Workplace culture: Regulation is unavoidable

Like so many others, I was shocked by the demise of Anna Sebastian, a young chartered accountant who worked for a Big Four accounting firm, repotedly because she could not cope with the pressures at work. I wrote up an article and sent it in to the Hindu late September. They carried it a few days ago. I reproduce it below:

We need to address India’s workplace culture

 

If we are to address the worst excesses of India’s corporate culture, some form of regulation seems unavoidable

 

T.T. Ram Mohan

 

In September, the mother of Anna Sebastian, the young chartered accountant who passed away in July allegedly due to work stress, said, “They say we have received freedom in 1947, but our children are still working like slaves.” Her anguished cry goes to the heart of the issue of workplace culture in India’s corporate world.

The inquiry report of the Ministry of Labour, promised within 10 days, is still awaited. The corporate world has chosen to remain largely silent on the tragedy. What corporate leader would dare to point fingers at others when the position at his own firm is not very different?  

Toxic work culture

The issue is not just long hours or having to put in extra effort to meet a deadline. Employees will gladly slog it out if they are shown respect, appreciated, and feel they are treated fairly.   From all accounts, much of corporate India fails on every count. Toxic work culture is pervasive in India’s private sector.

 

Long hours flow directly from a focus on the bottom line that comes at the expense of employees’ well-being. The management employs two people where four are required. It seeks to motivate the two employees by giving them the wages of three, thus saving on one employee. Impressive jargon hasbeen created to justify exploitation of employees and inhuman work hours. Meeting stiff targets against heavy odds is ‘organisational stretch’. There is ‘variable pay’ to promote a ‘performance culture’ that translates into a higher stock price — great for top management that corners most of the stock options. There is a ‘bell curve’ that identifies super-performers as well as under-performers. There are ‘stress management’ workshops to deal with the burn-out that ensues.  Management does not stop to ask itself why it is creating so much stress in the first place.

 

Long hours and employee burnout are typical of the corporate culture of the U.S. but not of Europe. France has a 35-hour work week. In the rest of Europe, the norm is about 40 hours. European firms lack competitiveness, did you say? Well, European standards of living are nothing to scoff at.

 

It is unrealistic to try to import the American culture into a setting that could not be more different. The per capita income in the U.S. is $85,000. In India, it is $2,700. The typical U.S. employee operates at a level of comfort — in terms of housing, commuting, health, diet, and leisure — that is way above that of the Indian employee. In India’s big cities, simply going to office and getting back can be an ordeal. So are getting school admissions for children (and then getting them into coaching classes), looking after an elderly parent, and generally ensuring that the household is ticking along.

 

Long hours are only part of the problem. Bosses often use language that can range from being unprofessional to abusive. During the tenure of Prime Minister Rishi Sunak, his deputy, Dominic Raab, faced charges of ‘bullying’ from officials he had worked with in his previous stints as minister. An enquiry found that he had been “aggressive” and “intimidating” but not “abusive”. Mr. Raab, nevertheless, had to resign. Such was the fate of the U.K. Deputy Prime Minister, no less, for having breached norms of civilised behaviour.

 

One wonders what would happen if these standards were applied to India’s corporate world. In the U.S. and in Europe, employees can sue the firm for a range of objectionable behaviours including those that cause them mental stress. They often win huge settlements. No such recourse is available in India.

 

Employees also feel they are not treated fairly. The performance evaluation system is often suspect and the ruthlessness with which so-called under-performance is dealt with will make one squirm.  Top management will talk of “weeding out dead wood”, an expression that shows  scant regard for the worth of human beings. Variable pay is heavily skewed in favour of a handful of individuals at the top. When those below seethe with resentment at what they perceive as unfair, a toxic culture is inevitable.

 

Many public sector firms have a much better work culture. Employees may not get huge rewards but they have job security. Unions act as a check on the arbitrary ways of top management. Inequality in pay is nowhere as glaring as in the private sector. Officers at the middle and senior levels put in long hours. People have their grievances. But complaints about a toxic work culture are rarer.

 

Time to remedy matters

How do we remedy matters? Corporates can be expected to be respond along predictable lines: there will be affirmations of “core values”, a new “code of conduct” for management, programmes to address the “work-life balance”, more “town hall meetings” with employees. If these could make a difference, we shouldn’t be having a problem in the first instance. The board of directors should be paying attention to the company’s work culture, providing recourse and initiating corrective measures. Alas, boards  tend to be even more disconnected from reality than the management. Moreover, they lack the incentives or the motivation to challenge   management.

 

If we are to address the worst excesses of India’s corporate culture, some form of regulation seems unavoidable. Regulation may get boards to assume responsibility for the work culture, engage with employees at lower levels, and get a sense of what’s going on.  The Nirbhaya episode caused a paradigm shift on the issue of women’s safety. One hopes that Sebastian’s untimely demise will likewise turn out to be a defining moment for India’s workplace culture.

 

 

Starbucks CEO ouster: board too deserves scrutiny

The board of directors has ousted its CEO, Laxman Narasimhan, and installed a replacement. I read this detailed story about what brought about the CEO's fall- and, more interestingly- about how the board of Starbucks engineered his ouster.

