Brahmins At The Gate : Indian CEOs are the next big thing on global boards

T R E N D S
by
Vinod Mahanta & Vikas Kumar

HSBC’S INDIA CEO Naina Lal Kidwai is usually at her confident best, but on that spring afternoon last year she was understandably nervous. The convention hall at the hotel in Lausanne, Switzerland, had more than 5,000 shareholders of Nestle attending the company’s Annual General Meeting. They were to elect three new board members for the Swiss FMCG major, and Kidwai was one of the candidates. The other two were European h e a v y w e i g h t s Steven George Hoch, founder and senior partner of Highmount Capital, a highly regarded investment banking firm, and the formidable Jean-René Fourtou, chairman of the supervisory board of Vivendi and member of the boards of CapGemini, Sanofi-Aventis and AXA. After a three-minute video clip on each candidate, the electronic voting began and then the nerve-wrecking wait for the results. Finally when the results were flashed, Kidwai had achieved another of the many firsts that dot her career — she was elected with highest number of votes, becoming the first woman head of an Indian company to grace a global board. “People voted for diversity: they voted for diversity of exposure and the diversity of different markets,” says Kidwai.

The same month, one of India’s biggest corporate leaders was going through a similar experience. On April 18, 2006, Tata group chairman Ratan Tata’s name was proposed for directorship on the board of Fiat Spa by the Agnelli family. Later, on 4th May, Tata was formally inducted into the Fiat board. He wasn’t the first Tata to do so — way back in ‘70s, JRD Tata sat on the global board of directors of Chase Manhattan Bank with an Agnelli family member, the then president of Fiat, Dr Giovanni Agnelli. More recently, Ratan Tata joined another global board, that of New York-headquartered Alcoa, the world’s largest aluminium producer. And soon after came news of Infosys chairman NR Narayana Murthy accepting an invitation to join the board of Anglo-Dutch foods major Unilever. HDFC chairman Deepak Parekh graces the board of Singapore telecom company Singtel, while ace lawyer Zia Mody is on the board of a HSBC subsidiary in Hong Kong.

And in what could be an indicator of times ahead, headhunters in Spencer Stuart, a leading global search firm, are on the lookout for three eminent Indian business leaders to fill board positions for global companies — a Fortune 100 financial services firm, a luxury company, and a media group. Sources in the search industry disclose that two European corporate giants are also on a lookout for Indian directors for their global boards. In fact such is the demand for Indian CEOs that HSBC’s Kidwai has had to decline invitations by two American companies for their boards. What explains this clamour for Indian board directors? Trust Narayana Murthy to hit the nail bang on the head: “It signifies two things — India matters, and Indians matter. India matters as a country and as a market, and Indians matter as competent people.” Deepak Parekh elaborates: “India is happening. The MNCs have tremendous interest in India and the Indian market. They are looking at the favourable demographics, increasing disposable incomes, our huge population, the 9% GDP growth, the stability in government, Indian companies going out, among a host of other reasons,” he says. And the Indian market is a hard nut to crack as any MNC will tell you, so any expertise from here is welcome. “As people recognise the challenge to penetrate this market, they are going to get many representatives (from here) on board,” says Paul C Reilly, chairman and CEO, Korn/Ferry International, the world’s largest executive search firm. Results from the Spencer Stuart Board Index 2006 give us yet another insight. It’s part of a much larger trend — 52% of the S&P 500 companies want directors with international experience. BUILDING THE BOARD ACCORDING TO THE survey, a small minority (6%) of directors currently at the top 200 of the S&P 500 companies are from outside the US. Companies now want to change this, with a board that reflects the increasingly global nature of business. The survey also notes that corporate boards have begun to think strategically about the backgrounds and expertise they need in their board rooms in order to keep pace with the changing demands of the marketplace. Companies are thinking in terms of “what is the mix of capabilities we need to bring to the board over the next one to three years that will best support our business success,” the survey states. Thomas J Neff, chairman, Spencer Stuart US, and one of world’s leading headhunters, says, “The crunch in high quality independent and diverse director talent also requires companies to look outside their borders. The experience of companies with Indian board members is positive as they get a different view of the world and access to a very high quality pool of Indian executives and entrepreneurs on their Board.” Industry watchers add that it’s just not mere tokenism — global companies are feeling an inherent need for diversity. “There is a push for diversity at board level, in terms of reach, culture and gender,” says Kidwai. And that’s where Indians fit in perfectly. In fact, Indians rank fifth at 6% of the total international directors on global boards, after the UK (28 %), Canada (21%), and Germany (10%). Indian management skills are also well known, and many Indian leaders have proved their worth in the global arena. And it’s one area where they have an edge over their Chinese counterparts. “You see more Indians than Chinese on global boards because it’s a cultural difference people see. In general, Indians are more open, adaptable, and straightforward while the Chinese culture is hierarchial and quieter,” says Reilly. One reason why global companies are more comfortable is that a few NRIs, mainly academics and senior executives, have blended in well with global boards, and have added value in their assignments. Among the academicians are Kellogg dean Dipak Jain (Hartmax Corp, John Deere, Northern Trust Corp, Peoples Energy), Michigan University’s CK Prahalad (NCR Corp and World Resources Institute), Tuck School’s Vijay Govindarajan (Mainstay Partners and Executive Development Associates) and Emory University’s Jagdish Sheth (Cryocell International and Adayana Inc). Indian executives in MNCs are hopping aboard this bandwagon too. The latest is Rajat Gupta, who joined the Goldman Sachs board in November.

Earlier, Vyomesh Joshi, the high-profile head of the printers business in Hewlett-Packard joined the Yahoo board. Indian CEOs admit it’s a great experience. “Unilever is the second largest FMCG company in the world, it’s Anglo-Dutch, and it operates in 100 countries. There are lot of lessons for us because we operate in 38 countries, we are also a multinational. So there will always be lessons in human resources management, innovation, corporate governance, finance and so on. In every area there are opportunities for me to learn,” says Murthy. HSBC’s Kidwai agrees: “The similarities between Nestle and HSBC are mind boggling. Some of the challenges are similar, so there’s a huge amount of learning that I have been able to apply to HSBC. The experience of seeing vision from the top is tremendous.” Observing strategy and governance in new cultural context can be informing and interesting for Indian CEOs. Even board functioning varies across countries. Says HDFC’s Parekh, “Meetings are much longer in Singapore and can go on for 4-5 hours, and they are much more structured. Topics like succession planning are very big on global boards.” There is another trend emerging, of having Indians on advisory boards to the corporate boards of directors. For example, Narayana Murthy is a member of the Asia-Pacific advisory board of British Telecommunications plc. Similarly, Ratan Tata is member, Asia-Pacific Advisory Committee to the board of directors of the New York Stock Exchange, and the international advisory boards of the Mitsubishi Corporation, the American International Group and JP Morgan Chase. “In this arrangement, the company gets a window into the market, and the leaders don’t have to deal with Sarbanes-Oxley issues, time constraints don’t apply, and yet the work they do is strategic,” says Anjali Bansal, country manager, Spencer Stuart. Experts say it’s going to be a big trend going forward, and with a limited pool of CEOs with relevant exposure and stature, there could be talent crunch here as well. “The pool of Indian directors will be taken up soon,” says Jeffrey M Hauswirth of Spencer Stuart. Right now, Indian CEOs are happy representing their country abroad. “It always feels nice because at the end of the day unless India gets respect, Indians won’t get respect,” says Murthy.