Giving Leaders a Long Rope Neither Uncommon nor Necessary – Cisco is one Example
The sacking of Tata Sons chairman Cyrus Mistry, an Irish citizen of Indian origin, appears to be a well thought-out decision going by various media reports bringing up some key issues. They include:
- Suboptimal performance in the face of business pressures
- No meaningful blueprint for the future, with some of the group’s businesses mired in deep debt
- Hiring of poor-quality senior leaders
- High-handedness in decisions while keeping the Board in the dark
- Questionable mergers and acquisitions, with the sale of a key part of its steel business in the U.K., in particular, being an issue of concern
- Weak handling of the dispute with DoCoMo
Most of them are issues top companies worldwide face with hardly any counter-actions.
But, whatever the reasons behind Mr Mistry’s ouster, it does look like the Tata Sons Board has got it right with its due diligence measures having included taking the advice of top lawyers in the country.
This can possibly be an eye-opener for corporate giants, both within and outside India, where poor management is seen manifesting itself in multiple ways.
The Cisco Example
At Cisco Systems, for instance, it was transparent through several of its acquisitions that guzzled its fat cash reserves with zero returns, a failure to effectively deal with competitive threats and slow growth. But, far from being taken to task, the leadership continued to call the shots.
Former Chairman and CEO John Chambers was given a long rope though the market was looking for his exit. He did step down but had his way in the choice of his successor.
While the company’s stock price has seen some upward movement this year, it is still languishing at around $30. Weak returns for investors is another sign of poor management.
Losing Ground to Huawei
Recently, we had Cisco CEO Chuck Robbins and market watchers gloat over the company’s revenues crossing the $1-billion mark in India.
But then one of its biggest global competitors, Huawei, saw better revenues from the country even if its portfolio went beyond networking gear. In fact, Huawei expects its India sales to exceed $2.6 billion by the end of next year.
Cisco is not alone when it comes to corporate leaders experiencing more clout, rewards and longer stays at the helm than they deserve. All of them enjoy fat pay cheques even as they devise ways to deny even thin bonuses to staff who make significant contributions to the corporate bottomline.
International Talent Hunt
Going back to the Tata shocker, Mr Mistry being brought down from the pedestal may not have much material impact on him as his family remains the largest shareholder in the group with an 18% stake. Plus, he is bound to have been showered with an impressive exit package.
Mr Ratan Tata will be the interim chairman until a successor is found, expected to happen within four months. Mr Tata had held the reins for more than two decades, a period that saw the group grow rapidly with deep inroads into the U.K. through such acquisitions as Jaguar and expansion of its steel business.
Mr Mistry was made group chairman in 2012 and developments over the next four years show it was not a decision made in the best interests of the company. His appointment was said to have followed an international talent hunt. On hindsight, the selection board will now realize his choice was NOT based on individual merit.
But that is the business reality – the choice of a corporate leader is seldom based on merit and performance!
G Joslin Vethakumar