Saturday, May 7, 2011

Infosys Board Rejig: Crowded at the Top?

It is lonely at the top in the corporate world, it is often said. For the founders of Infosys, however, it has been a journey of togetherness ever since the company was founded in 1981. In an era which routinely saw first generation entrepreneurs fall apart, second generation siblings spar and multi generation business families struggle to remain together, it has indeed been remarkable that the core founders of Infosys, led by the iconic N R Narayana Murthy not only stayed together but also transformed Infosys into a USD 6 billion corporation and 100,000 plus people organization in a remarkably short period of time. Whoever has left the founders’s group, be it Ashok Arora at the time of IPO, N S Raghavan for his pursuit of entrepreneurial support initiatives or K Dinesh to make way for new board members, the separations have been for reasons acceptable to all the seven founders.

Despite the several blue chip companies that strode the Indian business scene, Infosys has always been an amazing corporate bell-weather. In many ways, Infosys, founded almost a decade before India’s economic liberalization not only brought India’s software prowess onto the global scene but also symbolized the emergence of a new entrepreneurial and leadership class that won global admiration. The team of Infosys founders led by N R Narayana Murthy consistently shone as a great example of founders’ promise to the corporation and investors getting redeemed beyond expectations. Over time, Narayana Murthy, in particular, came to represent an eclectic fusion of individual intellect, business ethics and corporate governance acquiring in the process the image of an irreplaceable leader. As a result, ever since Murthy announced his decision to retire from Infosys upon attaining the retirement age of 65 years, and preparatory to which event he became the chairman and chief mentor of the company in 1994, speculation has been rife over the future course of Infosys leadership.
A contour of changes; real and apparent

It is not surprising, therefore, that the board level leadership rejig at Infosys announced on April 30, 2011 attracted a tremendous amount of media attention. It is not that leadership changes are new to Infosys. In fact, ever since Murthy became the chairman and chief mentor of Infosys in 1994, the company saw a series of leadership transitions, all of them very orderly and within the founder group. First, it was Nandan Nilankani, who became the CEO and MD in March 2002 following the transition of Narayana Murthy to the executive chairman' role.  Subsequently Murthy became non-executive chairman and chief mentor in August 2006.  It was later the turn of Kris Gopalakrishnan to move into Nandan' shoes in April 2007 as Nandan moved into public service. And now in August 2011, it would be S D Shibbulal's turn to move into Kris' MD and CEO role even as Narayana Murthy moves out to become the Chairman Emeritus, KV Kamath non-executive chairman and Kris, the full time co-chairman. There is as yet no announcement of who will fill in Shibulal's COO role.