Narasimhan was removed in less than two years at the helm. The story dwells at great length- and with evident relish- on the behind-the-scenes action that followed his April announcement of poor sales performance at Starbucks and the 16 per cent drop in the stock price that followed the next day. The Chairman of the board held meetings with  a leading investor and set up a meeting with Brian Niccol, Narasimhan's successor. 

A month after the April results, Satya Nadella,  Microsoft CEO, had left the board saying he was doing so with a heavy heart but while affirming full confidence in Narasimhan. The CEO had little inkling of his impending removal. Then, after everything was sewed up, came the "brutal" call from the Chairman to Narasimhan: he was out.

I must confess I read the story in some amazement. The way it is presented, we are supposed to applaud the cloak-and-dagger methods of the board in getting rid of a non-performing CEO. After going through the story carefully, however, I have a few questions:

• Where was the need for such secrecy? What if the board had conveyed to Narasimhan its discomfort with his performance and indicated to him that they might have to consider replacing him? Would the heavens have fallen? What is great about a board ambushing its CEO?
• The story says this is the third CEO change in three years. The same board had hailed Narasimhan as the "inspiring leader" Starbucks needed when it appointed him. What does this say about the board's judgement in selecting the CEO?
• The new CEO comes in with a package of $100 million, a huge increase over the package of $28 million offered to Narasimhan. What if the change does not work? Who would be accountable for the staggering package ? 
• The Chairman will cede her chair to Niccol, the new CEO, so that he is chair-cum-CEO. In governance terms, this is regressive. Separation of the two roles is considered the better option.

It may well be that Narasimhan had to go. But the board's own functioning needs to be put under the lens.That it's a star-studded board is all the more the reason to wonder about its functioning. 

Jaimie Dimon replacement within five years-hopefully

Jaimie Dimon has said he will find a replacement for himself within five years. It appears he's bound to JP Morgan until 2026 through a compensation scheme, so it looks as though the appointment won't happen within the next two years.

Dimon has been CEO for 20 years and he's currently Chairman and CEO. If somebody can't find a successor in twenty years' time, we have a problem. JP Morgan has done well under Dimon, no question. But that isn't a good enough reason for somebody to continue beyond a certain length of time. We don't know what issues have NOT been addressed during a CEO's tenure. That we get to know only after a CEO has left- and, very often, problems that didn't come to light during the CEO's time surface after he has left. GE's Jack Welch was a legend during his tenure. With the passage of time, his reign looks far less attractive than it was made out to be in his time. 

It's hard to say what's an optimal tenure for a CEO. However, in the highly competititve environment of the US, it's fair to say that ten years is long enough. Dimon has lasted twice as long. That doesn't reflect well on him- and much less on the board. Dimon is 68. So the distance between him and the next set of leaders would be at least half a generation. A whole generation would separate him from the rung below. That's not healthy in an organisation. It is incumbent on the board of directors to plan for orderly succession at appropriate intervals. 

There was a parallel to the Dimon situation in India. HDFC Bank had Aditya Puri as CEO for a quarter of a century. When Puri left at 70, it was reluctantly- the regulator would not entertain the idea of any increase in the age limit for CEOs beyond 70. 

There is a term limit for the US president- two terms of four years and no more. In recent years, several presidents- Clinton, Bush, Obama- left office when they were still in their fifties or so and full of beans. The underlying principle is simple enough: institutions need a change at the top at reasonable intervals. If that is true for the United States, the mightiest empire the world has known, it is certainly true for corporations. 

US campus protests: a post-script

In my last post, I wrote about the muted faculty response to the pro-Gaza student protests in the US. Based on my experience at IIMA, I find this not at all surprising. Over the long years I spent there, I found that, on a number of matters of internal governance, faculty response was inadequate. I could cite numerous instances. Let me mention one.

In 2008, IIMA announced a hike in the two year PGP fee from Rs 4.4 lakh to 11.5 lakh, an increase of 155% at one go. The faculty came to know of the biggest fee hike in IIMA’s history via email on convocation day after the board had approved it. Many faculty were busy with the convocation formalities and had not checked their email, so they got to know about it from the newspapers the next day!

There was a bit of a storm in the papers. The former minister for HRD, Dr Murli Manohar Joshi, denounced the fee hike saying, ''It is a decision of the elite, by the elite and for the elite.”

A few days later, a faculty meeting was held. A senior faculty member rose to say that the convention had been for fee matters to be brought to the faculty for discussion. He wondered why this had not happened. He was right. The procedure was for the director to set up a committee to look into the costing of the PGP programme and recommend a fee. The proposed fee would be brought to the faculty council and, after approval, would be duly endorsed by the board of governors.  

The then director bristled at the suggestion that the faculty body needed to be consulted in the matter. “Faculty autonomy has always been a myth”, he said blandly, adding, “Financial decisions are always taken by the board.” Going by precedents, this was factually incorrect. But even if it was true, were the board and the director not obliged to provide a rationale for a near tripling of the fee at one go? There has to be a better argument for raising fees than “we can get away with it, so we shall”. So far as we could make out, the increase in fee bore no relationship whatsoever to any escalation in costs.

