Last Monday, P.J. Nayak, chairman and chief executive officer (CEO) of Axis Bank Ltd, India’s third largest private sector lender, fought an eight-hour boardroom battle to prevent the appointment of Shikha Sharma, head of ICICI Prudential Life Insurance Co. Ltd, as the bank’s new managing director and CEO.
At the end of the meeting, when none of the members of Axis Bank’s board showed any empathy for Nayak’s argument in favour of an insider for the top post, he resigned. In normal course, his nine-year tenure would have come to and end in July.
After the board meeting was over, I tried to talk to both of them over the phone. Sharma’s mobile phone was continuously busy while Nayak’s was switched off. I sent text messages to both of them, congratulating Sharma and asking Nayak whether we can talk on his resignation.
Late on Monday night, I got a text message from Sharma; Nayak called me up the next morning. He was not willing to discuss anything about Axis Bank as he had nothing to do with the bank anymore. After much persuasion, he agreed to talk on condition that he will not discuss what happened in the boardroom. We spoke for about half an hour on what prompted him to resign; how the bank had done during his tenure; and his life after retirement—most of it off the record and not for publishing. There is no ambiguity in Nayak’s rationale behind opposing Sharma’s appointment: A successful bank should have an insider as its CEO and there is absolutely no need to bring in someone from outside when the organization is on a firm growth path.
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Like the Axis Bank board, I’m also not convinced by this argument. At best, the outsider argument is too simplistic, and at worst, it’s absurd. I would have been far more convinced had Nayak’s opposition to Sharma’s appointment been prompted by her incompetence as a banker. Even though Sharma began her career with the erstwhile Industrial Credit and Investment Corp. of India Ltd, the earlier avatar of ICICI Bank Ltd, in 1980 and was instrumental in starting ICICI Bank’s retail business and setting up the group’s investment banking business, she has been heading the bank’s life insurance venture. Indeed, Nayak could have argued that Sharma has been out of the banking business for the last nine years and hence was not suitable to head the bank.
For any organization, the insider versus outsider theory doesn’t work, as what matters is leadership acumen. Nayak himself was an outsider and he was not even a banker. In the past nine years, he has converted a sleepy private bank, which survived largely on bill discounting, into one of the most profitable financial institutions in the country.
Culturally, Axis Bank and the ICICI group, which Sharma represents, are as different as chalk and cheese. The growth of ICICI Bank in the past one decade has been driven by acquisitions while Axis Bank only once tried to acquire another bank, but that never happened. ICICI Bank stands for flamboyance, aggression and obsession for growth. Axis Bank is low-key and sedate, but has been growing steadily without making any noise. Senior bankers that run ICICI Bank are familiar faces on TV channels and business papers, but senior Axis Bank executives, including Nayak and Hemant Kaul, the bank’s executive director whom Nayak was backing for the top post, are rarely seen in the media.
Nayak’s resignation may trigger an exodus of senior Axis Bank executives who will presumably be unhappy with Sharma’s appointment. If that’s interpreted as a sign of no-confidence in an outsider, how would one interpret Sharma’s decision to leave the ICICI group after Chanda Kochhar’s appointment as CEO and managing director of ICICI Bank? Kochhar is an insider, and has been with the bank for 25 years.
Both Kochhar’s appointment in ICICI Bank and Sharma’s in Axis Bank are backed by external agencies. Some time in late 2007, Wayne Brockbank, a professor at the University of Michigan’s Ross School of Business and a human resources consultant, was appointed to evaluate the leadership qualities of senior ICICI Bank executives. Brockbank spent a year during which he zeroed in on Kochhar after talking to peers, bosses and subordinates of at least six other senior bank executives. Similarly, Egon Zehnder International, a firm that specializes in assessing and recruiting business leaders, was instrumental in choosing Sharma, and the entire process was supervised by the remuneration and nomination committee of the board.
Nayak’s resignation has flagged off a larger issue of succession planning in the Indian banking industry. Private banks plan succession, but public sector banks, which account for about 75% of the industry assets, have no such strategy. Nayak had spent nine years at the helm, and Kochhar’s predecessor, K.V. Kamath, will step down by the end of this month after a 13-year stint.
But the average tenure of CEOs of public sector banks is less than three years. There is no transparency in the process of their appointments and often, a public sector bank is run by a chairman and an executive director who have come from other banks. They deal with many senior executives who are disgruntled and even hostile because they have not been promoted. And running a public sector bank is any day more difficult for an outsider than heading a private bank as most of them have more employees and their average age is much higher. It’s time the government took a relook at the appointment process for public sector bank chiefs.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as a deputy managing editor of Mint. Please email comments to firstname.lastname@example.org