Home / Opinion / Views /  The son not rising at Kotak Bank doesn’t mean he can’t in future

In 2017, when Uday Kotak headed a Sebi committee whose mandate was to recommend changes to corporate governance rules, there was a throwback to the country’s old scriptures to highlight what the expert panel under him reckoned ought to be the new model which Indian corporates and firms should transition to.

The two models – which the committee discussed going back to the scriptures was the ‘raja’ or monarch model and the ‘custodian’ or trusteeship model. In the raja model, promoter’s interest precedes that of the ‘praja’ or the stakeholders, while the custodian model as that committee described works on Gandhian principles. The custodian model implies that promoters, boards and managements wear the hat of ‘trustees’ and act in the larger interest of all stakeholders – promoters, investors, employees, etc. In the custodian model, shareholder interest topped everything else. That was the broad message. It is a model which the Kotak committee endorsed then, saying that corporate India should move in this direction.

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Uday Kotak may be no fan of the old ‘lala’ model where business families over generations not only control the ownership but also run operations. Having made the cut on his own in the financial sector – converting a non-banking finance company (NBFC) promoted by him in 1985 into a bank after securing a licence in 2003, Kotak has often batted for a transparent model of governance. The test would be next year – when the promoter-CEO is set to step down after a long tenure, with new regulatory rules kicking in on the maximum term for a bank corner-room occupant.

That suspense, and perhaps uncertainty, appears to have been cleared with Kotak Mahindra Bank director K V S Manian indicating to Bloomberg earlier this week that Uday Kotak’s son, Jay Kotak, now a vice-president with the bank, was not in the running for the position of the CEO – the lender is looking to appoint a new one within the next six months.

Having been a strong advocate of the custodian model for Indian corporates to promote the larger interest of stakeholders and having enjoyed a governance premium from investors, especially when other private peers were under the pump, it would not have sat well with his core belief to be seen as the promoter CEO pitching for his son. Looking also at the Indian corporate landscape and the onboarding of the next generation at several of India’s top business houses, this is a welcome move. As is the bank’s approach reflected in the remarks of Manian who Bloomberg quoted as saying that young Jay Kotak would have to work his way up on merit.

But it could be a rocky path. In manufacturing and service sector firms, the baton can be handed over relatively easily by a promoter CEO to a family successor, even if the firm is publicly listed, if the shareholding is high. But in the banking sector, the final call on approval of a CEO is taken by the regulator, the RBI, which can reject a candidate recommended by the board of the bank on the principle of “fit and proper“. In such a context and given the young man’s experience and considering the growing shareholder activism fuelled by proxy advisory firms, it would have been a highly risky bet if at all there was any such plan in the making.

That is not to say that the son of one of India’s most enterprising bankers –who built the country’s fourth largest private bank and has impressive financial metrics to showcase – cannot make it to the C-suite in future. There is the father’s legacy and broad shoulders to lean on, the good fortune and challenge of having the family name etched on the bank’s brand, which is rare in India, besides trust and credibility. There is also the comfort of a management team some of whom have been fellow travellers of Uday Kotak over the last three decades which can be counted upon to help his son earn his spurs.

If that isn’t motivating enough to learn the ropes diligently, there is the heritage of the Rothschild family which over seven generations and 200 years has been a family-controlled financial services group with the motto – ‘Concordia, Integritas, Industria’ (harmony, integrity and industry) – to draw upon. Else, there is always the custodian model to play for.

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