Institutional autonomy does not mean that the director and the board can do whatever they like. The IIMs are public institutions and are expected to conduct themselves with a measure of transparency and a sense of accountability to the people at large. It was incumbent on the board and the direct to explain why exactly they had gone in for a stupendous increase in fee. They failed to do so. 

In the case of the fee hike, both the faculty body and the board failed to ensure conformity with these basic principles. The board of governors was a mute witness to the director's frontal assault on faculty governance. From that point on, governance at IIMA went inexorably downhill, with the consequences that have inevitably followed, including the passage of IIM Act (Amendment) Bill in parliament last year.  IIMA enjoys considerably autonomy now but it is subject to monitoring- by the government, not the board of governors. Given the conspicuous failures of the board over the years, that is most appropriate. 

 

 

 

McKinsey could use some advice- on strategy

 McKinsey has, for some years now, often been making news for quite the wrong reasons. It was in the news when its former partner, Rajat Gupta, went to jail on insider trading charges. It got mixed up with the wrong people in its business in South Africa. It was embroiled in the opiods scandal in the US. There are a few more items on the list.

Currently, it is in the news because it has offered paid leave of several months to those who would like to look for jobs outside the firm. Quite plainly, it wants to shrink. Nothing wrong with that, you would say, except that people expect experts in strategy to plan their growth to avoid hiccups such as largish layoffs. McKinsey's problems, columnist Schumpeter argued in the Economist, arise from having grown far too big to be manageable. It needs to shrink. 

There are other problems, some of which are spelt out in another article.  Strategy, which was the main business for McKinsey, accounts for 10 per cent of its business now. Other businesses, such as digitisation of businesses and ESG, are prone to ups and downs and this renders consultants' businesses cyclical. That means there will be both hiring and firing as in investment banks. A third problem is that, with globalisation in reverse gear, overseas businesses, notably the one in China, may come under stress. Finally, businesses have their own large complements of MBAs now and may not be so much in need of strategy. What they want is people who will implement strategy, produce improvements in operations and profits and help them stay one jump ahead of competition in technology.

McKinsey will have to manage growth hereafter at a pace that helps it preserve its culture and identity. It will have to reinvent itself in ways that help it to remain relevant. In short, it needs to think through its own strategy. 

Management consulting firms hike pay for new MBA hires

 This item should tickle the present batches at the top IIMs.....

 McKinsey, Bain and Boston Consulting Group have unveiled one of the biggest rounds of pay rises for new hires in more than two decades, as inflation, booming demand for advice and a tight labour market force the trio of consultancies to compete harder for talent. The firms, which do not publicly disclose their pay scales, will increase annual base salaries for MBA graduates in the US from $175,000 to between $190,000 and $192,000, according to people familiar with the matter. Top performers will be in line to receive more than $250,000 in their first year when performance-related and signing bonuses are included.

 The hope must be that these firms will want to likewise hike pay for recruits in India.

HBS announces tuition waiver for low income students

Harvard Business School has announced waiver of tuition ($76,000 for each of the two years) to the lowest income students for about 10 per cent of its annual intake or 200 students. Students will still have to incur living costs of approximately $35,000 per year. 

HBS is known to offer limited scholarships based on merit. Th expansion of scholarships to those who satisfy certain socio-economic criteria is a huge leap forward. It will make it easier for talented students who lack the means to access one of the most reputed business schools in the world.

The move should make IIMA and some other leading schools in India sit up and think. IIMA used to offer scholarships to the needy but these have been more or less phased out over the years. IIMA argues that the placement salaries on offer at the school are good enough to help students pay back students loans for the two-year programme. So those who gain admission should simply take loans to pay for the programme.

This argument is flawed. Several of the most disadvantaged students would be deterred by the uncertainty factor: what if they ended up with a  below-average placement salary so that it took them very long to repay a student loan? A typical student from a poor family would have to take care of the burden of several family loans. The prospect of having to take another loan could prove a deterrent to his or her accepting admission or even applying. 

For years, the leading IIMs would declare in their Admissions ad that no student would be denied admission for want of funds, meaning the IIM would take care of funding. They need to go back to that noble affirmation. 

Can boards ever keep executive pay in check?

My answer is a blunt 'No'. Boards cannot get executive pay within reasonable bounds- they will almost always tend to err on the excess. 

The latest case in point is JP Morgan. Shareholders at the bank have voted against the pay package recommended by the board for six top executives at the bank, including CEO Jamie Dimon. The package amount to -umm...- only $ 201.8 mn. Dimon stands to get $50 mn from a one-time award. The shareholder vote on exec pay is non-binding in the US. But it does send out a strong signal. Boards may pretend to notice the signal but it is unlikely to change board behaviour a great deal.

The board has conveyed that it is giving a large one-time award to Dimon because it wants him around for many more years. Dimon is 65 and has been at the helm since 2005, that is, for 17 years. If the board thinks nobody in the world can replace Dimon, then it is confessing to a major failure: it has failed to find a successor. It is also acknowledging that JP Morgan's business is unsustainable- there is only one person who can run it.

How absurd! It is not that Dimon is irreplaceable. It is just that the board finds it expedient not to disturb the status quo. And one good reason for that might be that disturbing the status quo could be that any change would be annoying to the CEO.

