"Indian companies need to develop a pool of leaders"
Until some years ago, RAM CHARAN was described as global management's best-kept secret. No longer. As his counsel started receiving heft from beverages #1 Coca-Cola Co. to fast-andupcoming Marico, from the venerable General Electric Co. to start-up Deccan 360, Charan's laser-sharp insights and his ability to cut straight to root of an issue have been sought out the world over.
What are the lessons for leaders of global corporations from the trauma of the last 18-odd months?
The problem was not individual companies; the problem was a collection of behaviours of individual companies that seem to have caused a concentration of risk. And, no one seems to have said that the intent of the system was to diversify risk, not concentrate it. Most people, to this day, do not seem to understand that and how the global financial system works. All big companies, domestic or not, need to build an internal approach to learn how the global financial system is actually working.
What does the CEO in India take away from this?
He has got to go and meet with the people at the Reserve Bank of India (RBI), who are specialists in this system. They understand the complexities of the system, the intricacies and how things could pan out. They (RBI), in turn, do not need to violate any confidentiality but need to educate CEOS of companies in an effort to understand the global financial system.
Is there a broader leadership lesson as well?
Yes, if you don't understand the global financial system, you may be lucky to survive. The core lesson is that your strategy is not only in the context of your industry and in the context of your national economies. It is now in the context of the global financial system; don't lose sight of that.
How difficult is it going to be for the average CEO to understand that?
The intellectual capacity is there; it is a question of spending the time.
And, is there anything they need to do fundamentally differently at the companies they run?
I think the fundamentals have not changed. Every Indian company must figure out how it can be globally competitive. Number two, all Indian companies— and, some are doing it—they need to develop a pool of leaders; no longer does it work that they have one hero running the show. And, they have to recruit globally… You'll be amazed at how many Indian companies don't plan succession.
They will come to terms. They have to. Turning back to the global scene, how much of current mess comes from the mad rush to deliver quarter after quarter? In other words, is it time CEOs turned to Plato and away from Welch?
Well, if you are really (Charan emphasises really) investing for the long term and you deliver on it, you'll never have to worry about the short term. Simply because you'll change and condition the shareholders. You have companies like J&J that have demonstrated that. And, under Welch, don't forget GE delivered for 20 years—both short term and long term. In the American scene, more than 70 per cent of ownership is institutional; you don't really have to give such investors short-term earnings guidance. Not just that, much of the problem today has been of people giving stretched guidance. Contrast that with: "under-promise, over-deliver".
You then don't have to worry about short term or long term. Still, to change the mindset, should management education change from the way it is today?
Leadership is very hard to teach in the classroom; it can only be taught by doing, experiencing real-life situations, through role models. A teacher who does not understand leadership cannot teach it. And when a person graduates from (business) school, a large part of that person's life is people. Dealing with them cannot be taught.
Do business schools recognise this?
They all seem to recognise it but don't see it as a serious problem.
In your view, have independent directors on boards failed to protect the companies they steer?
Look at the banks and financial service firms in the US, and Satyam Computer closer home… I think there are other reasons for independent boards (to exist). The issue of the failure of the financial system is beyond them. Even today, no one really understands the intricacies of the financial system… including the Chairman of the Fed. You can't blame the boards for that (financial meltdown); sure, they could have sensed something but that's about it. Independent boards, at least in the American scene, are different. They have just in the last two years begun to see what they are capable of. They have to lead companies, not just govern them. Their most important task is selecting the CEO. And, they are beginning to do that. They can't run the company; selecting the right guy to do so is the important task. Then, they have to monitor etc., etc.
You've espoused "purpose before self" in your personal life. What kind of structure—regulatory or otherwise— deliver that at companies?
This is about people, right? So, I work on that in a negative way. I can detect when a CEO is very greedy. The key word is "very"; some greed is okay. The person who is very greedy, you can be sure, does not put purpose before self. Such people negotiate for things they should not be—three-layered incentives; cars; the best is getting X, I should get 2x… I tell you, if a parent can detect stuff in a child, detecting it in a CEO is not rocket science. A board should have a feel for that. None of the boards I serve on has that problem. Then (once the very greedy candidates have been eliminated), you ask, "Can this person build value? Is he the best to run the company?" You are writing a book on India and China. Tell us about it. What I'm looking at is in five years, what is the shift we will see in the global landscape. I'm thinking how will strategy change, how will business be done differently. People have argued who will be ahead…
What are your early findings?
I see that Indian growth will be heavily founded on its consumers, compared to China. That's the good news. We're creating a solid foundation. If we have infrastructure, we will be far ahead of them (the Chinese).
In your long years of interactions with US chief executives, what are the leadership insights that you have gleaned?
I will not take names but one insight is that they are very, very disciplined. You'll be beholden to see how disciplined they are. They are no more hard workers than the rest of us but deliver time and again. Over time, they constantly develop themselves. They are very good coaches; they care for developing good leaders. They are out-of-the-ordinary by a mile in getting to the heart of the matter. Leaders should continue to increase their capacity every day. They should ask themselves where do I want my capacity to be in three years. Obsolescence in a knowledge worker is a killer.
From Uttar Pradesh to working with top global corporations, what has the journey been like?
From a shoeshop to the board room of the largest company in the world, it's the Indian philosophy that has driven me… it's the sense of purpose. My purpose of life has been that people should go away and take some lessons into their lives. I could give a Power Point presentation or just take my Execution book and give it away. I see what is relevant for the audience and work them around that.
Of your 16 books, which has been the one you've enjoyed the most?
I never write for my book to be a bestseller. People come up to me and say they found my books very useful. My motto is not to make it as a bestseller, it is to make my books useful for my readers. I think writing was fun for all of them.
Most of your prescriptions are back-to-basic leadership lessons. Aren't there problems that go beyond in complexity and require domain expertise to sort out?
Every business needs domain in understanding and expertise. But, leadership goes much beyond that. There's vision, there are people who need to be inspired, (new) leaders to be spotted and groomed... .
