How not to sack a CEO

The majority shareholder decides who should run his company, right? Wrong! As the spat (reportedly settled yesterday morning) between the majority owners of the Escorts Heart Institute & Research Centre""Fortis Healthcare""and its renowned cardiac surgeon Naresh Trehan has shown, matters need not be so cut and dry. Ask Ratan Tata, who had a mighty fight on his hands before he could get rid of Russi Mody as chief executive of Tata Steel, and Ajit Kerkar at Indian Hotels. Or check the history of the brawl between the then chief executive of Shaw Wallace, S P Acharya, and the liquor company's new owner, the late M R Chhabria.

The similarities between the four cases are obvious. In all of them, the chain of events begins with the arrival of a new majority shareholder on the scene. In the case of Tata, he was the new head of the Tata group, replacing JRD Tata, which in practical terms amounted to being the new shareholder on the scene, like Chhabria and Fortis' Shivinder Mohan Singh.

At one level, it might be argued, the new shareholder is seeking to assert effective control which the entrenched chief executive (who has probably been functioning as the de facto owner) resists""perhaps because he sees a loss of autonomy, but usually stated to be some higher purpose (preserving company traditions, serving patients, and so on). At another level, there are questions of legality raised""as happened with Chhabria (over foreign exchange transactions) and is still the case with Fortis (Escorts was a charitable trust which mutated organisationally before being sold, in ways that are still being questioned in court).

So the only players are no longer the shareholders and the chief executive. There are the courts, there is the press and through it the general public, there are customers (or patients), there are employees, and sometimes there is the government as well. An owner who thinks that majority voting power is all that matters""because that is what company law says""can discover very soon that other stakeholders count too. And it might be argued that in the Escorts spat, Trehan has so far won the battle for hearts and minds in these different fora, while the owners of the hospital bungled badly. It takes a certain lack of intelligence to remove from service overnight a doctor who has worked in a hospital for a quarter century, building it from scratch, to sack his personal assistants, and to bar all of them from entry by using policemen.

The owners present two arguments in defence of their conduct. The first is a conflict of interest that presented itself as Trehan was running Escorts while planning a rival hospital. The associated danger was that, if allowed time, he might walk out with all the key staff at Escorts and thereby cripple the hospital""as (so newspaper reports say) Dr Devi Shetty did in Karnataka. What was attempted by Fortis, therefore, was surgical removal""except that the operation went badly wrong. In his defence, Trehan has said nothing other than that he wants to care for his patients""which is a good emotive tactic to use in such a situation. When the contours of the settlement that has now been reached become public knowledge, it will be seen whether this episode has played out like its predecessors""that is, with the chief executive negotiating an exit package for himself.

There is a third argument put out by Fortis""that institutions are greater than individuals. That is self-evident. In any case, when push comes to shove, it is hard to ignore majority voting power. That is why the CEO eventually loses in all such battles. Still, a little grace when parting ways would do no harm to all concerned.