The Kentucky Derby

For the last 146 years if there has been a sporting event which has been running uninterrupted, then it has been the Kentucky Derby! The first of the Triple Crown and the only event which continued through the great depression as well as the world wars. Dubbed as the fastest 2 minutes of all sports, the derby is the most awaited of all global horse races. The owners of these thoroughbreds select their best horses and send them in to compete. They handsomely pay the jockeys and meticulously take care of their stallions. So who does actually the winning depend on? The horse or the jockey? Is it a team play? Is it the complementing talent of the pair? A great steed without a master will not be able to pace itself and a great jockey without the, ahem, "horsepower" will be of no good.

Such is also the relationship between the Board, the MD and the CEO. In large companies where the ownership is significantly diluted and the public shareholder is the real owner, the board represents them. The primary fiduciary responsibility of the board is to ensure the protection of the minority shareholder. The board like the owner of the thoroughbred spends time, effort and consideration in selecting the best candidate. Once identified the stallion, aka, the CEO is sent in for the race. The CEO is typically the executor of ideas, visions and directions. There is raw firepower in him and is an expert in following directions and more often than not providing excellent results, eventually winning the quarterly numbers race on the public markets.

The board also carefully selects the MD. Very often the MD is the promoter or owner of the company and hence already there. The MD is the jockey. He knows the horse like the horse knows the track. They both spend a great deal of time understanding each other. Without the external knowledge of competition, of the weather, of the future races and of the required pacing - when to kick in and when to slow down, the horse is nothing but a mindless machine. The crucial combination of the vision and experience of the MD and the execution capability of the CEO leads to a potent cocktail which can easily keep the competition in the rear view. An ancient parallel to this is that of the sarathi and the rath. As beautifully illustrated in detail in the Bhagvad Gita, the secret of the Pandavas winning the war was Shri Krishna's mentoring of the great warrior Arjun and Arjun eventually acting on it and playing to his strengths.

For an organization to succeed these two roles need to have a clear demarcation and each of them must play to their strengths. For the CEO to start talking of vision and for the MD to get down and execute is a recipe for disaster. Either of them can actually switch roles quite easily and may be able to pull it off, but that is not what is their primary responsibility. Stepping on to each others' toes will lead to confusion down the ranks and eventually the collapse of the system. It starts with interference where either of the two decide to move on and even the team below resorting to further creating differences for their own advantage. While the Kauravas so often tried to lure the Pandavas from Krishna but each time the team of Krishna and Pandavas came even closer thwarting all the moves that their enemies and emerging victorious.

The only thing that Krishna speaks of if to let go of the go and embrace karma. The CEO should not worry about anything other than cash profits. All is fair in love and war is too cliched and oft repeated. But it has become a cliche only because it is quite relevant. The CEO bringing emotions in to the picture will lead to dilution of the strategic vision of the MD and hamper him from achieving his own goals. If Arjun were to see his enemies as his relatives, then he had lost the war even before he had fought it. If the CEO begins sympathising with his employees, then he loses his objectivity and focus on the value creation. Similarly if Krishna were to think that he would be able to win the war with one swing of his chakra, then Mahabharat would not have happened and the world probably would be very different. Hence the MD can only coach and mentor but not execute. His role is to show the path and leave the rest to the CEO. By constantly crossing paths, the two of them remained unfocused, often confused and in the process discombobulating the public shareholder.

The very successful examples of the tag team of the MD and CEO are Asian Paints, Marico Industries among others. Some not so successful examples are the recent Vishal Sikka and Infy as well as a string of CEOs for Wipro and Azim Premji. It was very difficult for both Mr. Murthy as well as Mr. Premji to let their CEOs do their job and trust them to execute. In both cases there was a significant interference and a typical, "If I were him, I would not do it this way" attitude which led to the CEO getting undermined and eventually being nothing more than a puppet. Most accomplished CEO like the companies hired would become wounded tigers. And you cannot tame a wounded wild cat. We eventually saw the very public spats and disagreements all over the media leading to nothing but loss in share holder value.

Marico's Mr. Ghosh very craftily executes the astute vision of Mr. Mariwala. Their team has been able to win hearts as well as wallets of many shareholders. Mr. Syngle of Asian Paints and Mr. Dani are a beautiful tag team who have given rich dividends to their share holders. If the MD and the CEO are both able to place the company above else AND are able to stay within their well defined roles the company will consistently grow, often by leaps and bounds. But if you give in to temptation of getting in to each others' turfs, it will lead to nothing but chaos and shareholder value erosion.

So let us create histories by pairing the right jockey with the right stallion such that not one but several such teams emerge victorious. As you have witnessed in the past 10 days with the stock market rally, increasing share holder value is one obvious way of adding to the economy. Let us all attend the Kentucky Derby (retail investors in the stock market) and bet on our preferred tag team combinations and encourage them.