Keep dynasties out of India Inc

Ratan Tata will leave behind many legacies when he retires on December 28, 2012 – from the Rs 1.46-lakh Nano to the Rs 65,000-crore acquisitions of Britain's Corus and Jaguar Land Rover (JLR). But none will resonate across Indian boardrooms as strongly as the group's succession plan. The five-member search committee tasked with nominating Tata's successor will deliver its verdict soon. Whoever is chosen, the process has set the standard.

Family-run businesses in India have rudimentary succession plans. Most follow a set formula: the heir receives an MBA from a good American university, joins the family business in mid-management, rises rapidly up the ranks and eventually takes the top job.

There are exceptions. Infosys Technologies, for example, is not run like a family business. Not one of its original seven founders has encouraged his children to join the company. N R Narayana Murthy, 64, currently chairman and chief mentor, will step down from the company's board on August 20 when he turns 65. His son Rohan has declared publicly that he has no intention of joining Infosys, though his family owns stock in the company worth nearly $2 billion (Rs 8,800 crore).

The Tata group and Infosys are a study in contrast. The former is 143 years old, the latter just 30. The Tata group is a federal behemoth comprising 114 disparate companies engaged in businesses ranging from salt to software. Infosys is a monolith, focusing single-mindedly on software. And yet their culture is similar: ethical, transparent, progressive. It's hardly a surprise, therefore, that succession planning at India's oldest family firm and India's second largest software company stresses the same principle: merit over blood.

Are Indian business houses thus heading in the direction of American and European companies, where leading public corporations are no longer run by their founding families? The 11-member board of Procter and Gamble, for example, has no descendant from the founding families of William Procter and James Gamble. General Motors, IBM and the Bank of America have been run by professionals for so long that few even remember their founders (William Durant, Thomas Watson and Amadeo Giannini respectively).

Newer founder-driven companies like Apple and Microsoft are also increasingly run by professional managers. There is no Steve Jobs heir who will take over Apple when the founder, suffering from serious illness, steps aside. Instead, Timothy Cook, who joined Apple in 1998, will take charge as chairman. The succession plan at Apple has been put in place professionally and transparently, much like Infosys. Apple is today the world's most valuable technology company. It has a market capitalization of $364 billion (Rs 16 lakh crore) – roughly a quarter of India's GDP and nearly four times the market value of the Tata group's 27 listed companies.

At Apple's longtime technology rival Microsoft, co-founder Bill Gates gave up all executive responsibility in 2008 when he turned 52. His three children, Jennifer, Rory and Phoebe, may inherit whatever Microsoft stock Gates does not gift to charity in his lifetime but they will almost certainly never run Microsoft. It is hard to think of many Fortune 500 companies whose chairman today is from the founding family. In India, it is difficult to think of many large companies whose chairman is not from the founding family.

Separation of ownership from management is the key. As business becomes increasingly global in scale and complex in execution, Indian business leaders are recognizing that their own financial interest will be better served if they separate the two. Virtually every big Indian corporation now has a strong top-tier of professional managers just beneath the chairman. Very few founding families, however, have made the leap of faith to step aside completely. That is why the example set by Narayana Murthy and Ratan Tata, two men of contrasting personalities but similar moral stature, is so important.


Tata's succession model is copybook but he owns barely 1% of group company stock so the plan may cut little ice with traditional Indian business families. Narayana Murthy's succession philosophy is equally unconventional: once the seventh co-founder (CEO-designate S D Shibulal) completes his term, a professional with no link to the initial founders will take charge. Within five years, Infosys will be indistinguishable from an IBM or a General Electric as a global enterprise. So could the Tatas. A new group chairperson-designate will be announced by the search team later this year. He or she may or may not be a Tata. The group's largest shareholder, Pallonji Mistry (by virtue of his 18% share in Tata Sons, the group's holding company), is likely to back the principle of separating ownership from management. If the Tata-Murthy model of succession percolates through the bloodstream of corporate India, it will be a victory for a dynamic and progressive new India.


Business is not divorced from politics or society. Indian politics remains regressively dynastic. Indian society is meanwhile changing, albeit slowly. Indian business, on the cusp of economic reforms, must embrace corporate democracy. A fair and transparent succession model is a crucial element of good corporate governance. The market is a ruthless arbiter: it will reward companies that rise above family.

