L&T splits top job, appoints Venkataramanan as new CEO5 min read . Updated: 10 Mar 2012, 12:24 AM IST
L&T splits top job, appoints Venkataramanan as new CEO
Mumbai: Announcing its much-awaited succession plan, India’s largest engineering and construction company Larsen and Toubro Ltd (L&T) on Friday split the role of chairman and managing director (MD), elevating A.M. Naik as executive chairman and making director and board member K. Venkataramanan the chief executive officer (CEO) and MD.
While Naik, who turns 70 in June, gets a five-year extension at the top job until the company’s annual general meeting in 2017 by when he will be 75, Venkataramanan (67) gets a three-year stint as CEO and MD until 2015. His appointment will take effect on 1 April.
While some analysts perceived the move as an interim measure, others expressed disappointment that the $11.7 billion (Rs 58,500 crore today) conglomerate hadn’t chosen a younger successor as Tata Sons did. On 23 November, Tata Sons announced 43-year-old Cyrus Pallonji Mistry would succeed Ratan Tata (73).
“Our intention is to get a person for the long term the next time (in 2015, once Venkataramanan retires), and I think you have to accept that the intention is always long-term," Naik told reporters in Mumbai on Friday. “It is a complex company and that’s why we’re restructuring to simplify and make many more CEOs come through."
Under Naik, who took over as CEO and MD in 1999, revenue has grown sevenfold from ₹ 7,400 crore. It was “impossible" for one individual to be at the helm of a conglomerate that had 77 businesses, 122 business segments and 10 independent companies across various sectors, Naik said.
He cited the example of Delhi Metro Railway Corp. Ltd’s former MD E. Sreedharan to justify his staying on. Naik said the government kept Sreedharan at the job until he was 77, although there were plenty of railway engineers to pick from.
“Every situation is different," Naik said. “The nomination and remuneration committee considered him (Venkataramanan) the best solution and I’m sure that in shareholder and stakeholder interest, the board has decided what is the best option."
Not everyone was convinced.
“The decision of Naik continuing as executive chairman is blurring the line of chief executive officer and managing director," said K. Sudarshan, managing partner (Asia emerging markets) at EMA Partners International, an executive search firm.
“It is still unclear. Maybe, L&T should have taken a cue from the Tata group’s appointment of the 43-year-old Cyrus Mistry as successor to Ratan Tata. The issue of successor was there for the last 10 years for L&T and is not a fresh issue. This would mean that L&T could not groom a young leader in the last 10 years," Sudarshan said, adding this effectively sent out the wrong message to young, aspiring managers in the company.
Another leading human resource (HR) consultant, who didn’t want to be named given the sensitivity of the matter, was critical of Naik staying on as executive chairman even after finding a successor.
“In the case of ICICI Bank Ltd, K.V. Kamath stepped back and became a mentor," the consultant said. “Same was the case in Infosys Ltd, where founder N.R. Narayana Murthy stepped aside for young managers."
L&T insiders, who didn’t want to be named as they aren’t authorized to speak to the media, said Venkataramanan had been a dark horse in the succession race. “The management was never comfortable with an outsider, or even an overseas person running the show," one of them said.
Venkataramanan is the consummate insider, having joined the company on 12 June 1969 after completing his BTech in chemical engineering from the Indian Institute of Technology, Delhi. He was appointed as whole-time director on 20 May 1995.
Heavy engineering president M.V. Kotwal and power business president Ravi Uppal had been considered leading contenders to succeed Naik. While Kotwal joined the company in 1968, Uppal came from global engineering company ABB Ltd after an 18-year association in 2009.
“Choosing Venkataramanan was done within the structural framework of L&T that has a leadership range of 45-60 years. Finding a young leader would have normally upset the current management structure," said Sandeep K. Krishnan, a leading HR expert.
“Largely, Naik was adopting a risk-averse approach. I presume Naik would step down as mentor after two years. But the question remains about the long-term leadership issue of L&T," he added. Krishnan is a fellow of the Indian Institute of Management, Ahmedabad, and was previously employed with IBM India, Ernst and Young India and RPG Group, handling performance management.
Last year, L&T undertook Project Lakshya to simplify its portfolio, creating 10 independent companies and seven subsidiaries to bring about focus, accountability and autonomy, engaging the services of global strategy consultancies. It was part of a plan to expand the company’s revenue to ₹ 90,000 crore by 2015 from ₹ 43,490 crore in the year ended March 2011.
Changes in both the local and global economic environment have necessitated the company undertaking a mid-term review of the strategic plan, which is now under finalization and will be made public later in 2012.
Naik said his successor will look at the parent and core businesses, where some restructuring is on and that he would help Venkataramanan in this. “I will be looking at other subsidiaries. That will take 70% of my time," he said, adding the group was now searching for CEOs from among young leaders, given the changing nature of the businesses.
“The new CEOs will come in 2015," Naik said. “I am looking at the next team for a time span of 7-10 years."
It remains to be seen what happens to the other contenders in the succession battle. When General Electric Co.’s Jack Welch stepped down in 2000, Jeffrey Immelt (who ran the company’s healthcare business earlier) succeeded him, edging out James McNerney (who ran the aircraft engines business) and Robert Nardelli (the turbines and generators business). The search process took nearly six-and-a-half years, starting with 24 candidates. Once Immelt got the job, Nardelli and McNerney left to head General Motors Co. and 3M Co., respectively.
Similarly, when Chanda Kochhar took over as CEO of ICICI Bank, the other contenders exited—Shikha Sharma left to head Axis Bank Ltd and V. Vaidyanathan joined Future Capital Holdings Ltd. Nachiket Mor, who was earlier the deputy MD of the bank and headed ICICI Foundation for a while, now works for SughaVazhvu Health Care Pvt. Ltd, a rural healthcare services firm, though he was once considered a favourite to succeed Kamath.
The L&T board also approved the elevation of Shailendra Roy as a whole-time director with immediate effect. Roy, currently senior vice-president (power development business, corporate affairs) is also a member of the executive management committee.
A Life Insurance Corporation of India (LIC) official, who did not want to be named, said, “We feel it’s a good decision, therefore we favoured the board’s view." LIC holds an 18.69% stake in L&T.
Anirudh Laskar and Ashwin Ramarathinam contributed to this story.