Shailesh Dobhal: The promoter and the consumer

Studies show promoter-founders add more value to firms than their professional counterparts

In the last three months or so public discourse has been consumed first by the bitter Tata versus Mistry fight at the country’s largest business conglomerate and then by demonetisation. In fact, the two events were so sudden and seismic that everyone is still at a loss as to when the dust will finally settle for a clear picture to emerge.

In the first hour or so after Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 notes would no longer be legal tender effective midnight November 8, most media reports were calling the drive “note scrapping”, “seized to be legal tender”, anything but the now familiar demonetisation. And yet, the past two months of notebandi have been a time like never before, for better or worse, for almost every one of the 1.2 billion-odd Indians. Perhaps no other event — not our loud and colourful elections, natural calamities that visit us ever so often or the passing away of iconic leaders — has managed to touch and impact the lives of so many people for so long.

And who would have thought that the $102-billion salt-to-software group would sack its chairman of four years, opening a Pandora’s box that threw up issues around corporate governance, role of independent directors, shareholder rights, charity trusts and much else? Though the Tata-Mistry fight is being fought legally at the National Company Law Tribunal with Mr Mistry all but thrown out of directorships of most Tata firms, it will be a Pyrrhic victory whenever it comes, and for whosoever.

But is a completely professionally-run model sans any promoter-founder involvement for a 158-year-old conglomerate necessarily a good thing? Unlike the unequivocal certainty of some observers, and the tone and tenor of most editorial comments, I am a bit ambivalent here. Though there is much that is wrong with promoter-driven businesses in India, and hopefully the Tata-Mistry saga will help clean the Augean stables, study after study has proven that they do add more value in the long run compared to quarter-to-quarter professional driven ones with no clear promoter entity at the rudder. A recent report by management consultant Bain & Company — Barriers and Pathways to Sustainable Growth: Harnessing the Power of the Founder’s Mentality — showed that over a 15-year period, firms where the founder is still involved delivered three times shareholder returns compared to others. The report was based on a five-year research across 8,000 global companies in over 40 countries by Chris Zook and James Allen, co-founders of Bain’s strategy practice. Calling out all founders and promoters to pack up their bags and leave may be a bit like throwing the baby out with the bathwater.

For all the metrics being discussed and analysed ad nauseam to ascertain demonetisation’s success or failure — from the proportion of old currency deposited with banks to how fast new notes were made available across the length and breadth of the country — perhaps the most relevant when it comes to judging its long-term impact is being ignored — speed of consumers’ shift to alternative payment methods and whether this shift is permanent or not. A study by market research firm Nielsen India shows that post-demonetisation, many consumers have not only adopted alternative methods like debit or credit cards, mobile wallets and net banking, but also their habits may change permanently aiding demonetisation’s intended goal of curbing black money.

The government, too, has been on an overdrive, and is throwing new apps, incentives and statistics to prove habits around electronic payments are changing and economic activity is returning to normal. Anecdotal evidence though is mixed, with reports of merchants and consumers back to cash-only ways as the currency availability improves. And then there is this whole issue of inadequate infrastructure around digital payments — from point-of-sale terminals and internet connectivity to security lacunae across the payments ecosystem. Tracking the adoption of alternative payment mechanisms across categories, markets and different demographics will be far more critical in accessing even short- to medium-term impacts of demonetisation than old the notes back with banks which is just another proof of our corrupt and jugaad-based old habits and systems.