Life on the top rung of the corporate ladder has its share of irony. Take Sanjay Kapoor’s case. In December 2012, Kapoor, who was Bharti Airtel’s India and South Asia CEO at the time, won the prestigious telecom person of the year award at the Telecom Leadership Forum in New Delhi. A month later, the company announced Kapoor was quitting. An official statement records Bharti group founder Sunil Mittal crediting Kapoor with growing the mobile operator’s customer base to 200 million and developing its DTH business and footprint in Asia. “Sanjay has had an enviable performance track record, strategic disposition and business acumen and is an inspirational leader,” adds Mittal.
With such praise showered on him, it seems strange that Kapoor would suddenly decide to “pursue his future aspirations outside of Bharti”. But ask the right people a few pointed questions and you hear of the reservations Kapoor — a 15-year veteran of the company — had about merging Airtel’s Asia and Africa operations as part of the “One Airtel” initiative to build synergies and rationalise costs. The move could have seen him possibly being shunted to Africa and reporting to Manoj Kohli, the present CEO of international business and joint MD, both of which were apparently unacceptable options.
Kapoor isn’t the only top-level exit at Airtel in the past several months. The operator’s director for IT (India and South Asia), Amrita Gangotra, and CTO, Shankar Halder, also left the company in December 2012 and January this year, respectively, ahead of the restructuring. Nor is Airtel the only telecom firm to have experienced churn at the top over the past year or so. Rival Vodafone India, too, saw its director of strategy, Samaresh Parida, and chief commercial officer, Sanjoy Mukerji, resign in August and October 2012, respectively, to start ventures of their own.
“When I got out in mid-2012, I could see the sector was slowing down, though it is being written about only now,” says Mukerji. Parida adds that top jobs are becoming redundant because of the sector’s dynamics. “More negative than positive news-flow surrounds the industry and executives are questioning their future in the sector,” he points out. Telecom companies, though, maintain that everything is just as it should be. “The present organisation structure has been fine-tuned to be future fit and also to create and manage career opportunities for the leadership within the organisation,” says a Vodafone spokesperson.
Then there’s D Shivakumar. In late 2011, after six years as Nokia’s India head, Shivakumar was elevated as the senior vice-president for India, West Asia and Africa of Nokia, and moved base to Dubai. Having touched 70% market share during his tenure, Nokia is now down to under 25% by volume (and it now lags Samsung India in value terms). Industry experts say the company misread the market at both ends — it was late to latch on to the dual-sim handset trend for low-cost mobiles and also missed the smartphone bus that boosted the fortunes of Apple and Samsung.
Shivakumar, though, says his exit has nothing to do with Nokia’s performance (or the lack of it) in India — “We always bounce back well.” The decision to quit is guided by his desire to return to India, the market with the most opportunities in the future, he adds. Nokia’s reaction to his departure? “Since starting in 2006, Shiv has been fully dedicated to the company, playing an integral role in Nokia’s growth in India and beyond. On behalf of Nokia, I thank Shiv for his contributions, and wish him all the best in the future,” says Chris Weber, Nokia’s executive vice-president, sales and marketing.
It’s not as though telecom is the only sector facing troubles with its top people. Power and infrastructure, private equity, IT and ITeS as well as retail and e-commerce are all seeing a fair bit of action in their corner offices. While many executives have indeed quit in the past several months to pursue better opportunities, recruiters and HR professionals, as well as promoters and top managers themselves admit that trouble is brewing at the top, in many organisations. Plagued by a slowing economy and high costs, companies are turning the screws on their senior management and becoming less tolerant of unmet targets and mediocre performance. The combined result is a near-exodus from the C-suite across companies (see: Heard through the grapevine). Consider a sample of top executives who have parted ways with their organisations since 2012: Blackberry India managing director, Sunil Dutt; PepsiCo Foods CEO, Varun Berry; Tata BP Solar India CEO, K Subramanya; 3i Group head, Asia, Anil Ahuja; and Welspun Projects MD and CEO, Sunil Shinde.
