Saturday, June 8, 2013

L&T’s Executive Chairman AM Naik slogging to find his successor

9 Jun, 2013:--


Naik clearly sees an L&T that is much smaller as a standalone company, with its current myriad businesses being spun off into subsidiaries that will eventually be listed. The various arms range from hydrocarbons and solar power to water treatment and power projects, in addition to the core of engineering, construction and infrastructure.

Naik adds he started almost all the new businesses in the past 35 years (he has spent 49 years with L&T) and is therefore able to feel the pulse of each one of them. The argument thus goes that how would a chairman inexperienced in these diverse operations be able to get a grip on so many of them.


Naik takes L&T Finance as an example of the spin-off-and-list strategy. It was listed last year and the chairman\'s is keen to get 4-6 more such arms listed independently. L&T and L&T Finance are the only two listed entities of the group that has consolidated revenues of around Rs 74,000 crore now. L&T is divided into strategic business units (SBUs) - some 70 of these. The SBUs are clubbed under 23 strategic business groups (SBGs); once an SBG hits Rs 5,000 crore in annual revenues, it is given the status of an independentcompany (IC). The IC is then slowly primed to become a subsidiary that can seek its own listing on the bourses.

L&T has 17 businesses which can be potentially taken public. Twelve of these are within the parent as ICs and five are unlisted subsidiaries. Naik reveals that two more - transportation and infrastructure - have grown big enough to become ICs. So if one goes by Naik\'s thinking, it will take 19 chairpersons to replace him. \"My problem is the next 10 years,\" he shrugs. One of his key tasks is to identify potential leaders from within but here too he complains that these few good men being groomed are being lured away by competition with \"3-4 times salaries\" and CEO designations.

Naik\'s critics point out that this is a bit of a chicken-and-egg situation as professionals may have legitimate aspirations and the top-rung at L&T staying on way beyond 60 is a reason for the exodus at the middle level.

Naik of course says the exodus is one more reason for him to stay on and steer the ship. \"Many people think L&T is doing well. But I think L&T has a long way to go before it becomes a globally competitive company. Just step outside of India and see if L&T can compete with them [global rivals]. You have to make sure that your company is capable of competing with the best in the world and still makes money and creates shareholder value.\"

Two businesses he is visibly passionate about are defence and power, which have the potential of redefining what is core to L&T in size and scale. But there are caveats. \"If the power sector can get out of the mess it is in, it can become a Rs 15,000-crore business for us. The same is with shipbuilding which is not doing well because of the defence policy. But if that changes, just one frigate can add Rs 5,000 crore.\"

Naik adds that the Indian defence policy is holding back the company. \"How is it that we are ready to accept defence supplies from foreign private sector players but not from the Indian private sector,\" he asks. For all his feisty enthusiasm, there have been rumours about his health. Naik also suffered personally when his granddaughter passed away at the age of two-and-a-half six years ago.

What keeps him going? \"The fear of failure. I have a tremendous fear of failure. My reputation is on the block as I am not used to failing. [But] the fears are that new talent is not coming in, and that my leadership pipeline is poor.\" And the biggest fear of them all is that, when it is time to ride into the sunset, L&T won\'t have sufficient good men at the helm of its ICs. Naik may just not let go till he finds them.
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