Business Today

C-suite dynamics

There’s little literature on relationship dynamics between external CEOs and owners in family-owned companies. Now, an Amrop International study reveals that understanding and managing the “No Man’s Land”, the overlapping turfs of CEO and promoter, is key to professionalising this relationship. A report by Tejeesh N.S. Behl.

Tejeesh N.S. Behl        Print Edition: September 7, 2008

Seeking to augment the ammo of his Saregama team, which since the beginning of the year has been engaged in some tough negotiations with Airtel over royalty, Sanjiv Goenka, Vice Chairman of RPG Group, brought in Ashok Goyal, Managing Director of group company Phillips Carbon Black and President and CEO, Carbon Black Division, RPG Group. Goyal, who was as surprised as others, is known for his negotiating skills within the group, and that’s what Goenka wanted to tap. “Had it been a nonfamily owned business, such an opportunity would never have come my way,” says Goyal. He should know; he worked for eight years at the Dutch electronics major Philips where, he recalls, every major decision had to be vetted by the headquarters in The Netherlands.

Sanjiv Goenka and Ashok Goyal
Sanjiv Goenka and Ashok Goyal
In a separate time-space continuum, Puneet Dalmia, Managing Director, Dalmia Cement, was struggling to propel a company mired in a historic past of family legacy onto a higher growth plane.

His challenge: streamline systems and processes in a set-up where the family was used to having its say in everything. “It was then that our two Executive Directors—Bhushan Mehta and T. Venkatesan—suggested that there be a formalisation of authority within the group and company, which I agreed to immediately,” recalls Dalmia.

Two unrelated incidents from corporate India but indicative of the growing consciousness of the ‘no man’s land’—an overlapping area in the power domains of the owner-executive (OE) and the external executive (EE). So far, there has been little research done in India on this tenuous relationship between the owner-manager and the professional, non-family manager. But as the business environment changes and Indian family-owned businesses seek to professionalise by not just separating ownership from management, but also bringing in superior corporate governance practices, how the OE and EE manage the no man’s land will determine how successful their makeover is.

Recently, Amrop International, a global executive search firm, conducted the first-ever qualitative study of this issue by speaking to 70 executives in 29 Indian companies.

Conducted by K. Ramachandran, Professor of Entrepreneurship, Family Business and Strategy, Indian School of Business, and John Ward, Clinical Professor of Family Enterprises, Kellogg School of Management, the study explores a variety of issues ranging from how owners and CEOs view professionalism to the sticky points in their power sharing and managing the no man’s land. Explains Atul Kumar, Partner, Amrop International: “No man’s land is the shared and often overlapping area of responsibility and authority between owner-executives or OEs and external executives or EEs. Often amorphous in nature, it is an interdependence area that typically encompasses decision-making boundaries and processes.”

 Creating OE-EE synergy

Both need to do their bit to create a relationship that works.

Let’s talk: There will be issues, so you need to take them head on and get face-to-face, have a dialogue and sort it out

Different strokes: As EE, you’ll need to be the OE’s confidante at times and an ombudsman for the company at others

Bring the bride home: As OE, managing the induction process smoothly and enabling the EE to settle into his role will define the success of your relationship

The mother-in-law: Reality check for EEs—family does matter. However, their relationship with you depends largely on the OE who needs to set rules of engagement for his family with the EE

Next-gen: Bringing in new family members into the business smoothly needs to be managed by the OE and most EEs are realistic about their chances of inheriting the family silver—only, the issue needs mature handling from the OE

Supporting cast: The board is not merely a filler but can be tapped for the wealth of experience and insights of its constituents to reduce the no man’s land area

While EEs have probably been sensitive to its existence, OEs are perhaps coming to terms with it only now. “Until recently, ownermanaged firms were protected by closed economies, local loyalty and long-established capabilities and networks. No more. Now and into the future, owner-managed firms will have to compete with the highest levels of professionalism,” warns Ward.

Most family-owned businesses in India have already been working on ‘professionalising’ their set-ups. The challenge, says the Amrop International study, is for OEs to recognise that the no man’s land grows when freedom promised to the EE is greater than what is actually delivered. “One needs to recognise that people other than you have probably more competencies than you do—at the end of the day, you have to respect logic and merit,” says Goenka, who adds that while there’s no Lakshman Rekha in terms of domain boundaries, all strategic decisions are taken by the OE at RPG, whereas most operational decisions are left to the EE. Also, as ISB’s Ramachandran points out, “The need to sit down and discuss issues between an OE and EE is even more paramount when it deals with new areas where there is no precedentsetting decision to refer to.”

In fact, as the Amrop study found out, most OE-EE relationships are a mix of the formal and the informal, with the comfort factor developing over a period of time.

