Founders and CEOs: Finding the right balance
Venture capitalists have never had a problem with moving founders out of executive positions and goings-on over the past year and, more recently, last week, show that they are willing to exercise this right even in Indiacolumns Updated: Jan 16, 2017 10:08 IST
They democratised ownership, but we democratised management,” Azim Premji, the chairman of Wipro Ltd, once remarked about the difference between his company, in which he held a significant majority stake, and cross-town rival Infosys Ltd, where the then prevailing belief seemed to be that every one of the eligible co-founders had a divine right to be CEO (in turn).
That was before Premji’s son joined the family-controlled firm and Infosys decided to get an outside CEO.
I’ve often wondered what would have happened had Infosys decided to shop for an outside CEO after Nandan Nilekani decided in 2007 that he no longer wanted to be at the helm. Perhaps the company may have found itself in a better place now.
Sure, there are enough instances of companies getting their succession plans spectacularly right with internal candidates.
Venture capitalists have never had a problem with moving founders out of executive positions and goings-on over the past year and, more recently, last week, show that they are willing (and happy, presumably) to exercise this right even in India.
There’s the well-chronicled instance of Housing.com, although founder Rahul Yadav’s exit came after he famously imploded. Then, there’s Flipkart.
Last year, the board of the company, under pressure from largest investor Tiger Global Management, moved then CEO, co-founder Sachin Bansal to the post of chairman and made co-founder Binny Bansal (no relation, although the two are very close friends), CEO. Soon after, Mukesh Bansal (again, no relation to either), the founder of Myntra who had started looking after the e-commerce platform at Flipkart after his company had been acquired by the latter, left. For some time before these changes, the buzz in e-commerce and investing circles was that Tiger, and its iconic, if reclusive manager, Lee Fixel, thought Mukesh Bansal the best candidate to run the marketplace. And Mukesh Bansal and Binny Bansal, the buzz went, didn’t really like each other. Binny Bansal’s ascent to the top slot meant Tiger and Fixel had picked him over his co-founder and Mukesh Bansal.
Last week, Tiger and Fixel made another change. Binny Bansal was made group CEO and Kalyan Krishnamurthy, a former Tiger employee who was seconded to Flipkart for his second trouble shooting assignment in the marketplace in four years, named CEO. Whatever the optics — Krishnamurthy reports to Binny Bansal who also oversees some of Flipkart’s other businesses, including its logistics unit, and PhonePe, a digital payments start-up — the import of the move is clear: The founders have been moved to largely non-operational roles.
The choice of Krishnamurthy, as opposed to an outside CEO, or someone else from Flipkart with a non-Tiger background, does raise the interesting question as to whose interests he will put first: Tiger’s or Flipkart’s. After all, after his first stint at Flipkart, when Binny Bansal didn’t seem very keen on his continued presence in the company, Krishnamurthy moved back to Tiger, overseeing its India portfolio.
Apart from venture capital investors, activist boards — all boards are expected to be activist, but few, especially in India, are — also change CEOs, but it is the rare promoter or founder that is asked to move out (indeed, I can’t think of any examples of this in the Indian context) in such cases.
There are also times when the founders themselves decide to hire an outside CEO, as Google’s Larry Page and Sergey Brin did when they hired Eric Schmidt. This is a tough call for founders and not everyone may have the maturity (and humility) to take it.
Asking founders to move out isn’t always an easy decision even for venture capital firms. Founders have a level of passion (and energy), and an eye for detail that are difficult, but not impossible, to find in others. In many knowledge businesses, they also tend to be exceptionally intelligent. But there are times when they are bad for business, simply because the lack the operational expertise or the experience (or both) that their companies desperately need at that point in time. It is easy to find people with the requisite expertise and experience. As for the rest, the venture capitalists can only hope that the outside CEO they are hiring acquires (or can be adequately incentivised to acquire) the kind of passion for the business the founders have; that the business has matured to a stage where this passion pervades the culture and has been institutionalised; or that they can convince the founders to stay on in a different, albeit meaningful role.
The last isn’t easy, but it has happened before. The Bansals currently own 14-15% of Flipkart but it is still known as their company. That’s likely to continue even when they do not run it.
R Sukumar is editor, Mint