05 Sep 2017 19:00 IST

How important are corporate leaders?

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When something ain’t broke, don’t fix it!

After the tumultuous exit of Vishal Sikka as Infosys CEO, it seemed like the IT behemoth and bellwether froze like a deer caught in the headlights on a highway. What would happen to the company now? How would India’s export machine fare?

Dramatic as these questions are, the truth is that the future of a company valued at nearly $35 billion with annual revenues of $10 billion was never really in doubt. Infosys was not doing terribly before Sikka took over, although he was billed as the saviour to bring in new blood at a time when the IT industry was facing serious headwinds. And, now, the company will likely do just fine after his hurried resignation, though it was too quick to bring back Nandan Nilekani (more on this later).

Fear of the unknown

Nearly 54 years ago, the life of US President John F Kennedy came to an abrupt end when he was shot dead in Dallas. Kennedy, a young, charismatic and ambitious leader, had captivated the world’s heart as someone who would usher in change after generations of presidents fought the world’s wars. The question on everyone’s mind then was: What would happen to the country and the world when a leader is taken away so suddenly? Would the US withdraw its presence from the global stage?

None of those fears came true. The US did just fine after JFK, and even survived the disastrous expansions of government under Lyndon Johnson’s war on poverty and needless incursions into Vietnam; as also Richard Nixon’s years of chaotic rule, cut short by the Watergate scandal.

When loss becomes gain

The theory that the CEO is the all-important person without whom a company would fail disastrously is more mythical than realistic. This is largely propagated by the 24-hour news industry — especially the business channels — which is dying for the next story. Business news is fairly dry on a regular basis because, at least in the capital markets, the sport is a zero-sum game: one person’s loss is another person’s fortune. Any deviation from the norm, therefore, is news.

News is made bigger by repetition. The cascading effects of news going viral on social media adds fuel to the fire. At some point, the news of a story (rather than the underlying story) becomes more important. All of a sudden, every little move (or lack of a move) is scrutinised. Analysts, who weigh in with their siloed opinions, are brought in and this triggers even more coverage. The pitch becomes so feverish that the company feels compelled to act to find a quick solution. For Infosys, just how long did this frenzy play out? Six painful days.

Making the right choice

Now that Nilekani has agreed to take over Infosys, the storm has waned. But in a world of six billion people, was Nilekani the only choice? The executive has been away from the company for eight long years, when revenues were a healthy $4.5 billion. Infosys revenues doubled during this time and even the business model changed somewhat, proving that Nilekani was not necessarily crucial to the company’s success as a whole. But that is not what the press sees.

On August 29, a PTI news report said it all. Under the headline, ‘Infosys spurts nearly 5 per cent on Nilekani’s appointment’, the reporter brought in the villain-hero drama into the story. “Infosys faced a leadership crisis after first non-founder chief executive Vishal Sikka abruptly quit on August 18... Infosys shares rose nearly 5 per cent as the company named former CEO Nandan Nilekani as its new Chairman.” The simplistic cause and effect relationship in this report is remarkable for its naivete. But it works.

The media, therefore, has become a crucial stakeholder — even more important than customers, employees and investors — because of its reach and ability to control the narrative. While Nilekani is known to be a charismatic leader who will likely be a net plus for Infosys, his main value addition is that Infosys is no longer being talked about “negatively”. Even if Nilekani does nothing strategically different at Infosys, his brand equity and presence at the top will keep the number of negative news stories low, at least until the next quarter. And this alone will be more valuable than anything else. Sometimes, perception is a whole lot more important than the reality.

The problems of leadership change are prominent in other big organisations as well, especially when exits are unplanned. At Uber, Travis Kalanick, the co-founder and visionary behind the company, was ousted more than two months ago. The CEO search for the company that is yet to make a full profit and is loved by customers but hated by governments, was extensively covered in the press, culminating in former Expedia CEO Dara Khosrowshahi taking over as Uber’s chief.

Next-gen leaders

One way organisations can avoid this pain is to have a proper succession plan in place. General Electric, IBM and American Express are excellent examples of companies which groom their next generation leaders even when the current one is in place. At companies like GE, the successor is a de-facto co-leader, sitting in on all key meetings with the CEO, contributing ideas to key policy decisions and even shadowing the leader for months so that the change is as seamless as it could be. Good succession plans are not just for the top spot — they extend to all the CXOs, and even a level down.

The Infosys story brings to fore another issue common among companies where the founders are not willing to let go. When Tata Sons brought in an outsider for the first time, it was celebrated as a welcome change in the mammoth group’s legacy of only promoting a family member to the top job. But in just a few years’ time, Cyrus Mistry left, the exit becoming messy. Luckily, the company resisted bringing a founder’s relative back to the top.

At Ford Motor Company, William Clay Ford, the great-grandson of Henry Ford, is still at the company’s helm. This kind of practice is common because the founders hold a large number of company stock and may even have preferential voting privileges. A consequence of this is that these companies never really “grow up” and are always under the control of the founders or their families.

It takes a lot of discipline to step away from what you have created. Paul Allen and Bill Gates are outstanding examples of people who have let go, allowing their company to thrive through the likes of Steve Ballmer and, now, Satya Nadella.

Dealing with consequences

But Steve Jobs just couldn’t and was deeply involved with Apple until the day he died. Jerry Yang, the co-founder of Yahoo was the leader for 18 long years before leaving in 2012. For a brilliant entrepreneur, Yang was too emotionally involved with the business that he created. He will always be remembered for the biggest corporate blunder to ever be made by a founder — refusing to respond to Microsoft’s $44-billion offer to acquire Yahoo in 2008. Had he agreed, it could have become a colossus of a deal and a windfall for his shareholders. Less than nine years later, Verizon completed Yahoo’s acquisition under a different leader for just $4.5 billion, a tenth of the price.

In general, the value of corporate leaders is overrated. Companies are, in a sense, like trees. They need a lot of care, nourishment and love when they are saplings. But as they mature, they can, for the most part, live on their own and a leader is more of a figurehead than anything else. Even the most dynamic leaders don’t succeed in changing large organisations quickly. And there’s always the risk that rapid change may be bad to begin with. The classic American expression, proven over decades of experience, comes to mind: “If it ain’t broke, don’t fix it.”

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