And it doesn’t look like the pressure will ease anytime soon. Bank of America Merrill Lynch (BofA-ML) estimates earnings growth for 30 Sensex companies at just 5% in FY13 and does not expect a strong increase in such numbers for some time. “So far, rate cuts have been slow and we think sales growth in FY14 will continue to be weak. The expected recovery in margins may disappoint,” say BofA-ML analysts Anand Kumar and Jyotivardhan Jaipuria, in a note to clients. In good times, the focus was on growth, expansion and getting more market share; now, the idea is to cut costs and maintain margins and profitability. And companies are asking leaders to either deliver or move out. “The good-time CEO is facing trouble in bad times. Churn at top management levels has definitely increased over the past two years and this year looks set to offer no respite,” says Rajiv Burman, managing partner of senior level executive recruitment firm Lighthouse Partners India. (see: The news is bad, sir)
Most recruiters agree that churn at senior levels began after 2010, as the economy struggled to maintain its growth rates. With growth dipping to about 6.9% for FY12 and then 5.5% in FY13, pressure on executives only increased and led many companies to reshuffle their top decks. “Slowing growth and limited liquidity are challenging established business models. Increasingly, as business performance stagnates and even deteriorates, shareholders are asking serious questions from business leaders who can no longer use the crutch of automatic macroeconomic growth,” points out Vibhav Dhawan, India managing partner of global search firm Positive Moves.
Some companies are even wondering if they may have over-invested in hiring top leaders. While in good times no one questioned an extra person, now everything and everyone is under scrutiny. HR firm Aon Hewitt’s regional practice leader for compensation and benefits (Asia Pacific), Sandeep Chaudhary points out that while the cost of talent was always high in the profit and loss account, it was overlooked in good times. Now with margins under pressure, “Companies are asking, do we need so many people at the top, do we need to pay them so much,” he says.
And they’re deciding against paying more. “Joining bonuses and 30-40% increments at the time of joining are history now. Most cap these at 15-20%,” says Ronesh Puri, managing director of senior management search firm Executive Access. Pay hikes for top management positions are also becoming smaller. Hewitt’s annual salary survey for India shows that increases at top management level stagnated at around 11% in 2010 and 2011. But last year, there was an increase of just 9.7%, and in 2013 top executives can expect even less — 9.3%. (see: Salary blues)
Another study, by Hay Group, found that firms have a “deep-rooted preference for leveraged pay or pay-for-performance in the overall compensation philosophy — for the top team executives including the CEO. Now 30 to 44% of the overall compensation mix, for the CEO and the top team, comprises incentives,” it noted. HR experts say that this is a substantial increase from FY12, when variables such as bonus and incentives made for about 15-30% of total pay. (see: Not enough money)
Paying for performance is only part of the new picture. Companies are becoming merciless in weeding out what they see as deadwood in their organisation structure; implying, senior recruiters point out, many of the recent exits across industries may have been forced ones. While non-compete clauses may enforce “gardening leave” for senior executives between jobs, such mandated breaks are usually common knowledge. Warning bells go off when there’s an unexplained gap. “When there is much delay in filling the top position or the leaving executive takes a long while to join another place, joins a smaller company or takes on a smaller profile, it does make one wonder whether the exit was voluntary or not,” says Athena Executive Search’s founder-director Bhavishya Sharma.
There are some telling instances. PepsiCo’s Berry quit in February 2012 and joined Britannia as COO only in January 2013. Then, Tushar Dhingra, former COO (North, East and Central India), Big Cinemas, quit to join a much smaller firm Mogae Media that focused on mobile monetisation. He left that soon after to join, ironically, as EVP at DHR International, an executive search firm. “Dhingra was the sole COO for Big Cinemas before Ashish Saksena joined and was also made the joint COO. And after the then-CEO Anil Arjun moved into an advisory role, the company chose to hire an outsider as CEO rather than promoting one of the existing COOs,” says a company insider, pointing to the possibility of an involuntary exit. Dhingra, though, denies it. “I left Big Cinemas after being with the company for about seven years. Before that, I was with PVR Cinemas. So, I had had my fill of the multiplex business and wanted to learn about new things,” he says.
Greener pastures? Not quite
In any case, the employment outlook for senior leaders appears bleak. “The first question now asked when someone leaves is, ‘Can we reorganise and do without a replacement?’,” says Burman. The numbers back that statement. A survey in April 2012 by senior executive recruitment firm Executive Exchange India found hiring sentiment at senior levels was down by 16% in the first quarter compared with the previous quarter. Another survey six months later by HeadHonchos, a search portal exclusively for senior executives, found that hiring sentiments had improved only mildly with an expected 2% rise in headcount at senior levels by March 2013 compared with the previous six months. Now, in April, most recruiters believe 2013 will actually be worse than the previous year for top managers, although the situation may improve slightly next year. “Companies are going slow on recruitment for senior leaders this year. Many of those who quit without a job in hand are finding new ones only after a seven or eight-month waiting period,” says Udit Mittal, founder of recruitment firm Unison International.