Boards just can't get executive pay right any more than they can get succession planning right. There is a common reason for the two failings. Boards are in thrall to CEOs. Board members owe their appointments, in large measure, to the CEO and they owe their continuance in office to the CEO. (Forget the nonsense about the Nominations Committee of the board deciding board memberships. Few boards would induct a board member without a nod from the CEO. It would be rare for a board to turn down names proposed by the CEO himself.). And a board membership at the top firms in the world means something- the money is good and the prestige riding on a board position is not to be sniffed at.

I can only reiterate what I have said several times before: we need to change the way board members are appointed if we want serious board room reform. Board members must be appointed by multiple stakeholders- shareholders, banks, financial institutions, employees. Self-selecting boards are a recipe for dysfunction- and spiralling CEO pay, among other things. 

Narcisstic bosses: how does one deal with them?

An article in FT that uses Robert Maxwell, the newspaper baron (long deceased), as a model of a narcisstic boss has a short answer to the question pose above: find another job. But that, as it suggests, is easier said than done: we all have financial needs, so we can't chuck up a job at will.

Very true. But there is another problem as well. There is a high probability that the organisation you move to would also have its share of narcissistic bosses. And the higher you go, the greater the narcissism.

In a book I wrote in 2015, Rethinc: what's broke at today's corporations and how to fix it, I cited a study that showed that the proportion of psychopaths among CEOs was far above that in the general population. Psychopathic traits include things such as a lack of empathy, a tendency to manipulate others, etc. These are qualities one would also associate with narcissism. 

Success in the corporate world- and, perhaps, most walks of life (perhaps, with the exception of advanced research)- is won on the strength of such qualities. This may not sound very pleasant but the heights of success are not for the faint-hearted. It is through a certain disregard for scruple, ruthlessness and self-admiration that people rise. Narcissism breeds success which fuels more narcissim. At the very top, the individual begins to think he is infallible, so he has no patience for anything other than adulation and flattery. He certainly has no room for dissent.

When people go into meetings and stay silent, heartily endorse whatever the boss is saying or indulge in outright flattery, they recognise that these are the things that will help them survive and prosper. They understand they are dealing with a narcissist, if not a psychopath, and fall in line because the costs of not doing so are painfully high. There may be a few honourable exceptions but what I have described here is pretty much the norm.

What can we do about it? Get together will colleagues and take the matter to the board ? No way. There will not be any takers for the petition. And it's no use going to the board because the board too has its fair share of narcissists who will not be able to relate to things such as fairplay and justice.

In government, your job is protected and you can choose to forswear ambition and do your job in your little corner. Alas, in the private sector, there is little choice other than to grow a thick skin. Psychopathic bosses are the primary reason why organisations are so toxic and one reason those toiling in them nurse all kinds of ailments. 

If that sounds a trifle gloomy, please do let me know if you have better suggestions.

IIMA logo controversy-I : symptom of a deeper malaise

IIMA announced a change in its over sixty-year logo recently. The director had told the faculty that the board had approved two logos, one that retained the original Sanskrit quote and another that did not retain it (and was intended for an international audience).

Faculty protested against the changes that had been made without consulting them. Here is one of the many media stories on the subject. The Institute then came out with an announcement. Here is a part of it:

The proposed logo continues the legacy of the original logo, retains the status line in Sanskrit (VidyaViniyogadVikasa) as in the original, the colour rendition has been improved, the fonts modernized, the 'jaali' inspired brand mark has been made more amenable to communication in digital media, and the brand name made more distinct. The proposed logo is to be released in June of this year after the annual vacation.

But the controversy has not died down. Current and retired faculty and alumni have mounted a campaign against any change in the logo. Some point out that leading universities in the world have retained their logos for centuries.

Like many of my colleagues, I find the new logos distasteful. But that's not the point. The point is that faculty are miffed over the fact that they were not consulted.

Those who know about IIMA would know that it what conceived as a 'faculty-governed' institution, that is, key decisions would be taken by the faculty. Legally, all powers vest with the board. The board delegates powers to the director. Successive directors have chosen to be guided by the faculty, in effect, sharing powers with faculty. This beautiful construct was the work of Vikram Sarabhai, the scientist, and Ravi Matthai, the first full-time director of IIMA. 

The idea that something as important as a change in the Institute logo can happen without any faculty input is revolting to anybody associated with IIMA.

The erosion in faculty governance is not sudden, it has happened over time and over the tenures of several directors. To me, a turning point was the fee increase of over 150 per cent in 2008. Faculty were told about the increase via email on Convocation day after the increase had been approved by the board. Some of us who had not checked our email got to know from the newspapers the next morning! No explanation was given for the stupendous increase in fee.

There is an interesting post-script to that episode. After the fee was announced to the public, it came up for 'approval' at a subsequent faculty meeting. Somebody asked what was there to approved since the board had already taken a decision on the matter and announced it to the world. One of the lackeys of the director chimed in to say that the approval sought was not for the fee itself but the components thereof- how much for the academic programme, how much for the hostel, mess, etc! So much for faculty governance.

