India Inc explores new ownership styles in forward-looking succession planning

Uday Kotak’s early exit as Kotak Mahindra Bank CEO sparks debates: Are professionals poised to lead India Inc?

What should have been a quiet Saturday afternoon unveiled a series of debates and discussions around succession. The case in point is the early resignation of Uday Kotak as MD and CEO of Kotak Mahindra Bank that rocked the corporate world last week.

For someone said to have a hands-on approach in the business, who dons the hat of founder and majority shareholder of the bank and, more importantly, was in office since Kotak’s day one, his stepping down four months ahead of schedule points to a question — is corporate India readying up for a new era — one to be led by professionals and not family heirs?

Three possibilities

Certainly so, says Shailesh Haribhakti a renowned chartered accountant and a board member of various listed companies, who believes that there are three eminent categories of succession planning emerging in India Inc.

The first segment are large conglomerates, who are very clear that the next gen must be involved with the business and their children are already a part of the system. Examples: Adani group, Reliance Industries, Torrent group and to some extent Aditya Birla group. Whether the Ambani Gen Zs, who were recently declared as successorss, or Karan Adani’s deep involvement in the group’s functioning, particularly the ports division, illustrate the road map planned at these conglomerates.

“What we don’t know yet, if these children will be equally hands-on as their parents?” questioned a senior head-hunter of a global talent search company. There is reason why this doubt surfaces. While their fathers and grandfathers were deeply involved in establishing the business and cementing its dominance in the corporate world, the task ahead of millennials is more to do with taking the businesses to the next level. “Unlike building a business, this a nuanced task. The vision is established; it should only be taken ahead and bringing in a third eye perspective for this kind of growth might need seasoned professionals rather than a family member,” said the head-hunter.

Which is why, Haribhakti believes, there is a strong case in favour of the growing second category — the children taking a back seat to allow the companies being run by professionals. “The next generation is highly educated and not interested in the mother business. They prefer to be passive investors. Companies with such next gen could convert to professionally operated businesses,” says Haribhakti. Mahindra & Mahindra, Marico, Dabur and, now recently Kotak Mahindra Bank, fit this category.

But should we also not explore a third category where the next gen takes a break from the business, explores something of his/her interest, make a name in their domain and then decides to re-enter the family business.

Haribhakthi cites the ‘Blue Star Ltd’ example where the non-executive chairman is an outsider who was roped in to build the institution, build scale and substance. In this case, the promoters’ heirs decided to stay away from the business for now, but may always have the window to do so when the timing is right.

On paper, this seems to be a great model because the successors gets an inside view of establishing and handling a business independent of their family’s clout. This experience could be handy when (s)he decides to get back in the ring. But in practice, experts feel, it might create more confusion than give comfort to the people at the helm. “Having one foot here and another foot there doesn’t help. Old-time employees of a company may accept the promoter’s children getting back into the business because they’ve seen it over generations. But younger employees, who aspire for top ranks within the organisation, may find it difficult to accept,” says the CEO of a consumer products company. Once an organisation decides to be run like a shareholder-led institution independent of its promoters, getting the gen next into the picture could be counterproductive. 

Way ahead?

The shift towards institutionalising corporates and promoters taking the role of a shareholder rather than a manager gathered momentum around the 1970s in the US which took about two decades from then to play out. In India, over 50 per cent of the listed stocks are promoter held. Therefore, being a relatively new economy vis-à-vis the Western world, the consensus is that the third generation of successors may remain on the boards of the country’s large conglomerates, but they may not want their companies to known as promoter-held entities. Also, will they want to be the ‘final authority’ in decision making like their parents and grandparents?

“Today’s generation, owing to their ivy league background and societies they grew up in, know how to respect and treat professionals. You will see some of the young kids be the decision makers, but their style of decision making could be a lot more democratic compared to their predecessors,” explains a CEO of an investment firm closely working with large family offices. This is a thumping sign of India Inc’s willingness towards professional management.

“There is a premium for compliance, governance and risk management. The next generation of leadership is future ready and it’s visible everywhere. But the best part is they acknowledge the importance of this premium better than their predecessors,” says Haribhakti.

If Anand Mahindra led the makeover from a promoter-driven business to a professionally-managed business years ago, Uday Kotak seems to have followed his friend. But who’s going to be next to lead India Inc’s wave of change?

Written by Hamsini Karthik for Hindu Business Line. Hamsini is a senior assistant editor who specialises in the BFSI space. A journalist with over 14 years’ experience, she is a Chartered Accountant by qualification, who took to journalism to break the monotony and meaningfully communicate through her writing.