And companies are out to ensure they get the maximum bang for their buck. Uday Sodhi, CEO of HeadHonchos, says companies are negotiating harder at the recruitment stage, going through more interview rounds and performing more elaborate background checks. They are also meeting more people, and hiring cycles have become longer. “While earlier, a top-level position would close in one to two months, it now takes three to four months or even longer,” he adds. A look at just a few companies bears that out. Cairn India is still to appoint a head after Rahul Dhir quit as CEO and MD in August 2012 while more recent vacancies that are yet to be filled include Blackberry — where Rick Costanzo, EVP for global sales, is heading operations in India as an additional charge after Dutt’s departure — and Bharti Realty, whose CEO David Rebello quit in March.
Senior executives are caught in a cleft stick: not only are companies not rushing to fill vacancies, striking out on their own also isn’t as easy as it sounds. Recruiters believe the majority of managers who quit citing entrepreneurial interests find it more demanding than they thought it would be; many find themselves unable to cope with the demands. “It is not a place for people who want regular paychecks and can’t take ups and downs,” agrees Gaurav Kachru, founder and managing partner at seed fund, 5idea, himself an executive-turned-entrepreneur. Others point out that executives coming from MNCs and big organisations are used to having large resources at their disposal. Many are in their 40s, which means they are likely to have greater familial responsibilities and set lifestyle needs as well as lower energy levels and a smaller appetite for risk. “There are no luxuries in a start-up environment and some may indeed find it tough,” says Unison’s Mittal, adding that some executives may consider such ventures as stop-gap arrangements until they find a new job.
The job loss market
And new jobs are increasingly hard to come by. Most companies across sectors are hunkering down, trying to protect themselves from the double whammy of slowing global and domestic growth as well as the multitude of scams and regulatory hurdles in India. “We have been hit by the telecom scam, the mining scam, the coal scam and many others while many infrastructure projects have been held up on account of one clearance or the other. This trend only accelerated in 2012,” says Burman of Lighthouse Partners, blaming the same for poor performance of many sectors of the economy.
Another factor affecting the job prospects of Indian C-suite executives is growing competition from expats. As developed economies see low growth and markets such as India and China look better on a relative scale, executives in these countries now find India an attractive place to work, unlike earlier. That’s also — or perhaps, especially — true for executives of Indian origin. “Such executives have an experience of working in international markets and multinational companies feel more comfortable appointing them as India heads, knowing that they have worked at the headquarters and have an understanding of the company’s culture and ethos,” says Tulika Tripathi, India managing director for international senior executive search firm Michael Page. Others point out that slowing growth in developed countries also means restructuring of businesses there and often companies may want to send good talent that is no longer required in these countries, to manage and grow businesses in India.
Ironically, not everything in India is hunky dory, either. And as companies struggle to make ends meet even here, they’re turning to restructuring existing organisations to save costs. In late 2011, the telecom unit of the Tata Group merged its CDMA and GSM units to streamline costs. Now, Airtel plans to merge its India and Africa operations under a common CEO (Manoj Kohli) to cut costs and ring in other synergies. Gopal Vittal, in his second stint at Airtel, is now the new India CEO and joint MD, reporting to Sunil Mittal. Already , there is some merging of businesses. “South Asia operations, i.e., Bangladesh and Sri Lanka would report into the CEO (International) [that is, Kohli] effective March 1, 2013. However, various business leaders and functions from Airtel India would continue to support South Asia operations in this revised arrangement,” said Airtel in a statement. The new strategy has taken a toll already. Bharat Bambawale, Airtel’s global brand director who was responsible for the Bharti brand in both markets, quit in March, while operations director for India and Sri Lanka Vineet Taneja resigned two months earlier. It is believed that Airtel’s supply chain head S Asokan’s resignation in December 2012 is also a result of the new strategy.
Yet others are selling non-core businesses and scaling down operations and assets with a view to cut costs and pare debts. Former Tata Teleservices president and CMO, Lloyd Mathias, points to this as one reason for the widespread churn in telecom and the handset market. “Telecom and mobile handset companies such as Uninor and Aircel have scaled down operations in India. Sony Ericsson is now skeletal and Motorola Mobility India has shut down. It is not surprising to see movement at the top rungs in these companies,” he says. After Google bought Motorola in May 2012, it has been shrinking the company’s operations across the world, including in India. The dedicated India website has been shut down and work at the Motorola factory in Tamil Nadu has been stopped, eliminating some 76 jobs. Meanwhile, Uninor has reduced its operations to six circles from 13 earlier, while Aircel reportedly plans to stop services in five of its 23 circles. According to media reports, Aircel will cut 600 jobs, or 12% of its workforce, owing to pressure on margins. It’s already lost some top talent. Chief information officer Ravinder Jain quit in January to join Sanjoy Mukerji (ex-Vodafone) in his healthcare venture, i-clinic. COO Gurdeep Singh resigned in January 2012 before joining Reliance Industries in May 2012 as CEO of its wireless business.
