Transition at Lever

M S Banga got one of the most prestigious jobs in India's corporate sector at the wrong time. Hindustan Lever had become too diversified and enjoyed unsustainable profit margins when he became chairman some five years ago.

Now, as he steps down as chairman, the cold statistics tell an abysmal story of drooping revenues and falling profits, not to mention sharply lower prices for the company's once fancied stock.

But the numbers don't tell the full story, as a series of inspired news reports have suggested, because Mr Banga's advocates would claim that he has had to wash out bogus export sales built up to show rapid turnover growth during his predecessor's tenure and then slash prices as competitors saw market opportunity in undercutting Lever.

Mr Banga also implemented Unilever's global strategy of focusing on a few "power brands". Shedding "non-power" brands meant loss of revenue, while slashing prices to match competitors lowered profits. Mr Banga's storyline is that the difficult work has been done and the company is now in great shape, so the coming years should see the pay-off.

Indeed, there is regret expressed that he will not be around to share the coming glory, though he has moved up to a key function at Unilever headquarters.

The flaw in all this is the personalisation of a large company. To be sure, chief executives make a difference because they set direction, determine strategy and ensure effective implementation. But Hindustan Lever is nothing if not a workshop for competent managers, each keen to prove his or her mettle.

Chief executives lead by responding to the challenge of the day. So, with Hindustan Lever, there was a time for acquisitions and "inorganic growth" just as there has been a time for brand focus; there was a time for focusing on margins and a time to realise that the margin building process had gone too far.

One chief executive may have responded to the challenges pretty much like another, especially when the power brand strategy has come from corporate headquarters in London and the price cuts were forced by competition. The danger with personalisation is that one chairman, to show turnover growth on his watch, encourages even sales that have no margin, and his successor then defends his own record by putting down those who went before.

Mr Banga's story about his leadership of the company is credible enough, but would have been more so if the transition to a sustainable business model had been a year or two shorter, and if the company had begun to show more growth and profits. The issue is not Mr Banga, but Lever's ability to deliver. At the price-earnings multiple that the company share commands, investors still have hope.