Finally, the deed is signed. In May 2009, Chanda Kochhar will step into the corner office on the 10th floor of ICICI Towers in Bandra-Kurla Complex, a Mumbai suburb, to take over what is inarguably one of the biggest banking and finance jobs in the country. K V Kamath, its current occupant, will move across the hall to the office now used by his boss and mentor, N Vaghul.
When the decision was made public last Thursday, it almost seemed anti-climactic. The matter-of-fact tone which Kamath and Kochhar deployed to address the media belied the drama and suspense that marked one of the most closely watched CEO succession stories in recent history. For almost two years, Indian media has given it a billing of the kind usually reserved for similar events at marquee global firms like GE—or closer home, Hindustan Unilever (HUL).
The six heavyweights on the ICICI board—Chairman Vaghul, CEO & MD Kamath and independent directors Tinoo Puri (also a McKinsey director), M.K. Sharma (HUL legal eagle and former vice-chairman), Prof Marti Subrahmanyam (Charles E Merrill Professor of Finance and Economics at Stern School of Business, New York University) and P M Sinha (former Pepsico India chairman)- can now sigh with relief. Over the last two years, they had discussed, debated and pored over an impressive list of internal candidates, and a few from the outside. And yet, until the very end, a series of extraordinary events tested the board.
As the succession drama moved into its last lap, the global financial meltdown triggered stories of how susceptible ICICI Bank really is to the crisis. That, in turn, stoked a brief run on deposits at the bank. Worried investors wanted to know why Kamath had to exit at this hour. This was the biggest crisis the bank had seen since 2006 when it had a run-in with banking regulators in Hong Kong over permissions to sell securities.
The concern was understandable. “In a period of uncertainty and change, the impact that an individual leader has on a company can be very significant. So if the board of directors picks a wrong CEO, it could be very bad for the company,” says Professor Michael Useem, director of Center for Leadership and Change Management at the Wharton University of Pennsylvania. “The right successor can make a big difference in giving the company the vision, verve and energy for taking on for the next 5-10 years. So as the board, the person you pick as the incumbent CEO is going to affect the company for the next decade or so,” he adds.
What most investors did not know then was that almost a year earlier, Kamath had made it clear he wasn’t interested in staying on. At 61, he wanted to spend more time with his family and there was no way that he would accept another term. The board had to find a replacement - even if that evoked adverse reactions from investors.
On November 24, when the entire board assembled to arrive at a final decision, the crisis at Citibank was raging. The possibility of the world’s biggest commercial bank going under had spooked the global investor community. It wasn’t the opportune moment to make their decision public. So the board decided to buy some more time, a few weeks at least.
Meanwhile, there was intense speculation in media and banking circles about who would eventually be crowned Kamath’s successor. Sources in the board confirm that there was some talk of external candidates, but they declined to name who the contenders were. Forbes-Network18 learns that the name of Aditya Puri, managing director of arch-rival HDFC Bank, did come up. But whether or not Puri stood a chance could not be independently confirmed. Perhaps, the fact that ICICI has a strong leadership bench from within may have dissuaded the board.
“In large, complex organisations, knowledge of the ethos, internal processes and the people is very important," says Marti Subrahmanyam. "Often, it takes a newcomer a long time to understand them. Hence, in cases where there is large pool of talent available internally, my own bias is towards using internal people. Besides, there is another danger in going outside: no matter how hard you try, you always have less information on external candidates. So there is always an element of risk in a lateral movement, especially at the top.”
But for those in the know, there never was much doubt on who would get the nod, despite the impressive array of candidates. There weren’t too many candidates who could match up to Kochhar. Nachiket Mor, known to be Vaghul’s blue-eyed boy, unexpectedly dropped out of the race in October 2007 and chose to move to ICICI Foundation.
Shikha Sharma, the other formidable contender, had built an awesome reputation as CEO & MD of the life insurance business. But when she was asked to come back to ICICI Bank two years ago, she seemed reluctant. That, sources say, may have been a tactical mistake that cost her the top job. By the time the board drafted her into the shortlist of the final two, Kochhar was firmly in the saddle at the bank and cantered home in the last lap of the race.
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That said, the ICICI Bank experience is important for one reason. For the most part, well-planned CEO successions remain an exception around the world. A veil of secrecy usually shrouds even the handful of cases where the process is worth studying. To that extent, how ICICI went about the process holds lessons for everybody in business. Which raises a question: what did the board at ICICI do that is so different?