Understanding the churn
One obvious reason why companies let senior leaders go is because restructuring and consolidation brings in duplication of positions and builds in redundancies. “Some leaders could be absorbed back into the company but, many times, the business cannot afford the cost of several leaders. This is typically true of cyclical businesses like investment banking,” says R Sankar, executive director and leader, people and change practice, PricewaterhouseCoopers.
So, how does a company sack a senior resource who is still good but has become redundant because of the changing needs of the organisation? In some cases, by hiring executive search firms for ‘outplacement’ services. Athena’s Sharma says his firm has received calls asking for such services. “We are getting more such requests as companies look to cut their employee cost and call us to find opportunities for candidates we have placed with them. Sometimes, it is we who break the news to the employee when the promoter or the board does not wish to perform this unpleasant task,” he adds. Sharma sees outplacement services being taken up by multinational companies — European more than American — but some large and mid-sized Indian companies, too, are signing up. “We have typically seen such mandates from FMCG, IT and ITeS companies and now, even from the telecom sector.”
Meanwhile, within the broad India macroeconomic framework, many sectors have their own reasons guiding the churn. Telecom, for instance, is seeing a strategic shift. Till now, the focus for companies in the telecom sector was to grab market share, grow the market itself and build their operations. “So, growth was the biggest agenda. Now, there is a shift and the emphasis is on becoming profitable, cutting costs and earning more from the same customer through new applications and services. So the “growth” CEO is no longer required even if he is good. The needs of the business have changed,” Sankar explains.
Other sectors, too, have their own dynamics. In infrastructure, power and real estate, the challenges have only multiplied over the past few years as promoters went in for over-ambitious projects and expansion and took on huge debt to fund these. Now, investments in power plants are suffering because of the acute shortage of coal while multiple road and mining projects are stuck because of lack of regulatory clearances. The growth in the number of corporate debt restructuring (CDR) cases only proves this point. In FY11, 49 companies opted for restructuring of debt worth about ₹22,000 crore. The number of such companies increased to 87 for close to ₹68,000 crore in FY12. And in the first nine months of FY13, the CDR cell already had 98 cases for restructuring close to ₹59,000 crore of debt. The majority of the companies in the CDR cell are from the power and infra sectors and they’ve seen a spate of exits as performance pressure on executives became crushing. In May 2012, Ennore Coke CEO Anupam Mittal resigned while N Neelakanteswaran, CEO of Atlanta Infra Assets, quit in March 2013. Both are yet to join other companies. Cultural issues also crop up in some cases. In June 2012, Adani Power CEO Ravi Sharma put in his papers, citing personal reasons. He joined the US-based Deeya Energy in February 2013.
Like infra and power, retail is a sector that hasn’t performed anywhere close to expectations — and that’s taken a toll on senior level head counts, as well. Declining sales and profits (mounting losses, in most cases) have led many retail companies to shut loss-making stores in the past several months. Aditya Birla Retail, for instance, exited Mumbai, Jaipur and Coimbatore, closing over 50 stores in the process. Spencer’s Retail, too, shut all its stores in Pune, while Future Group exited its eZone electronics goods chain in cities such as Ahmedabad and Delhi in 2012. These moves corresponded with a high churn at the top level. The RP Sanjeev Goenka Group, which runs Spencer’s, saw the exit of retail business CEO Vineet Kapila in November 2012, while in April 2012, K Raheja group’s Shoppers Stop saw exits of group CTO Arun Gupta and group CFO Chandrashekhar Navalkar. Retail giant Future Group, too, has been seeing top-level exits for over a year now. Pantaloon COO and business head Pankaj Tibrewal quit in December 2011, a month after telecom business CEO Mayur Toshniwal and eZone CEO Manoj Kumar resigned. They were followed by executive director for customer strategy Vibha Paul Rishi (March 2012) and HR head Sanjay Jog (June 2012).
Former Reliance Trends CEO Arun Sirdeshmukh, who quit the firm in March 2012 to start his own venture Fashionara, says the consolidation in the retail space is happening because retailers are now focusing more on per-store profitability. “This scaling down of business will affect top executives in the short term as companies look to cut costs and seek better performance from their executives,” he predicts. “The situation will improve in 2014, though.”
