India Inc's 'Khan Market gang'

Powerful dynastic elites are reluctant to allow any outsider into their cosy club

The "Khan Market gang" is everywhere in the past few days — in newspaper headlines, social media and in everyday conversations of just about every Indian. The so-called liberati is, of course, hardly enjoying all the attention and would rather have a quiet corner where they can drown their sorrows after the stunning election victory of Narendra Modi threatens to make the self-appointed intelligentsia almost jobless. 

The ruling regime sees the gang as a minority of powerful dynastic elites who sought to control all levers of power and avenues of discourse, and were reluctant to allow any outsider into their cosy club.

A variation of this gang is present in India’s family-owned businesses as well. A few members of the group have been running for cover for some time. But there are still many promoters who think they have a divine right to control their companies with little skin in the game. They think only they are the best custodians of long-term value creation in their companies. A few have allowed outside professionals to take over as chief executive officers but micromanage them to death. 

Consider Jet Airways Founder and former Chairman Naresh Goyal. Despite appointing CEOs, Goyal and his wife ran Jet as a mom-and-pop operation where nothing happened without the two of them. Goyal was always involved in key decisions, the CEOs often had little executive power and did not survive long, making a mockery of the process. Jet has had eight CEOs in 11 years.
 

Goyal, for example, once announced to the media at a Paris air show that Jet would order 20 new wide-bodied aircraft and that these would be inducted into the airline’s fleet over the next 18 months to fulfil his aspiration of going global. The problem was that Jet’s board and its CEO got to know about the plan from the next morning’s papers.

There are many Goyal clones across India’s family-run companies who run their companies as a fiefdom. They pack their boards with relatives and are often control freaks. Obviously, most tend to miss the opportunities because they don’t listen to others. Founders in the West sack one CEO and get another. Indian promoters sack one CEO and get into the CEO's role themselves. Most of these promoters are victims of their own beliefs and are often trapped by them. They find it difficult to trust people with something they have nurtured.

There are also cases where difficulties for the outsider CEOs arise in the form of entrenched coteries of long-serving employees, who short-circuit any proposal that can cause a radical change in the existing structure within the group. Research has also found that quite a few promoters love to think and force others to think that they are simply indispensable. For, nothing — just nothing — gives them more pleasure than the thought that the organisation would crash after they leave. After all, there can’t be any better evidence of your brilliance than the falling apart of the company after you’ve left. Some believe in their indispensability so much that they simply refuse to leave — even if that means repeatedly increasing the retirement age of the entire board.

No doubt, quite a few family-owned businesses have faded into oblivion since the early 1990s.  A recent study by McKinsey said only 7 per cent of the family-owned businesses in India have gone beyond the third generation.
 

According to a white paper brought out by global executive search firm Egon Zehnder, timing is an all-important question. The first step is for the entrepreneur to realise that a different leader is required for the future journey. Symptomatically, this is often the stage when an organisation’s progress has visibly slowed down by the lack of formal structures, systems and processes. 

The problem in India Inc is that promoters appoint professionals without a clarity on their role. For example, it is important to have agreement on the areas where the family will drive decision making and the areas where they will support/endorse decisions made by the professional. It is important to have a formal structure and process — something that Anand Mahindra and Harsh Mariwala have put in place. Most leave enough ambiguities in the system so that promoters can move in any time. 

It’s time the Khan Market gang in corporate India, too, woke up and smelled the coffee. If genuflection is the defining feature of your company’s culture, real talent will hit the exit button sooner than you think.