Our Right To Reform

A strong Lokpal is part of a larger architecture of political reforms needed to improve governance.

Anna Hazare's most telling comment on the second day of his fast when the government was still dismissing his movement as undemocratic and the Jan Lokpal Bill as utopian was lost in the general tumult. Hazare told the government: We are the maliks, you are the sevaks.

Minister, of course, is Latin for servant. Rahul Gandhi may not share his views with us on most issues but he understands the popular mood. Sensing that the nation was increasingly outraged over corruption and nepotism, Rahul told an election rally: I am your naukar; you are my malik. It could have been Anna Hazare speaking.

UPA chairperson Sonia Gandhi herself established the validity of civil society engaging with the government on equal terms by instituting and heading the National Advisory Council (NAC), packed with just the sort of citizen-activists who wrote the draft of the Jan Lokpal Bill. As the 10-member panel, headed by finance minister Pranab Mukherjee and former law minister Shanti Bhushan, met for the first time on April 16 to begin redrafting the Lokpal Bill by the June 30 deadline, four improvements could make it a strong and practical legislation.

First, power. Some cynics fear that a tough, independent Lokpal body will be a law unto itself a super-cop or extra-constitutional prime ministers office. This fear can be allayed by building into the Lokpal Bill a clause for appellate judicial review by the Supreme Court of contested decisions. Removal again by the Supreme Court of any Lokpal member, including the Lokpal himself, on specific charges of wrongdoing, is already part of the draft Jan Lokpal Bill.

Second, size. The proposed Lokpal has 11 members. That would make it unwieldy. It is wise to restrict the number of members to seven, including the chairperson.The draft Bill already includes a provision for a large administrative Lokpal office and staff.

Third, selection. The Jan Lokpal draft Bill suggests advertisements to invite recommendations from the public of candidates of unimpeachable integrity, followed by public feedback, vetting, videotaped interviews and so on. The process of selection must be as transparent and broad-based as possible, but it cannot resemble a tender.The process must be comprehensive but concise.

Fourth, deemed police status. The draft Bill gives the Lokpal the power to issue search warrants. A better way forward would be to depute officers of the anticorruption investigation department of the CBI to work under the Lokpals direct control.

But a strong Lokpal is only part of the larger architecture of political reforms to improve governance. Concurrently, we need to make the CBI autonomous of the executive. The Supreme Court ordered wideranging police reforms through a 2006 directive, which governments at the Centre and in the states have cynically not yet implemented.

The Judicial Standards and Accountability Bill will also come up for enactment into legislation in the monsoon session of Parliament. For citizens, once the Bill is passed, justice will be swifter and fairer. Electoral reforms would then be the next milestone. Nearly 25% of MP's in the 15 Lok Sabha have criminal charges against them. Over half of these are serious charges: murder, kidnap and rape. A candidate facing criminal prosecution in a trial court should be barred from standing for election. In order to protect candidates facing politically motivated charges, prosecutions pending for over one year without a hearing or adjournment would not count as a valid ground to debar candidates. This will filter out a majority of rogue candidates but also provide protection against frivolous political charges.

We need to clean up our Parliament, our assemblies and other elected chambers.The modified Jan Lokpal Bill is one instrument to do that. An autonomous CBI is another. A strong, transparent judiciary is a third. A vigilant media and engaged civil society is a fourth. The country has fought long and hard for the Right to Information (RTI) Act, the Right to Education (RTE) Act and now the Right to Food (RTF) Act, currently under review. There is one more legislation a mature democracy of, by and for the people rather than of, by and for the privileged needs to enact: the Right to Recall.

In several states in the United States (notably California, since 1903, and most recently Minnesota, since 1996), the right to recall an elected politician before his term ends is a fundamental democratic right. If a petition against an elected lawmaker crosses a specified threshold number of signatures from citizens in his constituency on legally verifiable charges of malfeasance, to prevent misuse of the statute a poll becomes mandatory. If the elected representative secures less than a specified percentage (usually 50%) of votes in the ensuing poll, he is removed from office before the end of his term and a fresh election to the constituency called. In 2003,California governor Gray Davis was recalled over mismanagement of the states budget; 55.4% of the electorate voted to recall him.

The Right to Recall is a critical electoral reform that will complete a quartet of empowering legislations along with the RTI, RTE and RTF to strengthen Indian democracy.The Lokpal is the beginning of real change.