Nobody consciously decides to design a company for existence in perpetuity. It is presumed that the company is an organism with the responsibility to evolve and exist. Also, in the words of the US Supreme Court in 1819, a “corporation is an immortal being”.
Yet, there is no reason for promoters or leaders to be so sanguine about a perpetual future for their organisation. A study of about 30,000 companies listed on US stock markets from 1960 onwards, revealed that 80% of the companies that existed before 1980 are no longer around and another 16% probably won’t be here in five years.
Before the advent of venture-funded enterprises, most companies had been family-run enterprises. A study done by the Time magazine revealed that 70% of wealthy families lose their wealth by the second generation and a staggering 90% by the next. It is my contention that every third or fourth CEO will turn out to be a disaster.
A fundamental problem is identified by The Economist in an article of August 11, 2021, titled ‘Chief executives are the new monarchs’. A sense of hubris develops as they get massive compensation. CEOs of big companies in the US make more than 300 times as much as typical workers at their companies! As The Economist aptly notes, the greatest danger to these monarchs may come when they seem at the height of their powers.
So, how does all this lead into my quest of designing Happiest Minds for perpetuity? The answers are in 3 dimensions: Ownership, Leadership, Business Strategy.
The ownership position in principle is the simplest. A legal framework has been created whereby about 85% of my shareholding will be parked in a private trust, the dividends from which will completely go to sustain SKAN, my medical research trust. Three Trustees who succeed me will be mandated to exercise their votes with the Exec Vice Chairman/Managing Director/Executive Board of the company. The leadership will be charged with a stipulation that controlling interest in Happiest Minds will not be allowed to go below 40%.
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Two generations of trustees have been identified and the prime role of each trustee will be to bring on their own successor. Through this framework, Happiest Minds and SKAN, two mutually dependent entities, can theoretically flourish for 100 years and beyond!
Regarding leadership, the Executive Board is key to my plan. The EB comprises 3 business unit heads and the Managing Director & CFO. They are individually and collectively the CEOs of the company. This is not a 2-in-a-box model multiplied by 2. Bringing on a new CEO is not a one-off event. The Executive Board will be continuously refreshed by bringing in a new EB member about every 5 years.
What will we miss with this approach? We may not get the mercurial, brilliant leader who takes the organization to great heights. As observed earlier, such charismatic leaders are often followed by others not so successful. Another US study showed a surprising relationship between revenue growth and mortality. It concluded that “while the fastest shrinking companies are most likely to perish, they are closely followed by the fastest growers”.
Finally, the most difficult aspect to try to manage for perpetuity is “Business Strategy”. Here, one can only guide future generations of the Executive Board with few principles. These include watching for secular shifts which change industry model and structure; always being on the leading edge of technology; never bet the company and follow the highest standards of governance.
The Happiest Minds experiment for creating an institution which will survive in perpetuity is unique. Obviously, I won’t be around to observe if it is successful. While the legal framework is pretty much tamper proof, ultimate success will depend on the enduring belief and commitment of future leaders.
Ashok Soota is the executive chairman of Ltd.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)