Boardroom turmoil is often a result of miscommunication and ineffective relationship with the founders, rather than just concerns around corporate governance, said Jean-Francois Manzoni, president of Switzerland-based management school IMD. , the professor discusses the recent leadership crisis at Tata Group and Infosys. Edited excerpts:
What do you think about the conflict at Tata Group?
One of the impressions I have is that it was not a corporate governance issue, but a managerial succession issue. You have Ratan Tata, an international icon, who has been on the job for more than 20 years. Part of his legacy has also been these mega acquisitions, which also had a powerful symbolic dimension. Now you have Cyrus Mistry who does not totally have a clean path because the icon remains at Tata Trusts and he is also chairman emeritus of Tata Sons. Mistry got to know that taking a hard look at the acquisitions is going to be extremely painful to Ratan Tata. You have to make sure that your decisions are not seen as an implicit criticism to Ratan Tata. There may have been insufficient amount of upward management at Tata Group. More interaction would have helped Ratan Tata feel more comfortable with what was being done. I haven’t seen a lot of argument that Mistry was taken out because of gross underperformance. It is really an issue of disagreement with strategic direction. In a way, Mistry was the CEO and Ratan Tata the chairman. I am not sure this is how Mistry and his team thought of themselves.
How did Mistry misunderstand his mandate?
Mistry hears that it is his time as the new generation takes over. I am pretty sure Ratan Tata did not say, “I am going to give you this job, but if you twitch a muscle I am going to come down on you like a tonne of bricks. Welcome!“ Mistry misunderstood because Ratan Tata said, “You are in charge.“ But what he actually meant was, “You are in charge, but understand that I am still alive and powerful and I still have to show up in dinners in town. So if you undo what I have done, I am not going to like it.“
There has been crisis at Infosys, which is also a professionally run company. Is it okay for founders to involve themselves with decisions at the company?
If they are still shareholders of the company, they have the right to show up at shareholder meetings and voice criticism. But is this good practice? Of course not. When this happens, it also signals a certain level of desperation. If the founders think that the only way they can be heard is by going and speaking to the public, then maybe they haven’t been listened to enough. Sometimes it is less of a corporate governance aspect than a relationship aspect.
How do you assess a CEO?
As a general rule, you have to agree on the mandate and the framing of the mandate. Very often the board does not spend time on telling the CEO what they can and cannot do. They don’t do it because it is a difficult conversation.Ideally, the board and CEO should agree on key performance indicators. But this is a rational side of things. Every day you have CEOs who are sacked for performance which is fine on paper.Board says company would do better with someone else. That is confirmatory bias even if the CEO shows decent performance.