Promoter Leadership vs. Professional Leadership

Last few years have been predominantly thickly overcast with problems of non-performing assets in the banking system. It’s not that the NPA is a new development or has been a fresh news, NPA’s are synonymous with lending business globally so are they in India as well but the magnitude & size of NPA’s in India after 2010 has been rising at alarming rate.

The objective of my article is not to discuss the NPA problem as such but one of the essential causes why they happen. Lot has been written on this subject but among the various reasons yet hidden there is one important & critical reason, which is not debated & at least has not been cited as one of the key inputs of this NPA menace.

Let me try to elucidate this, let’s look at top 50 companies referred to IBC in the past over 18 months. We know clearly they are all over leveraged & their business models have failed to meet the obligations, hence the reference. Why are these companies over-leveraged & why did their business model collapse. One of the striking reasons is lack of competent leadership team, which the promoters of these companies failed to develop & empower.

I made a salient study of these companies & found this to be a common problem. Only over-leverage can never be a source of potential trouble in a company to warrant its reference to IBC or otherwise a change in management. Collapse of an industry is different from a collapse of few companies in an industry. I am talking of the latter.

Expansion and diversification was purely driven by Promoters at their choice and plan with utter disregard to inputs, suggestion or advice of key management personnel. The so-called growth was essentially driven by debt. Promoters always believed that their plan of growth would yield returns to take care of capital employed, which proved never the case. My counterparts in different companies confided how the promoters of the companies would get involved in all major to minor approvals or at least passed their hands, the time consumed would obviously overlook some of the important tasks needing their attention.

Resistance or dissent by any key management team was seen a challenge to the authority, ownership and exclusivity of Promoters. Therefore there was no meaningful dissent by any key management person.

Dissent is essential in corporate working, it is not disobedience but expression of difference of opinion, dissent encourages free flows of ideas, corrects flaws in decision-making process. Unfortunately it was least accepted & termed as challenge to the power & authority of promoters in helm. It destroys corporate culture, makes executives defensive, kills ideas & thoughts small to major decisions required approval or at least the consent of promoters. It made any talent in management redundant over a period of time & generate virus of inefficiency & compromised performance.

There is life cycle of every company, which incidentally is the life cycle of its promoters. When a company is young its micromanaged by the promoters with the handful of people around, success at this stage leads the company to stage of maturity, the company becomes mature, the strength of manpower at senior level increases but promoters continue to run the companies in the same style & approach with little delegation & empowerment. It’s still fine, but when the size starts becoming bigger & bigger, the mechanics of control & management remains the same, the problems start cropping up slowly. Promoters continued to keep all strategic, operational, as well as decision of execution to themselves.

Study of these companies clearly shows that the promoters:

  • Retained the complete control both on planning & execution.
  • Employed a good band of managers but never explored them for a leadership roles.
  • Failed to empower the top management & made them accountable.
  • Always believed that the macro management at the young age of company still hold relevant when the company matured in size.
  • Always believed, what they know about their business & company, nobody else does.

Steve jobs was thrown out of apple as he failed to translate his vision to then board of the company. He always had the vision & understanding of what he was up to but needed someone to successfully execute it, the person who complimented the vision of Steve jobs was Tim Cook the current CEO of apple. Tim Cook is believed to be key to successful execution of vision & direction Steve jobs made of what apple is today.

Elon musk of Tesla is an incredible visionary & created a amazing brand but his continuous engagement with both vision & execution resulted in some failures of late & is forced out of the company. He needed someone like Tim Cook to execute his vision

We have Mr Sajjan Jindal, Mr Anand Mahindra, Mr Uday kotak  & many others who have displayed great entrepreneurship, vision, and created enterprises of repute with aid & assistance of immensely capable leadership team who not only share their vision but also manage  their companies professionally & successfully. Credit goes to this breed of promoters who identified, encouraged, empowered high quality management team to share and execute their vision. What this class of promoters does is to focus on strategy, planning & day to day supervision with fixed accountability & responsibility on their dependable management team. When a promoter is free from day today hassles, his focus & concentration on strategic thinking widens & is able to keep on eye on the progress of all critical activities. Success of all these Companies is before us.

Relative characteristics of promoters and professionals are different. Entrepreneur/promoters have vision, guts, confidence and are aggressive ready to bet their career and resources. They accept challenges and are not scared of taking big risks. Professionals on the other hand are generally more knowledgeable owing to their academic backgrounds, generally conservative, more structured in approach and take moderate and calculative risks. Thus a blend of entrepreneurship and professional approach is a right recipe to create and grow a company on strong foundation and prone to withstand business risks.

The onus of this approach rests with the promoter/entrepreneur. They can shape the roles and responsibilities, they can identify, groom, delegate and empower the professionals for leadership roles. Where promoters have allocated respective roles and created demarcated functionalities, it has ensured required deliverables as in the case of JSW, Mahindra, Kotak, Tata and Reliance etc. where its grossly diluted and professional exists only for day to day chorus, the promoters and their companies have eventually perished.

Ajay Bhat