higher profits from all our business, the stock would go up again. If our plans come through, we hope to be back on the dividend list in 2012-13.
Where do you see the group evolving in future, say five years down the line?
Considering the tough headwinds from competition, in our relevant grouping, I would like to see us as a top quartile player, in each of our business, measured on a matrix of real performance. For example, in life insurance, we not only look at new sales but also at persistency, which means how much of our business we keep in our books year on year versus falling away, on what you call in telecom churn. In the industrial-owned life insurance business, I would like to be among the top three. In healthcare, I would like us to be the top player in terms of clinical outcomes. On quality parameters and service, I would like to No 1 in five years.
If you were to review, how have the two business done in terms of profitability, the way they have scaled up? Have they been in line with expectations?
They have been much more difficult than I had imagined. The complexity, the challenge, the time, the capital, has been much more difficult.
Also read: The evolution of Analjit Singh