Over time, the lack of consultation has extended to various matters. Centres have sprung up without faculty approval or discussion. Important appointments have happened in arbitrary ways. IIMA has, for years, followed the 'Nominations' process for appointments to administrative positions, such as Dean. The director would invite nominations from faculty. The idea was that the leadership would emerge from within instead of being imposed from above.

I have no idea how well it worked in the initial years. What I do know that, in recent years, it has been  nothing but a fraud perpetrated on faculty by successive directors. Faculty put in their nominations and the director sticks to his pre-meditated choices. In some cases, we came to know that the director had sounded out individuals for positions even before nominations were sought.

On one occasion, the director appointed a contemporary of his from IIMA at Visting Faculty for one year. A year later, the concerned area found the individual unsuitable for a permanent position. The Director then gave him a five year appointment as VF and proceeded to elevate him to the post of Dean (alumni), a  post just one rung below the Director. Evidently, none of the permanent and senior faculty qualified for the position.

There are three Deans at IIMA. Prior to the IIM Act, one of the Deans was eligible to officiate as Director when the incumbent stepped down and until a new director was appointed. So we could, in principle, have had someone who did not qualify or a permanent position presiding over the faculty of the Institute in his capacity as Officiating or Acting Director!

There is also a complete absence of norms for other appointments such as membership of the Faculty Development and Evaluation Committee and faculty membership of the Board of Governors. Earlier, many of these positions went by seniority- you had to be a full professor and one of the senior-most faculty would be chosen. All that has fallen by the wayside. Directors have made these appointments according to their whims and fancies.

The current turmoil at IIMA thus has deep roots. The logo issue is a symptom of a deeper malaise, the steady erosion of faculty governance and the shift in decision-making from the faculty to the board (in effect, the director). 

The sad part is that things have become worse after the IIM Act that has conferred greater autonomy on the IIMs. I will post separately on that subject. 

Blame it on B schools!

McKinsey, the iconic consulting firm, has got embroiled in several controversies in recent years. The latest is the opioid scandal in which it advised a pharma company to offer "rebates' to pharmacies based on the number of people who died or became addicted to its opioid. The firm has had to pay nearly $600 million to settle charges brought against it by law enforcement agencies in the US.

Tom Peters, an ex McKinsey consultant and management guru, tells us who is to blame: B-schools. They focus too much on the hard issues-  finance, marketing, quant- and too little on culture and people. Businesses, he says, need to focus on the "moral responsibility of enterprise", not just on maximising shareholder profit, as Milton Friedman had urged businesses to do.

So the fault is that of B- schools or of businesses? Is there a market for the  idea of the "moral responsibility of enterprise"? Can B- schools change businesses by drilling moral responsibility into their wards? 

They certainly can't be faulted for not trying. Most top schools offer at least one course in Ethics. There are plenty of courses on leadership, including those that expatiate on the "lessons" in leadership to be learnt from Mahatma Gandhi, the classics of literature, the Gita and  the rest. I recall asking a student about the course in Ethics at IIMA. She gave me a memorably reply, "We haven't come here to take lessons in moral science".

Now 78, Tom Peters can afford the luxury of selling the 'moral responsibility to enterprise' to the credulous. Not so those trying to make it up the corporate ladder. Try preaching the 'moral responsibility of enterprise' to your boss who is looking to meet his quarterly sales or profit target. You may find you have to switch from being a manager to being a preacher. Ensuring compliance with law and regulation itself is a huge challenge in the world in which live. A manager has to be very brave to attempt anything beyond that. 

Peters talks of the good old days at McKinsey but is honest enough to mention two friends of his from those days, Jeff Skiing of Enron fame and  Rajat Gupta, ex MD of McKinsey, both of whom ended up in jail. Peters also mentions how he nearly lost his job. And it wasn’t for preaching high-minded stuff. Peters’ crime was that he had written a best-selling book that focused on organisational culture and people rather than on strategy, which was McKinsey's staple. This infuriated one of his bosses. 

Peters is right on one point. McKinsey's problem today could be its sheer size: $10 bn in revenue and 30,000 staff worldwide. Having to grow revenues on such a base would be a challenge for its bosses- and cutting corners becomes inevitable. Not much room for the ‘moral responsibility of enterprise’.

'Consensus' is not a good guide to decision-making.

I never forget that I am lodged in  a B-school, so I like to put on my management hat every now and then. (Which is why I wrote a book on the corporate world in 2015, Rethinc: What's broke at today's corporations and how to fix it).

In that spirit, I find myself agreeing with the departing head of Swiss bank UBS, Sergio Ermotti. Ermotti has revived UBS after the setback it faced in rogue trader scandal in 2011. In an interview, he details how he brought about the turnaround. One of the things he mentions is how there was a terrific clamour among analysts, shareholders and journalists that he shut down the investment banking arm and the US wealth management arm. His instinct told him otherwise and he was proved right:

My best decision was not to follow consensus . . . I’m sure I wouldn’t be the CEO today if I had done it,” he says. “With hindsight it’s always easy [to second-guess], but as a leader, your first instinct is usually the right one . . . So if I have to learn anything, it’s to rely on those instincts even more.

