The slowdown came down like a pile of bricks on Indian companies and their leaders. Most of them had little experience of handling a meltdown of this scale.
As a result, they are still groping for answers. Should they downsize? But won't they be left without hands if the economy recovers in a couple of quarters? Should they focus on market share or cash management? How can shareholders' wealth be salvaged?
Indraneel Roy, Hewitt Leadership Consulting's global practice leader, along with his team, conducts an annual study of organisational practices in building leadership talent, this year in collaboration with Fortune magazine.
According to Roy, India doesn't have the experience to handle downturns. Moreover, the tricks to handle a downturn have not been institutionalised.
Elsewhere, these tips are passed down from one generation to the next. Roy addresses some of the challenges leaders face in this slowdown in a meeting with Business Standard's Byravee Iyer.Have you discussed the topic more of late?
Not so much with the media, but with our clients, yes. We've been interacting a lot with the top management of companies to get them ready for the slowdown.
While facing a crisis such as this, how much does leadership experience matter?
Absolutely. In India, we don't have enough experience to handle downturns. Yes, we've seen dips, but we've never experienced a prolonged downturn. There is also not much of a social memory here.
In the US, when I talk to CEOs, they would have heard from the earlier generations.
We don't necessarily have that memory. That experience is very important. That said, it's not that people cannot lead through a downturn; it's just that they haven't been through a downturn. One really learns a lot from other people's experiences.
Do you think ineffective leadership is at the core of this meltdown?
At the core? Yes. But is it the only reason? No. To a very large extent, it is a failure of leadership at the regulatory, board and management levels.
But there are other factors that have made the crisis more damaging in the long term.
First of all, we're in a highly connected world. From a crisis that was initially thought to be an American one, it has morphed into a global one.
Thus, connectedness is a factor. Two, global regulatory norms, which determine how much is too much, were lax. The third factor, of course, is that people went ahead and bought things they couldn't afford.
Once the storm has passed, will risk-taking come down?
Once this is over, risk-taking will go up again. In the interim though, risk-taking will substantially drop. Frankly speaking, the ability of companies to sort out good risk from bad risk is at the core of survival.
If everybody comes to the conclusion that risk is necessarily bad, then we can also say that growth and innovations are not possible.
That could be very damaging, especially for a country like India. A vast majority of companies are getting more risk-averse and only a small minority has begun to talk about good risk and bad risk.
These companies then decide what risks they need to continue to take in order to make them more competitive in the long run. I believe it's those companies that will come out more successful.
What according to you are the major challenges Indian leaders are up against?
For a very long period of time, emerging markets were a side factor in the global economy. All of a sudden, Indian and Chinese consumers have become a primary factor. This is both an opportunity as well as a challenge.
Leaders need to address how they need to play in the new world and my fear is that only a small minority is asking this question.
It will be interesting to see how India and China adapt to the new reality not just by cutting costs. The second challenge is trust.
Our study shows that the level of trust in leadership is low and I won't be surprised if that will decline further this year. Rebuilding the trust of employees, customers, and investors is perhaps one of the toughest challenges, and I'm not sure if many companies are willing to put in that effort.
Several companies at this point are tottering. Is it the right time to bring about a change in leadership?
It depends on the company. There are times when a board backs not a leader but the path the company wants to take.
The board needs to come to a conclusion on whether or not that path needs to change dramatically.
If the path needs to change, the next question that needs to be asked is, can the same person take us down another path? Leadership must not change simply to show investors you are taking some action.
Unfortunately, there are cases where that has happened. You can't expect someone else to magically come and turn things around.
What are some of the things companies can do in strong times to ride out the tough times?
First of all, they should have a strong balance sheet. The stronger your balance sheet, the more likely you'll be able to survive a prolonged downturn. Two, they can put together a management team that can fight a crisis.
Usually, when a crisis hits, there are two types of reaction we witness: The first is denial and the other is a complete paralysis where companies don't know what to do.
Thus, it's important for companies to build management teams with people who are ready to take on this kind of crises and that requires the ability to work in teams very aggressively. In short, it comes down to two things money and people.
On a different note, are there cases where heads of companies tend to put their careers and interests first?
[Laughs] I don't want to generalise on that. In the media, you tend to hear of people who are exceptionally good or exceptionally bad. What I see is a lot of the middle ground.
I think there are very good individuals out there who are running really good companies with integrity.
These people do not put their career first and look to balance their own aspirations with those of the firm's. That is the predominant reality for me. Unfortunately, in those cases where people put their own needs first, it just creates a perception that it is the done thing.