Meanwhile, the churn in the retail sector has had a positive fallout for newer players: suddenly, it’s a buyer’s market and executives’ negotiating power is drastically reduced when it comes to asking for better roles and money. Companies such as Promart, which started operations in 2011, have benefited from the trend. In the past year, the company has hired a number of executives from companies such as The Loot, Brand Factory, Megamart and Provogue, many of which have either shut down or rationalised operations. “Because of the meltdown in the sector, I have got good talent without giving very high increments,” says Promart Retail India CEO Punit Agarwal. “In the pre 2007-08 era, such executives would have asked for the moon.”
New economy pangs
By and large, the greatest impact of performance pressure has been in sectors that were predicted to achieve hyper growth in the past few years. Which means the nascent digital enterprise and start-up space hasn’t been spared the churn either. Here, much of the pressure is coming from venture capital (VC) firms as they struggle for profitable exits and are unable to get them owing to slower economic growth and consumer demand. Those who were counting on the government allowing foreign direct investment in the e-commerce space have been disappointed as they were hoping to find investors through this route for the businesses they helped build. Now, stuck without exits, they are focus on cost reduction and in the firing line are top executives who joined such companies lured by the entrepreneurial opportunity as well as high remunerations and benefits such as stock options. “When a VC looks at an executive who is charging ₹60-70 lakh and compares it with the rest of the team that may average the same amount for 8-10 people, he is now willing to let the executive go,” says 5idea’s Kachru. He adds that the trend will continue as it is a part of the natural cycle for any business. “Of any 10 new businesses, seven to eight are ‘me-too’. And only one or two will succeed,” he predicts.
In some cases, especially in e-commerce, bringing in outside investors has led to the exit of the co-founders themselves. Quickr co-founder Jiby Thomas quit the company in November 2012, while Pearl Uppal left fashionandyou in June 2012 and Freecultr’s co-founder and CEO Sujal Shah stepped down in March 2013. Market sources say that these CEOs had small stakes in their firms as sweat equity and, as venture capital firms put in more funding, their stakes were further diluted. Eventually, they had very little say in the way their companies were run. “The lesson for people like us here is that we should never become quasi-CEOs. Instead, entrepreneurs should go the whole hog of owning the majority of the business they run,” recommends Kachru.
Like venture capital firms, private equity (PE) funds too have been struggling for profitable exits — but rather than this taking a toll on the investee company, heads are rolling at the funds. Consider some recent departures: Gaurav Mathur and Anurag Bhargava have reportedly exited India Equity Partners, the PE firm they helped co-found; Anil Ahuja and Girish Baliga have left British PE firm 3i; while Suresh Prabhala quit as head of Mount Kellet Capital Management, recently. What’s going on here? Simply put, the lack of exits directs pressure on the top executives. “There is an unwritten protocol in the PE industry that if you are not able to show much against your name in four or five years, you should leave and the recent exits point to this,” says Athena’s Sharma. And, as funds such as DE Shaw scale down operations in India, the churn is expected to get worse.
Apart from exits, many PE firms find that their portfolios are in a turmoil. Ajay Relan, managing partner, CX Partners points out that when funds were raised in 2006-07, company valuations were very high but PE firms invested in companies expecting 25-30% growth. “This did not happen. Some firms are now taking in losses and they may need to downsize. This also affects their ability to raise new funds. So departures may happen as people see no future in continuing with them,” he says.
Pressure to perform
Clearly, top executives across industries do seem to be stuck for options. “But when you draw eight-figure salaries, not delivering on expectations is not an option,” says Executive Access’ Puri. The pressure to perform can also be gauged from shortening CEO tenures. A survey conducted by Randstad India found that average tenure of a CEO is now pegged at 6.8 years compared with 10.5 years for his predecessors. The tenure drops significantly when you consider only professionally managed companies — just 3.9 years in private businesses and an even lower 1.9 years in PSUs.
Another survey, this one by Executive Access, found that for industries such as education, healthcare, IT, hospitality and automotive, between 30% and 45% of chief executives work for only one to three years while a declining number (15-30%) stay for three to five years. Recruiters also say that employers are now scrutinising the performance at C-suite level more closely than ever before and are willing to fire executives after just three to six months of their joining an organisation if performance isn’t up to par. “Patience is indeed running short among promoters and company boards,” agrees Puri.
As Indian businesses struggle to keep their heads above water and economic complexities only increase, top level talent in India can expect that they will need to really justify the salaries they draw. PwC’s Sankar has the last word. “Top talent will always command high prices and be in demand but we have to be prepared to live in an era of volatility. Job security, even at the top, is a thing of the past.”