Is a CEO necessary for a public company? Happiest Minds has the answer

Happiest Minds Ltd, the Bengaluru-based IT services firm that went public in September 2020, has instead put a unique structure that your writer believes is unlike any other listed companies across the world.

Founder and chairman Ashok Soota has three heads of businesses (Joseph Anantharaju, Rajiv Shah and Ram Mohan) and a chief financial officer (Venkatraman Narayanan), all roll into one executive board and who act like a CEO.

To keep up with compliance, the CFO also holds the rank of managing director.

The six-member board includes three executive members, Soota, Anantharaju and Narayanan, and three independent directors.

One can question if Anantharaju’s inclusion on the board makes him a notch senior to both Shah and Mohan.

He indeed is. Anantharaju, in addition to being the CEO of the products business, is also the company’s vice chairman.

Why is this small company experimenting with this complicated arrangement?

Let us hear from the architect of this organizational structure.

“[On] succession planning, it has actually got resolved. One is the Executive Board which is functioning and we are saying the Executive Board will continue to be renewed let us say one new addition every five to seven years and we do not, therefore, get any turmoil in the system that happens in many organizations when you bring in a new CEO,” said Soota in a post-earnings interaction on 28 October 2021 when asked on succession planning. “My theory is that every third or fourth person or fourth or fifth person will turn out to be a disaster and that leads into a downward spiral at times. And it is difficult to recover. So we are avoiding that”

Soota was more candid when pressed again on this subject by an investor, N.G.N. Puranik from Enam Securities.

“You said I have to be around. Now God knows how many years I will be around,” said Soota. “I remember I started this company at the age of 69. So there are a finite number of years that I will be around. But the idea is to create something which will continue with the same passion and without somebody coming and rocking the boat. Now what The Economist calls The CEO Monarchs, I’m trying to avoid that situation. If you just look and I would not name the companies, but you will have a very good idea of what happened in the two entities. (One) where the founder or promoter was around and they were both (CEO and promoter) beginning to go through a negative spiral. The promoter was around to correct it. In the other case, the promoter could not do it through a diktat but managed to get the change done by creating a lot of external pressure in the market and then got the change brought about. Of course, luckily there was another promoter who was in a position to step back in. You know what I’m talking about?”

Puranik: Yes.

Soota: But these kinds of situations are very unusual. Now, those promoters would not be around forever. So next time, somebody goes through a downward spiral then who will take care of it? Therefore, the issue is to create a system which will create care of itself.”

“I believe the system we created with the Executive Board, the voting arrangements, the continuous legacy, renewal of the EB…these are the critical things which will ensure that suddenly those things do not go through the downward spiral… I am trying to avoid that situation. Now, in the end, time alone will tell what has happened.”

Soota is possibly referring to the two past incidents at his alma mater, Wipro Ltd and Infosys Ltd.

In the case of Wipro, which has had its own share of the musical chair of CEOs over the last two decades, it is debatable if Soota is hinting at Vivek Paul moving out in 2005 or Premji sacking the joint CEOs Suresh Vaswani and Girish Paranjpe in 2011.

At Infosys, it was the spat between N.R. Narayana Murthy and CEO Vishal Sikka, which ended with the latter abruptly resigning in August 2017 and another co-founder Nandan Nilekani returning after eight years.

Essentially, Soota, who owns 53.25% of the company, finds the classic CEO structure faulty on two counts.

First is because of the risk embedded with the succession process itself. Second, Soota fears and abhors a CEO to become more powerful. Or a Superstar CEO.

On both counts, your writer believes, Soota is wrong.

Soota started his IT journey when Azim Premji wooed him to join Wipro in 1983. He went on to become the face of Wipro until he decided to move out of the firm in 1999 and start, with nine other friends, Mindtree Ltd. Twelve years later, Soota started his second entrepreneurial venture when he founded Happiest Minds in 2011.

Succession planning is no easy task. But to junk the process because of the uncertainty is not a wise leadership skill.

One essential role of a board and founder is to put in place processes that rein a Superstar CEO. Here it is a tad ironic that despite Soota serving as a member of the board’s Nomination and Remuneration Committee, or NRC, it finds the problem of a boss becoming powerful.

Soota may not have explicitly named Infosys and Wipro in the two examples he shared. But the two Bengaluru-based IT twins, which have become poster boys of corporate governance for corporate India, also taught that a tenet of good corporate governance is that an executive should recuse himself from the all-important NRC.

Infosys chairman Nilekani and Wipro chairman Rishad Premji are not part of the NRC.

Happiest Minds was reminded of this when it sought shareholder approval on Soota’s reappointment as director in June this year.

Norway’s Norges Bank Investment Management, the world’s biggest sovereign wealth fund, voted against the resolution.

“Board decisions that are particularly vulnerable to conflicts of interest should have additional safeguards,” explained Norges.

“Management should not serve on the audit or remuneration committees. The audit committee should have a majority of independent, shareholder-elected members.”

Besides Soota being part of NRC, CFO Narayanan also is a member of Happiest Minds’ audit panel.

Norges, which owns a 0.14% stake in Happiest Minds, found itself in the minority as 92.5% of public institutions stamped their approval on the reappointment of Soota.

Now, business history has had examples of shared leadership in the past. German software giant SAP tried it. So did EADS, the European defence giant. Motorola and Research in Motion (maker of Blackberry) also reposed faith in co-CEOs.

But twin bosses have often been a recipe for chaos. Understandably, it has remained rare.

Soota, who turned 80 last Saturday, has just upended the classic leadership thinking by deciding to have collective thinking or the power of four.

This four-headed Hydra-like structure has worked until now as Happiest Minds is small. Revenue totalled $44.3 million in the July-September quarter, a 23.8% jump from the year-ago period, while the operating margin stood at 23.6%. But continuing with this structure could prove to be a headache as the company strives towards meeting its ambition of touching $1 billion in revenue by 2030.

Back in September 2020, your writer had asked, among other questions, the company about the absence of a CEO. Soota politely chided your writer by saying I have a distorted and erroneous view of the company.

Happiest Minds’ stellar performance in the last two years has proved me wrong. However, on its one-of-a-kind leadership structure, well, as Soota has admitted, time will tell.