This reminds me of  an anecdote that Peter Drucker narrates about Alfred Sloan, the legendary Chairman of General Motors. At one meeting, Sloan asked his colleages whether they should go ahead with a particular decision. Everybody around the table nodded assent. Sloan rose to his feet,"Gentlemen, if there is this kind of agreement with the decision, there must be something wrong with it. I suggest we adjourn and meet again". 

In other words, consensus can be lethal to decision-making. It shows there hasn't been application of mind or expression of opinion. There has to be a modicum of dissent, a weighing of pros and cons for a decision to be sound. Wherever you find a high degree of consensus, be a little wary of it.

World’s top banks grapple with CEO succession

There is much speculation about who will succeed Aditya Puri as CEO of HDFC Bank. the search for a successor has commenced just about eight months before Puri is due to leave. If it’s any consolation, it’s not the only leading bank that’s trying to ensure a smooth succession. Some of the world’s top banks are grappling with the same problem- and the circumstances at those places are far more challenging.

The CEO of UK’s Barclays Bank, Jes Staley, announced last month that he would step down in about a year’s time. Staley had to quit after financial regulators announced a probe into his links with Jeffrey Epstein, the billionaire who died in jail while facing charges of paedophilia.

Two years, Staley had faced a storm when it was disclosed that he had tried to uncover the identity of a whistle blower who had written to the board of Barclays with complaints about him. The board let Staley keep his job but he had to pay a fine of £640,000 levied by the regulators. 

Staley has been CEO for five years. The board has said it will look outside for a CEO. That says something about succession planning at UK’s second largest bank. If nobody inside measures up, the board should have made the assessment long back. It would then have had time to induct an outsider and groom him or her for the top job.

Things are not much better at HSBC. Its CEO, John Flint, had to step down last August on grounds of under-performance after just 18 months into his job. The board has opted to name an interim CEO which meant that it was keeping its options wide open in respect of the appointment. If that wasn’t bad enough, last month the interim CEO chose to announce a restructuring that would involve shedding 35,000 jobs over the next three years.  What CEO want to own a radical restructuring initiated by somebody else? 

At Swiss giant Credit Suisse, the CEO, Tidjane Thiam, the first black chief of a top European bank, was somewhat abruptly shown the door last month following unsavoury revelations. Last September, a detective from a private agency was caught tailing a former senior executive of Credit Suisse. It turned out that agency had been hired by the Chief Operating Officer of Credit Suisse.

The COO was fired and the board sought to distance Thiam from the affair. However, the plot thickened. Credit Suisse, it was revealed, had also spied on its former head of human resources! To its credit, the board has been quick to name an insider and bank veteran as CEO.   But the perception that the bank’s culture is flawed will not go away quickly

At J P Morgan Chase, Jamie Dimon reigns supreme after more than 14 years as CEO. Last January, Dimon declared blithely that he had not set a retirement date for himself. There is no obvious successor in sight. Naturally. Several potential successors have left to take up CEO positions elsewhere. J P Morgan Chase is a star performer. However, performance does not exempt an organisation from the requirement of succession planning.  

Boards must have a set of two or three potential successors at any given point, with the choice narrowing to one over time. Goldman Sachs is a good example. More than a year before Lloyd Blankfein stepped down as CEO, the bank named two co-chief operating officers. A year later, one of them got the job. At GE under the late Jack Welch, three insiders were marked for succession several years before Welch’s retirement. Jeff Immelt got the job. 

A G Lafley, a former CEO of Proctor & Gamble, has written about how he started work on succession planning virtually from day one.  “Many CEOs,” he wrote in an article in the Harvard Business Review, “don’t push their boards to discuss what might happen when they leave because they don’t want to think about it…”  This was said in 2011. It seems not much has changed since. The upheavals caused by the global financial crisis of 2007 have evidently done little to change governance and culture at private banks. 

Clayton Christensen

Clayton Christensen, the Harvard professor who popularised the idea of 'disruptive innovation', passed away recently. Schumpeter pays him a in tribute in the Economist.

Schumpeter explains Christensen's contribution:

In a nutshell, Mr Christensen’s insight was that it is not stupidity that prevents great firms from foreseeing disruption but rather their supreme rationality. They do “the right thing”, focusing on better products for their best and most profitable clients, often to the point of over-engineering (how many Mach and Fusion blades does a chin need?). But that is “the wrong thing” if it blinds them to the threat from poorly capitalised upstarts offering cheaper stuff in markets too obscure to worry about. Such threats can swiftly turn existential if the rivals move upmarket and go for the jugular.

I am not sure that great firms focus merely on "better products for their best and most profitable clients". They are also trying to grab market share by reducing costs and the prices of their products. Take banks, for instance. When they manage to increase the proportion of low cost deposits in their liabilities, banks compete for the best companies and retail borrowers on price.

Secondly, the idea that companies are trying to improve their products without seeing challenges emerging from altogether new ways of satisfying the customer is not all new. Peter Drucker spoke about it long ago and Theodore Levitt elaborated on the same theme in his paper on 'Marketing Myopia'.