Manoj Kohli, CEO and Jt MD, Bharti Airtel reveals that due to a clear delineation of his and Bharti Enterprises Chairman Sunil Bharti Mittal’s responsibilities—in black and white—there is very little overlap. “It’s only when it comes to inorganic growth that I make the recommendations and he takes the final call,” points out Kohli.

 Managing the grey area

How to successfully manage the no man’s land.

Owner-Executives: It’s not just IQ but also EQ that matters in an EE

  • Increase the empowerment dose gradually and not in a single large helping

  • If you’re bleeding top level personnel, take charge personally to address the issue

  • Be specific about your and the EE’s domain and define the boundaries clearly

  • Cut your EE enough slack in decision-making and be prepared for some slip-ups and give credit when due

  • Pick the brains of your board members—they aren’t objet d’art. You’re paying them

External-executives: Do your homework on the OE—his vision, family involvement in company, track record, strategy, public image

  • Be clear about the degree of freedom being given to you and remember, greater empowerment comes with greater trust both of which take time

  • Pusillanimity may help you live another day, but in ignominy. Gold stars to your name demand bold decisions, even if the OE is opposed to it

  • Think like an entrepreneur

  • When overruled by the OE, think from his perspective—life’s a lot easier then

Another key revelation of the study was the level of freedom enjoyed by EEs in family-owned concerns. A majority of them said that OE-driven companies gave greater freedom to EEs vis-à-vis nonfamily-owned concerns—a finding seconded by both Goyal and Kohli, who discount perceptions of a daily monitoring by either Goenka or Mittal, respectively. “Apart from a formal review system on a monthly basis, there’s an informal process where I utilise Sunil as a sounding board,” admits Kohli.

Manoj Kohli, CEO & Jt MD, Bharti Airtel
Manoj Kohli, CEO & Jt MD, Bharti Airtel
Interestingly, though, 65 per cent of the EEs and 67 per cent of the OEs Amrop spoke to admitted that despite the freedom, they still hesitated taking decisions in critical areas.

However, as Goyal observes, in case of a difference of opinion, it will largely be the OE’s opinion which will carry the day, unless the EE can convince him otherwise. “Besides, I belong to the school of thought where, if the boss says jump, you only ask: how high,” he quips. That, however, doesn’t imply a dictatorial attitude on Goenka’s part. “Even if there’s a disagreement, as a professional, you are given the freedom to argue your case,” says Goyal.

Also, he adds, when it comes to performance and reward, as also decision-making, family-owned companies are quicker on the draw and more just than their non-familyowned counterparts, which tend to be caught up in an analysisparalysis mode. “Here, at RPG, while the performance bar may be raised higher by the OE, you can be sure that even if you miss the target by a whisker or two, there won’t be any penalisation—there will be recognition of the effort put in,” points out Goyal.

Sometimes, though, it could be the reverse, where the OE reduces the target set by the EE, something that Kohli says about Mittal. “Stretched targets are fine, but they shouldn’t become stressed targets,” remarks Kohli jocularly, adding further that for a smooth OE-EE relationship one needs to be completely relaxed about the relationship. “At times you need to carry bad news to the top boss, so candour is extremely important,” he observes.

Interestingly, at Dalmia Cement, where, as Dalmia himself admits, the journey of professionalism started only two years ago, there have been a lot of differences between the family and the executives. “I believe superior decision making happens only when there are disagreements, though, what the promoters say has more dominance,” Dalmia candidly says. Just the same, this year, instead of giving a top-down budget, he asked his executives to come up with an “aspirational” budget—something that they would like the company to achieve in terms of its yearly revenues. A bold experiment, especially if you consider that Dalmia admits to lagging behind certain targets during their mid-year review. “Raise the bar by all means, but raise it too high and you might end up de-motivating your team,” says Dalmia, an IIT-IIM product.

Puneet Dalmia, MD, Dalmia Cement
Puneet Dalmia, MD, Dalmia Cement
But the motivation for an EE doesn’t just stem from achieving impossible targets—it also depends on the growth opportunities within the organisation, which could be limited due to the controlling stake of the family. “Both OEs and EEs know that there’s a glass ceiling imposed by the family’s presence as well as the fact that the company’s destiny is closely tied to the quality of the OE,” comments Prasad Medury, Partner, Amrop International. Added to that, says Medury, are the dangers of OEs rewarding loyalty to the promoter family than performance.

“Most families consider the company a personal property and so there is a very strong ego. This can also lead to certain whimsical decisions that may or may not prove to be beneficial,” adds Ramachandran.

Atul Kumar, Partner, Amrop International
Atul Kumar, Partner, Amrop International
Besides, the interference by other family members in the business may not wash down well with EEs, who are bred on a structured chain of command, which is where the OE needs to stamp his authority vis-à-vis other family members.

“An OE-EE team is like a tennis doubles team where each player covers some part of the court—the greater the uncovered area of the court, the faster the game will be lost,” summarises ISB’s Ramachandran. It’s an analogy India Inc. will do well to remember.

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