The latest leadership level changes at Infosys are remarkable for several reasons. The first and foremost reason is that there is indeed no change; all the core founders continue to be associated in one way or the other, and if at all with certain newly defined roles. The second reason is that for the first time a business icon has been brought into the leadership system from outside the founders’ team. The third is that the changes have sought to directly address the so called ‘founders versus professionals’ debate generated by analysts in the media, and momentarily heightened by the abrupt resignation of T V Mohandas Pai who, as the most successful non-founder leader, became director early but could not wait for the CEO position until the last of the core founders could fulfill that role. The fourth is that the changes could, in fact, be more fundamental in their objectives than apparent at first sight, and could portend a major gear shift in corporate strategy, including major acquisitions or a fundamental transformation in organization, including leadership transitions at all levels.
A balanced media view
Though there have been several hypotheses and analysis in the media and a measure of explanation by the principal leaders themselves, the view taken by The Economic Times seems to be the one which is quite balanced. Commenting on the changes, The Economic Times in its editorial dated May 2, 2011 titled "Changing Slowly: Infosys' new management structure is complex but can still work" stated, "Infosys has now three chairmen, one emeritus, one co-executive and one plain vanilla. This is overkill, at first glance, but still a workable arrangement on closer scrutiny, provided all the three at the top collectively mark out their areas of responsibility and curb wanderlust". The reference is to Narayana Murthy, Kris Gopalakrishnan and K V Kamath, respectively. Commenting on Shibulal's appointment, the editorial said "By appointing SD Shibulal as managing director and chief executive officer, Infosys has continued its tradition of honouring the founders, turn by turn. So far, this has not done the company any harm. This time around, too, it could work, particularly given that the board has also decided to induct three younger leaders by June.
The paper's comments on KV Kamath's appointment appear to seek some prophetic touch. It said "Apart from his other achievements at ICICI,  Kamath's outstanding contribution was effective succession planning. And this could be his lasting contribution at Infosys in the few years he has here before he also retires".  It may be noted that Infosys has extended the retirement age for non-founder directors to 70 years while keeping that of founder-directors unchanged at 65 years.  The paper felt "Narayana Murthy's stamp on Infosys is indelible and given his energy and capacity for statesman-like advocacy, it would be silly for the company not to continue to use him as brand ambassador for as long as possible. Murthy can be trusted to provide the room that his successors need in the company's active management." On Kris, the paper felt that Gopalakrishnan's elevation probably reflected the company's desire to reward an effective leader who saw revenues double over a turbulent four years and take the right strategic calls on stepping up consulting and moving into growth areas like telecom. The paper concluded that while some younger companies showed greater dynamism of late, the shake-up showed that Infosys had the will to evolve and stay at the top of the game.
An internal explanatory perspective
Eager as the media has been, the four key leaders, Murthy, Kamath, Kris and Shibulal have also been open about articulating their points of view on the rejig, individually and collectively. The corporate view is that Murthy is a visionary and a mentor par excellence, who will continue to inspire the corporation for a long, long time; Kamath is a great organization and leadership developer, with strong growth instincts and transformational capabilities; Kris is an innovative thinker with the ability to take the right bets on revenue drivers; and Shibulal is a focused execution person whose mission is to implement the new Infosys vision 3.3. This unique combination of leadership strengths, it is said, would deliver equally unique value to Infosys. All the four leaders are expected to continue the established values of ethical credibility, financial prudence and positive aggression. The corporate view also is that there are still some missing pieces of the leadership puzzle, like bringing a new generation of non-founder leaders to key positions which will be rolled out over the next few months.
From the individual statements of the four key players, however, no key new directions are discernible. Murthy states that having worked hard for 42 years, he would take life a little easier, and even take up a public role if something exciting comes by. Kamath states that he would do just what a non-executive chairman is expected to – good corporate governance, clear strategic articulation and light touch steering of a company that is well on its course. Kris sees himself taking direct interest in client relationships, and people development through Infosys Leadership Institute. Shibulal would like to be a client-centric, execution-focused leader, who would lead by example. No out of the box acquisitions for growth are proposed; only those that could fit in the strategic plan would be evaluated. When the dust settles, therefore, the question would be as to whether the leadership is sub-optimizing itself for continuity or consolidating itself for as yet unknown major transformation?
The Infosys board rejig raises pertinent issues of leadership and corporate development that extend far beyond Infosys. In fact, this blog post is not really on Infosys, nor is it intended to analyze the happenings at Infosys. Further attention on Infosys is perhaps not even necessary as the company is extremely fortunate to have a combination of exceptional leaders at the top. But not every company can do, or needs to do, what Infosys has done. The issues that arise from the Infosys saga that have relevance for several other companies are as follows.

Founders' dilemma

Firstly, the sooner the founders' dilemma is resolved, the better it would be for a founder-driven entrepreneurial company. The resolution need not necessarily be in terms of either founders staying in control or giving up control. As long as the right choice is made keeping merit as the benchmark, either decision would be good. That said, each route has its additional challenges. The route taken by Infosys of founder continuity could lead to sub-optimization when the founders are one too many, and each a capable individual, with the company in addition having a strong professional leadership bench. The question would be whether a company, even of 6 billion dollar scale, would need so many iconic leaders when much larger, multi-industry behemoths like Reliance are ably led by just one great leader.

Clearly, having many great leaders at the board level, many of them founders, is a great asset for any company. If the board, instead of adopting an approach of division of functional responsibilities, adopts an approach of entrusting an entire business vertical to one leader it could transform the company from merely being a scale driven business corporation to a scope driven multi-business conglomerate. In Infosys example, if this approach is taken, one can visualize at least four founders driving four types of IT businesses each (for example, services, products, consulting and BPO) and making Infosys an IT conglomerate. Another method could be for the founders who built a company to a multi-billion dollar level and in the process accumulated multi-million dollar personal wealth to rediscover entrepreneurial roots. If certain smart founders could establish and grow a company to 6 billion dollar scale with an investment of a few thousands of rupees, clearly with a proven track record and the security of personal wealth, each of the founders can be trusted to recreate equivalent or larger corporations.

Integrated leaders

in general, successful leaders tend to be holistic and integrated personalities. While, each leader may have something of an additional core competence, be it in terms of vision, strategy or execution and mentoring, coaching or transforming, a successful leader would be able to work on a set of multiple dimensions. It would be more appropriate for the leader at the apex level to stretch that integrated capability as long as one would wish, rather than divide, albeit consensually, the responsibility matrix with other equally competent leaders. One would believe that the Tata group and Hindustan Unilever are particularly adept at developing integrated leaders who could simultaneously transform and grow their companies.