It may well be that, in the era of the Internet, Christensen's idea caught the imagination of large companies in a way that Drucker and Levitt had not. So, as Schumpeter points out, big firms have moved to buy up challengers as Google did with YouTube and Facebook with WhatsApp. But the idea that, in a market economy, upstarts are forever dislodging entrenched giants is an old one. As Schumpeter points out, disruptive innovation merely builds on Joseph Schumpeter's idea of 'creative destruction'.

Why we need dissent

There is much talk about 'intolerance'. It is said that we must tolerate dissent. We need to go further. We need to actively welcome dissent. And we must express dissent ourselves.

Many will agree. And yet, go to any meeting- in the corporate world, in government or anywhere else- and what do you see? People sitting through the meeting in silence, often looking for cues from the person in the chair. I have often got the feeling I am in the midst of audio-vocally challenged people.

Writing in FT, economics commentator Tim Harford says dissent is valuable because it often brings information that others overlook or provides a different perspective, which improves the solution to a problem vastly.
Harford gives a telling example:

A few days after Christmas in 1978, United Airlines Flight 173 ran into trouble on its descent into Portland, Oregon. The landing gear should have descended smoothly and an indicator light blinked on to indicate all was secure. Instead, there was a loud bang and no light. While the crew tried to figure out whether the landing gear was in position or not, the plane circled and circled. The engineer mentioned that fuel was running low, but didn’t manage to muster enough forcefulness to convey the urgency to the captain, who was focused on the landing gear. Finally, when the first officer said “we’re going to lose an engine, buddy”, the captain asked, “why?” The plane crashed shortly afterwards. Ten people died. The lesson: sometimes we can’t bring ourselves to speak up, even when lives are at stake.

But the value of dissent is seldom recognised. Leaders and groups want people who mouth the same views and agree on everything.

The challenge for any organisation to not just to tolerate dissenters but to encourage them. How do we do this? Perhaps we should begin at school- by teaching people not to conform. How about not telling children: Put a finger to your lips?

How do you attract and keep millenials?

That's the biggest challenge that firms face today: how do you attract bright, young people and how do you keep them?

Lucy Kellaway has a scathing piece in FT on what you should NOT do and what you might do.

The standard answer, which she got from a Columbia university prof, was: motivate through learning, market your benefit, invest in HR.When she put this to her kids, all beginning to work, it was met with derision.

What puts off new recruits to a firms and makes them want to leave sooner rather than later? One reason certainly is that they don't get the necessary respect or attention:

One graduate told me she had just spent four months working on a deck of 250 PowerPoint slides no one would ever read. Another said juniors at her law firm were expected to nip out to buy sandwiches for seniors, as if they were their fags at Eton. A graduate with a first in English from Oxford university said her boss insisted on checking every email she wrote before it was sent, making her doubt her own ability to write a sentence. Almost everyone complained of the sheer stupidity of the tasks they were given to do. 

Another is the gap between expectations and the reality. Employers promise youngsters the most exciting jobs in the world and then go on to under-deliver by a wide margin. Then, there is the gap between what companies profess and what they practise:

More dangerous still is the gap between the corporate bullshit and the business itself.  A young graduate at a management consultancy tells me that every day it is drummed into him by superiors that the firm always acts in the best interests of the client. But every week he watches the same people trying to flog further costly services that the client doesn’t need. 

Kellaway has a simple answer to the problem of retaining millennials: stop promising big things and just try to make the job a little interesting.

I can assure you that this is not a British thing. A few months ago, a student of mine here at IIMA told me that he was in touch with dozens of his seniors. Not one of them was enjoying his or her job. They were sticking to their jobs because it meant a certain status and money and because there weren't too many meaningful alternatives (unless you wanted to go into academics).

Maybe my sample is biased but, amongst middle and senior executives I have come across in the public sector, I see less complaint, a greater sense of fulfillment. In many cases (such as the Railways), a very deep sense of loyalty. Clearly, all the money the private sector is throwing at people doesn't seem to be creating loyalty or satisfaction.

Fending off a boss who wants you to flout rules

The Economist cites a recent survey that showed that 9% of employees faced pressure from their bosses to compromise on their ethical beliefs; 21% of employees who reported misconduct at work said they faced retaliation from their firms.

How to fend off a boss who wants you to do the crooked thing? One study shows that if you sport a religious symbol at work, bosses are less likely to ask you to do something is illegal or immoral. Maybe there's merit, then, in sporting a cross or having an image of a god at work or even wearing a tilak.

I nearly fell for this. Until I came to the end of the article. There's another study shows that those who make a show of righteousness are not likely to act more righteously:

In a further experiment, Ms Desai gave her participants the opportunity to behave ethically or unethically. Then, in what they believed was an unrelated study, they were given the option of appending a moral quotation to an e-mail to others in their group and/or to one sent just to themselves. Those who chose to signal their righteousness only to the outside world were more likely to have misbehaved in the first part of the experiment. 

There's the risk, therefore, that if you wear your religiosity on your sleeve, the boss will think there's a better chance of getting you to bend rules.

Moral of the story: do not expect academic studies to enlighten you in such matters. Trust your own instincts.

Quote of the day: Leadership and CEO pay

Lars Sorensen of Novo Nordisk, a Norwegian pharmaceutical company, has been ranked the no.1 CEO of the year by HBR. He ranks somewhere at the bottom when it comes to CEO pay.

