When succession becomes a major family concern

Shoba Narayan

Jan 30, 2011

“Save for the public sector and multinationals, India is full of family businesses,” says Professor K Ramachandran of the Indian School of Business in Hyderabad.

In India, the Tatas, Godrejs, and Mahindras are large business families whose progeny run the conglomerates. While this looms large in the public consciousness, it does not seem to have impacted their earnings in any significant way.

Wipro is an anomaly, mostly because it operates in the IT environment where professionally run firms are the norm. The software giant’s founder, Azim Premji, has had to periodically defend the entrance and elevation of his son Rishad within the company.

Wipro’s rival Infosys, by contrast, does not allow children of its founders to work at the company. Tata Consultancy Services (TCS), while partly owned by Tata Sons, is a fully professional organisation. Neither its current chief executive, nor the previous holders of that office had a family connection to the Tata name.

A relatively young firm, Cognizant, is now among the top five companies in IT services. Founded in 1994 as the Indian arm of Dun & Bradstreet, it is recognised as a “fully professional IT firm with not even a whiff of a family name to taint it”, as one analyst says. Cognizant, the analyst adds, might overtake Wipro as the third-largest Indian software firm in a few years – after TCS and Infosys.

This is the baggage Mr Premji has to battle. In the past few months, I have come to admire him. He seems like a man who marches to his own drumbeat.

Indian tycoons have been engaging recently in what I call philanthropic social climbing – giving large amounts of money to a university that doesn’t need it, just to get their names on the world stage.

Anand Mahindra, the managing director of Mahindra & Mahindra, last October gave US$10 million (Dh36.7m) to Harvard to establish a humanities centre bearing his name.

Tata gave $50m to Harvard Business School in November to institute a Tata Hall. Mr Premji, who went to Stanford, had not gone down that route until last month, when he gave $2 billion to improve school education in India, the largest single act of philanthropy by an Indian citizen.

Usually circumspect, he is outspoken when he needs to be. In Davos for the World Economic Forum, Mr Premji told the western press that emerging economies are “fed up” with being lectured to by the West about opening up their economies without adequate reciprocity.

Also this week, he condemned the Indian government for being tainted by large corruption scandals, even as he learnt that he was awarded the Padma Vibhushan, India’s second-highest civilian honour. Famously frugal, Mr Premji travels economy class, drives a Toyota Corolla, and does not flaunt his wealth or his faith. In fact, when The Wall Street Journal wrote a front-page profile with the title “How a Muslim billionaire thrives in Hindu India,” friends and colleagues of Mr Premji bristled because, they said, that is not how he sees himself.

Can this secular Indian billionaire with an estimated net worth of $17 billion put a succession plan in place, particularly one that the market will buy?

Questions about succession have always dogged Wipro, and Mr Premji, who is seen as the heart, soul and face of the company. Part of the reason is because Wipro seems unable to retain top management.

Vivek Paul, who played a key role in turning the company into a global billion-dollar business and led its listing in the New York Stock Exchange, quit to join a private equity firm. Other executives such as Subroto Bagchi and Ashok Soota left to start MindTree a decade ago.

Wipro, based in Bangalore, last week shocked the business world by announcing that its two joint chief executives were quitting their jobs to make way for TK Kurien, a relatively unknown but senior manager.

The explanation put out by Wipro was that the joint chief executive model was no longer working, something that was reflected in its lacklustre third-quarter performance.

Wipro posted a 10 per cent growth, which compared poorly with 14.2 per cent by Infosys Technologies, and 30 per cent by Tata Consultancy Services.

“Firing the business heads because the quarterly performance hasn’t been good is unprofessional. It sends a message that this is my company and this is what I want to do,” says Prof Ramachandran.

He adds that globally, family-run businesses tend to perform better because the owners in general take long-term views instead of reacting to the short-term performance numbers, as Wipro just did.

Rishad Premji, 33, is tall and sports fashionably long hair. After a stint at the management consultancy Bain, he joined Wipro in June 2007 and was fast-tracked to become the chief strategy officer last year.

After the two joint chief executives were shown the door, Rishad has also taken over the company’s mergers and acquisitions business.

“Clearly, Rishad is getting groomed for the top slot,” says Prof Ramachandran. “The advantage of that strategy is that you get a bird’s eye view of the business without having top-line or bottom-line responsibility. It is found to be a fast track to get to the top without getting into operations.”

In a television interview from Davos, the elder Mr Premji maintained the shuffle of jobs among top management had nothing to do with promoting his son, stating instead that there was a difference between ownership and management.

“He (Rishad) represents ownership if I am not there,” said Mr Premji. “That is a very august responsibility … he is much too young and has much to experience.

“We have a very systematic process of succession, and it will be foolish on my part to have in succession someone who is not ready for the job – who may never be ready for the job.”

Whether or not Rishad Premji succeeds his father, Wipro has its job cut out for the next several months and years.

The good news is that, unlike the Macau gaming tycoon, Stanley Ho, whose numerous children are involved in a dispute over their inheritance, there is only one Premji son in the business.


Shoba Narayan is a Bangalore-based columnist and author of Monsoon Diary


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