One, the board members did not leave the process to the last minute. In fact, according to Subrahmanyam, the board kicked off the process almost three years before Kamath’s term ends in April 2009. Two, they put in place a transparent selection process that every candidate was aware of. Three, they created enough scope for several formal and informal interactions with each of the candidates. Four, apart from their own assessment, they also sought undiluted feedback on candidates from peers and sub-ordinates.
And finally, the board ensured the hard fought race did not degenerate into an unhealthy internal battle and reduce the leadership bench. They mandated Vaghul and Kamath to manage the internal process.
THE STARTING LINE-UP
CEOs at frontline companies typically have different ways to describe their process of handpicking leaders. Kamath has one too. He calls it the bullet train theory. In Kamath’s book, if you want to go from one place to another really quickly, you’d have to buy a ticket and hop on to his bullet train. If you aren’t on the ride, you miss the excitement and thrill of the experience. During his 12 year reign at the top, Kamath used this logic to constantly promote bright young people he had handpicked to change large parts of the old development finance oriented bank into one of the most pushy and dynamic universal banks in the country.
Says K Ramkumar, group HR head: “Just like in business, he had an uncanny knack of making calls with people. He looked for some characteristics in people with relatively low experience - that made them perform at an exceptionally high level. He gave them freedom to show their skills. Often, he gave them extraordinary situations to perform in.”
Entrepreneurship and calculated risk-taking are the cornerstones of the model. The process involves placing bets on a select set of people and giving them bigger roles ahead of others. “It sometimes involved double promotions. But he never played the salary game. He gave them projects that were challenging, something that were not available to young people of their stature elsewhere in the industry,” says Ramkumar.
Initially, there was intense opposition. Kamath was pilloried by the old guard who argued that experience plus age ought to be equal to maturity. They recommended seniority-based promotions in the banking business, where maturity is often related to credibility. “They were really uncomfortable with Kamath's method of thrusting young people into top jobs,” says a senior executive with the bank. But Kamath had the support of his two trusted lieutenants, Lalita Gupte and Kalpana Morparia, to groom the next generation of leaders.
To develop new lines of business, Kamath developed leaders in batches. For instance, Sharma helped create the retail bank from scratch, while Kochhar and Mor helped overhaul the corporate banking divisions. So when the insurance business had to developed, Sharma was an obvious choice because of her distribution skills, which she had honed at the bank. Many of these decisions seemed one-off decisions at that stage, but they were perhaps the early stages of CEO succession.
The model is one of leadership and culture fit and not domain expertise. The key to be acknowledged as talent at ICICI is to be comfortable being the field commander, being in grime and dust with the troops instead of being the consultant who worked out of his computer and the Microsoft suite.
UPSHIFTING GEARS
By 2003, it had become clear that the bank needed to prepare for a transition on the board.
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Senior leaders like Lalita Gupte and Kalpana Morparia were due to retire soon. Besides, the new merged bank board got P M Sinha, M K Sharma and Tinoo Puri as independent directors. Kamath saw it as an opportunity to get some from his new senior team to join the board.
As Nachiket, Kochhar and Sharma moved into board positions, he looked to train the next batch of leaders: V Vaidyanathan, Sanjoy Chatterjee and Madhabi Puri Buch, followed by the next line of leaders: Bhargav Dasgupta, Vishakha Mulye, N.S. Kannan and Vijay Chandok. He persuaded the board to allow these senior general managers into board meetings to understand the process. They would sit on the spectator seats around the large table in the boardroom, where board members conducted their meetings. Sometimes, when their business performance was dissected, they would stand up and offer their perspective.
To the credit of the independent directors, the SGMs were even allowed to anchor presentations and answer specific queries about their businesses when asked.
For the board, this was one of the opportunities to judge the candidates from close quarters. Says Subrahmanyam: “Instead of going through formal presentations on each candidate, one must observe them as they go about their normal business. For a board member to understand what the talents and potential of a candidate are, you need many ways of getting information. For instance, it is better to get that information in the course of regular events, such as in board discussions, or when he or she is making presentations. Over time, you get a good feel for how the candidate handles stress, his or her ability to listen and react, how he or she deals with people, especially peers and subordinates.”