Here is what he has to say about the subject:

My pay is a reflection of our company's desire to have internal cohesion. When we make decisions, the employees should be part of the journey and should know they're not just filling my pockets. And even though I'm one of the lowest-paid people in your (HBR) whole cohort, I still earn more in a year than a blue-collar worker makes in his lifetime.

Food for thought for greedy CEOs in India and elsewhere.

Reining in megalomaniacal bosses

Power corrupts and absolute power corrupts absolutely. We've all heard Lord Acton's famous dictum. And we have seen it happening all the time, whether in politics or in a corporation. The trillion dollar question is: what do we do about it?

Many, if not most, management gurus think sermonising or indoctrination is the answer. Exhort managers to live up to "values". Train leaders to be  "caring". Tell those at the top that being "selfless' or "service-oriented" is the secret of true leadership. And so on. And how do we do this? Well, by talking about the "lessons in leadership" to be learnt from Gandhi or Mandel. Or the Gita and the Mahabharata.

In other words, the emphasis is on turning people at the top or those headed for the top into evolved souls. The entire leadership industry thrives on this sort of stuff. It's amazing how popular leadership programmes are. I guess that's because they generate a 'feel-good' factor in participants at least for a short while before reality catches up.

It should apparent to the meanest intelligence that this is a load of rubbish. If sermons could have created a better world, we should have had paradise on earth by now. I point out in my recent book, Rethinc: what's broke at today's corporations and how to fix it, that the whole idea that people get corrupted after they get into positions of power is a mistaken one. Would-be leaders have all the hallmarks of corruption before they get into positions of power. Leadership is acquired through the single-minded and ruthless pursuit of self-interest. It's acquired by discarding "values", setting aside compunction or guilt and focusing on the big prize that people get to the top (leaving aside a few exceptions). So, to expect leaders of corporations to be something different, once they assume power, is sheer delusion.

As Schumpeter puts it in a recent column in the Economist, there is a Donald Trump in every leader, meaning that egomania is to be expected at the top. The answer to that is not try to change leaders into something different- that would require some feat of genetic engineering. It is to take it as a given that leaders will have a dark side to their personalities and to create checks and balances that limit the damage they can do.

One common way is to split the post of chairman and CEO (and to make sure it's not the CEO who brings the chairman on board). Another, which I propose in my book, is to have independent directors appointed by different constituents: institutional investors, large lenders, employees, etc. A third is to foster dissent within the organisation by actively rewarding people who speak up. (The CEO may not like this but the board must find ways to do it). I propose the use of prediction markets as a way of letting diverse views influence decisions instead of having the big boss take all of them.

I also think term limits are a great idea. The US, by law, limits presidents to two terms. It doesn't matter how wonderfully a president has performed or how young he is.(Presidents in recent years have faded into retirement even before reaching their sixties). IIMA, by convention, limits the director to one term of five years.

Do not for a moment think that leaders can be changed into wonderfully balanced, compassionate people. Take it as a given that those at the top will tend to abuse their powers. Find ways to limit such abuse.

Goodbye to performance appraisals?

I am not bowled over by the news - rather inaccurately reported in many places- of Deloitte and Accenture doing away with performance appraisals. First, they are not doing away with appraisals, they are doing away with annual appraisals. These, they have concluded, involve too much time and money and do not produce commensurate benefit. An FT article estimates that Deloitte must have wasted £ 200 million every year on these appraisals.

Deloitte will replace its elaborate appraisal with a set of four questions. Accenture will provide appraisal on the go. All of which is fine. But it's important to understand that, while can and must improve the methodology of appraisals, we can't eliminate performance appraisals altogether. We still need to determine who are to be promoted. Where there are performance- linked incentives, we will need measurement of performance. Appraisals won't disappear.

So the real question to ask is: how do we improve appraisals? The first thing is to realise that performance is best measured over a long period, certainly more than one year. This happens in the case of promotions but not in the case of variable pay (except at the very top level). If we accept that there are serious problems with annual appraisals, we should also accept that variable pay linked to annual performance is not a great idea. It rewards a few and demoralises the many, it is prone to error and getting the quantum of reward right in a given situation is also a problem. Doing away with variable pay will substantially reduce the need for annual appraisals.

What about appraisals for promotions? Well, the most important thing, as this article in the New Yorker emphasises, is to eliminate biases to the extent possible. One way to do so is to get make sure that a person is evaluated by many people, not just by one big boss. (You can call this 360-degree feedback or whatever you like). In some businesses, we could even get customers to evaluate certain people.

The second thing is to focus intensely on selection. Once you are reasonably confident you have the right people, you don't have to worry so much about 'managing' performance. Thirdly, upto a certain level, let promotions be time-bound, in other words, go by seniority (as in the bureaucracy). Again, the logic is that if a person has come through an intense selection process, he or she should be able to do well upto a certain level. This fosters cooperation and team spirit which are more important for performance than individual effort, however accomplished an individual may be.

Annual appraisals, especially for the purpose of handing out incentives, are divisive, subject to bias and errors in measurement and a serious obstacle to team work. How many companies, including Deloitte and Accenture, have had these for a years if hard to comprehend.