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| Succession for CMDs | | After the Axis Bank episode, it is a good time to look at other banks and companies where a separation of roles at the top does not exist |
| Business Standard / New Delhi Apr 22, 2009, 00:00 IST |
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PJ Nayak has had a terrific run at the head of Axis (formerly UTI) Bank, and the bank’s results for 2008-09, announced on Monday, were truly impressive. But it is hard to understand Dr Nayak’s refusal over several months to undertake proper succession planning despite repeated prodding, his resistance to attempts over the years to improve the bank’s governance structure by separating the office of chairman from chief executive, and his resigning with immediate effect when he was isolated in the board room on the choice of successor. Instead of bowing out on a high note, as he had every right to do, he has needlessly soured things with a strange stubbornness that sits poorly with all the positive qualities that he has demonstrated while leading the bank for nine long years. Dr Nayak has explained his position in his comments to this newspaper, but he must know that the ending could and should have been scripted differently. And he does not seem any more to be questioning the wisdom of separating the office of chairman from that of the chief executive—which has been the practice for some time at the other two big private sector banks, ICICI and HDFC.
Axis Bank’s board deserves kudos for not wilting in the face of the stonewalling by the chairman and chief executive, for undertaking a proper search for a competent successor, and for sticking to its guns even in the face of a resignation that has left the bank headless—precisely the position that would have been avoided if the chairman’s post were separate from the CEO’s. The bank has strength and depth in its management structure, or its sustained good results would not have been possible, and it should be expected that senior managers will demonstrate institutional maturity by keeping the show going until the new chief executive takes charge.
This is a good time to look at other banks and companies where a separation of roles at the top does not exist. All public sector banks (and most state-owned enterprises in other spheres) combine the roles of chairman and chief executive. Should this position be reviewed? The argument in defence of the status quo would be that the government as the sole or largest shareholder acts as an effective check on the CEO, and that there can be little or no role for a non-executive chairman in this context. Perhaps, but that assumes an interventionist government rather than one that leaves CEOs and boards to function with autonomy. Meanwhile, what about large private enterprises where the posts of chairman and chief executive are combined? Two other professionally-managed companies in which the Specified Undertaking of UTI, or Suuti, holds large stakes are Larsen & Toubro (where A M Naik has had a long run) and ITC (where Yogi Deveshwar has been the CMD for over a decade). Both are well past their normal retirement dates. In both cases, the argument could be that the operating businesses have their own chief executives, that there is as a consequence no concentration of powers or responsibilities, and that the apex board reflects more the group structure that prevails (say) in the Aditya Birla group. Perhaps, but the question is what this means in practical terms. For instance, do L&T and ITC have succession at the top worked out?
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