Ownership

There is a very famous TED talk by Devdutt Patnaik from 2009 where he talks about the way in which the West and the East are different. It is a well worth 18 odd minutes, specially for someone like me who enjoys historical story telling. Devdutt elucidates with relatable examples in simple form to get the message across. An important take away for me was the belief in one life vs many lives. For the Western civilization, there is no other life while as per Eastern philosophers, you will be born multiple times. Today I try to extrapolate this idea to ownership of a company and the differences between the two cultures, which belie this concept.

Mark Twain says that the two most important days of your life are one when you are born and the other when you know why. In the Occident the second event is when the young adult leaves the care of his parents and goes to university. This marks the coming of age, the circle of life and the smell of freedom and responsibility. While in the Orient the second event is when he gets married. This marks the circle of life, passage of time but not necessarily freedom. Parents in the East own their children for life. They have not learnt to let go. While most children will leave their hometown and work elsewhere, there will still be joint decisions being made for everything, right from the brand of oil to use while cooking to the bank to go to for a car loan. Ownership here is lifelong, the children belong to their parents and the parents own their children and their lives. Once a westerner leaves his home, he is not responsible for his parents nor are his parents responsible for him. Ownership has been transferred and the transaction is now complete. This does not mean that there is more love in one culture over the other, but it just means to say that the concepts are treated differently. East thrives on emotions and West thrives on practicality. That is why weddings in the East are more for the parents to fulfil their dreams bringing 1000s of people together while in the West a wedding is paid for and planned by the bride and groom leading to smaller more intimate gatherings.

In most successful companies in the West, from MS to Tesla to FB to Google, the founders do not own majority of the company. The above graphic tells you that Bill Gates, the founder of Microsoft has more than 50% of his portfolio in Berkshire Hathaway than in MS. Similarly Mark Zuckerberg holds only about 23% of FaceBook. Compare this with Indian promoters of large houses. From RIL to M&M to any of the major large cap companies, you will notice that the ownership is more than 50%. Infact Mukesh Ambani issued rights so that his holding in his own company would stay above the coveted majority mark. You often hear managers from the East advising you not to give up majority stake else you won't be able to grow while the same managers in the West will tell you to let go in order to grow. Which one is right? Data shows that letting go control in order to separate management from execution leads to greater success and hence greater wealth creation. MS, Apple and Alphabet removed the founders from executive roles and the rest is history. On the other hand in India, by end of September 2020 there were only 546 companies earning more than 100 Cr (about 15 Mn USD) in net profit.

The Indian wealth creation has been very shallow and very one sided limited to the large cap companies. Ownership for a founder in the West is having a slice of a larger pie while the promoter in the East thinks of it as having the majority of a smaller pie.

Equity ownership and its understanding is clearly illustrated above as a result of which the West is usually generous with stock option plans compared to the East. This leads to a virtuous cycle in the West as more and more employees get rich hence further more start believing in it eventually creating more billionaires and entrepreneurs. In the Orient, you see larger cash salaries and smaller stock options. Leading to a vicious cycle where the employee only sees it as paper wealth thus asking more and more for cash compensation causing further disbelief in the stock option plan.

The typical Indian promoter, and most Indian promoters who have already made it are typical, believe that they own the employee like the parents own their children. The promoter knows when the employee should come to work and when the employee should eat, how many times can he go for a smoke break and how much money does he need to earn. The Indian promoter is tight fisted and controlling in the name of the betterment of the employee. Indian companies have rigid rules and take pride in controlling their employees. I have heard many promoters gloating to their friends about how they are able to control professionals. This leads to a one way street to ownership. Since they do not transfer ownership but only responsibility, there is only that much that an employee is willing to go to. Most employees then work the usual 9 to 6 job, punch in and punch out. There is no going beyond the call of duty. I would be selfish here and blame only the promoter stating that every Indian employee is capable and willing to go that extra mile, but there needs to be a transfer of ownership along with responsibility.

Contrary to the East, the West is very clear about transference of power hence ownership and responsibility. The leaders trust their employees to perform their duties without micromanagement. West does not dictate strict timings and rules. However, as I have worked also in the West, I can with great certainty say that despite having no rules, the West is the most disciplined. The office is buzzing by 8 am on all weekdays. The meetings always start on time and there is always a certain preparedness for any project, meeting or review. Unlike the West, in India, there is a lackadaisical approach to the whole review and meetings. I have never had any meeting start on time or even have an agenda. The secret to having employees take charge is a transparent review mechanism. If you are going keep all decisions to the "senior management" then the system will underperform. But if you are bold enough to publish the way you are evaluating everyone and make it democratic, you will have the key to a motivated workforce who will successfully monitor and even rate themselves. Indian companies refuse to be transparent with their own employees. This is counter intuitive to the fact that you consider them to be someone to exert control on but without any sort of freedom. Most unlisted companies do not share important P&L and Balance Sheet information with their employees, hence keeping even their senior management guessing.

Ownership is the successful delegation of authority. But only outside of the East. Like the above cartoon so aptly puts it, if the MD and CEO are going to take all the decisions, then the lack of the sheer bandwidth will lead to poor growth for the organization. Today thanks to technology, we are able to delegate and monitor with great ease and hence make progress even faster. What the world accomplished in the last 15 years, we will now accomplish in the next 5 years. And if India wants to embark on the Atmanirbharta journey, then there needs to be a lot more letting go and a lot more of believing. If you do not let go then we will only age and not grow.