That said, a deliberate de-emphasis of one's holistic capabilities would have its relevance and appropriateness when the established integrated leader desires to develop potential leaders in waiting. Such a developmental pathway was followed in an exemplary manner as the baton moved from Murthy to Nandan to Kris, and now to Shibulal. The challenge lies in pursuing such a pathway between founders and professionals (as founders seek to retire to grow the professionals) or between professionals and next generation members of founders (as founders seek to bring their family members into leadership positions). The time span to achieve such transition needs to be neither too short nor too long so that the full potential of all the leaders is brought into play at the earliest.

Management of instincts

Leadership of corporations is not only one of skills and competencies but also one of values and ethics. Leadership is also one of managing instincts in a positive and purposive manner. There are again two ways of approaching the management of instincts, given that business is as much of collaboration as of competition. Infosys, for example, has very distinctive methods of integrating ethics and values as part of decision making. For example, the loss of an acquisition candidate to another IT giant in recent times is attributed by the Infosys leadership to certain “un-Infosys’ style negotiation approaches of the target candidate. When the board composition represents a cultural homogeneity, decisions are likely to be careful, conservative and compliant, a real virtue for the tough times as Infosys demonstrated.

That said, homogeneity has its limitations when business environment is competitive yet full of opportunities. Debate and challenge at the apex level is often essential to crystallize new ways of doing business without compromising core values and basic ethics. The current Infosys model of positive aggression in a framework of homogeneity may not be competitive under all circumstances, both internal and external. Any divergence to homogeneity model needs to be well thought out. The turmoil caused by iRace human resources transformation in Infosys has apparently some relevance in this context. A debate on extracting more value vis-a-vis restructuring positions or compensation would have helped in a better management of instincts.

Trauma of benchmarking
The comfort and pride of being a leader often breeds a reluctance to benchmark oneself against competition. This gets ensconced in a false sense of invincibility as the corporation and leadership become darlings of the media, investors and analysts. At least two of the three software bell-weather corporations have taken to such smugness with the leaders extending the lead and the followers shortening the lead. The Infosys act shows that the corporation and leadership had enough sagacity and appropriate timeliness to pull back into an overdrive. The lesson exists for all corporations in leadership positions in an industry to be always alert and keep exploring methods that leverage intrinsic talent to explore new avenues of growth, in the process enabling the corporate leaders self-actualize themselves and build value for the corporation.  
Bench-marking requires not only skills of analysis but also openness of objectivity. Viewing industry boundaries from several angles and in multiple manners is essential to achieve meaningful benchmarking guidance. Ashok Leyland for long prided itself for being in a leadership position in the bus segment and having the second largest position in the truck segment little realizing the strides a more expansive Tata Motors has been taking in a wider range of light, medium and heavy commercial vehicles, multi utility vehicles, sports utility vehicles and passenger cars of all ranges. Again, both Ashok Leyland and Tata Motors missed the point that an entirely new luxury bus segment driven by Volvo was emerging leaving them as marginal players in the new segment. Too narrow an industry focus or single measures of benchmarking lead to needless complacence in leading companies due to a failure to appreciate the changing industry boundaries.  
Lonely amongst a crowd, at the top
Clearly, a corporation is blessed if it is able to groom organically robust leadership talent and also inorganically attract proven external talent. The greater the number of leaders with iconic or near iconic status in a corporation the greater is its potential to grow and reward all the stakeholders. As the Infosys model shows it is entirely possible for a corporation to achieve growth rates better than industry average on the strength of its leadership, and with a good game plan for division of responsibilities as per core or super-core competencies. On the other hand, there also lies a hypothesis, proven elsewhere, that the crowded leadership leverages all of its talent most effectively if it is deployed in a lean manner and utilized on an integrated canvas.
In any corporation, the greater is the leadership potential the greater should be the applicable functional and business canvas. The difference between a great corporation which has a dominant scale and a great conglomerate that has both dominant scale and expansive scope, despite both having the same bench of iconic leadership talent at the top is only one factor; the former knows how to collaboratively deploy its leadership talent even at the risk of sub-optimization to prudently consolidate itself while the later knows how to competitively deploy its leadership talent even at the risk of stretching itself adventurously into new horizons.
Posted by Dr CB Rao on May 7, 2011

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