Of course, in April 2006, when the board first began to look at a process for managing Kamath’s succession, it brought in Wayne Brockbank, a professor at the Michigan School of Business. He made a presentation to the board on the best practices followed on CEO succession around the world. But in the end, the board decided on a couple of guiding principles
- It wouldn’t allow an external consultant to help select the successor. Since CEO succession was the board’s responsibility, so the buck had to stop with them.
- Kamath was co-opted into the CEO selection process and would help manage the internal process so that it did not disrupt teamwork among the various candidates.
- The process and criteria had to be transparent and objective.
- They blessed a developmental process of using 360 degree feedback that had been put in place by Kamath, Ramkumar and Brockbank in 2006.
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The objective of the 360 degree feedback was simple. “When you are a leader, you need to be respected by everyone around not just be subservient to the board. I am familiar with situations in other companies where if the board members' ego is stroked, they might feel a candidate is very collegial and easy to get along with, but the candidate's peers and subordinates may not concur,” says Subrahmanyam.
Now, in arriving at the feedback process, the bank’s top team - CEOs of the group companies, directors and the four senior general managers- participated in a retreat at a five star hotel in Mumbai. The no-holds barred session was led by Brockbank and designed to compel introspection. Is the culture of bank suitable as we go forward? Does the bank have the mentality of a challenger and not a leader? Some members felt the bank continued to be individual-driven, rather than process-driven. Others felt the bank’s aggression was brazen and immature and not statesman-like. For instance, one of the many desired characteristics that emerged was “compliance with conscience.” To ensure no one pulled their punches, Kamath chose to stay out of the session.
In the end, the team evolved a new set of cultural coordinates or the bank’s DNA. By then, it was almost clear that the top team had accidentally defined qualities for leadership within ICICI. Says Ramkumar, “Simultaneously, we asked ourselves: why don't we convert this into 360 degree feedback for future leaders? We set up Wayne as the person who would manage the process - to be a mentor counselor.”
It was a rigorous exercise. Between November 2005 and Aug 2006, each person who was being evaluated would have 20-25 peers and subordinates responding to a questionnaire. To ensure feedback was specific and useful for every candidate, Brockbank first personally did in-depth interviews with 8-10 of the respondents to collect data. For instance, some people were told that their subordinates found them too focused on topline, rather than managing the bottomline.
“We told the leaders that for the rest of your life, the media is going to examine you. So learn to get used to occasional unjust brickbats,” says Ramkumar. The unwritten rule: to ensure confidentiality, Brockbank wouldn’t play back the discussion with Kamath, but work closely with the CEO on the positives and negatives of every leader. Wayne acted as the challenger to the internal picture and was the bias buster.
THE END GAME
While the 360 degree feedback exercise was being done internally, the board, at a meeting in Jodhpur in 2007, decided to come up with the characteristics to be adopted in the selection of the successor. Vaghul was asked to evolve an initial shortlist. Like all such matters at the board, the decision would have to be unanimous. The focus would be on consensus building.
In April 2007, the board came up with a long list based on criteria and characteristics. It also asked Ramkumar to evolve a detailed profile for each candidate along with the scores on 360 degree feedback. Apart from the two main contenders, Kochhar and Sharma, it also had Mor, Renuka Ramnath, (CEO of ICICI Ventures) and Sandeep Bakshi, (CEO of ICICI Lombard, the general insurance business). Three other candidates were added: Sanjoy Chatterjee, Madhabi Puri Buch and V Vaidyanathan.
By October 2007, Nachiket’s sudden exit narrowed the field. To ensure that the main bank board had a line of sight on the subsidiary board, it was decided that Marti would sit on the board to get a feel of Sharma and Bakshi’s candidature.
A few months later, Vaghul decided to prune the list further by dropping Chatterjee, Vaidyanathan and Buch from the second shortlist. The logic: they lacked enough relevant boardroom experience. Besides, the board needed folks who had the track record of building organisations, had a very strong personal character and also, sufficient public stature to fit into Kamath’s shoes.
Eventually, the final shortlist was down to Kochhar and Sharma by the middle of 2008. So what did the board go by? No one wants to get into specifics. But apart from being a well-rounded banker, Chanda Kochhar had one more huge advantage: she was seen as an excellent adaptive manager, someone who seemed unfazed by big challenges. In the end, that may have decisively tilted the scales in her favour.
Indrajit Gupta is Editor of the new business magazine to be launched by Network18 in alliance with Forbes. Associate Editor T Surendar and Special Correspondent Neelima Mahajan-Bansal contributed to the story.
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