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March, 2009, Volume 13, Number 5

Wharton Leadership Conference:  Leading in a Dynamic and Unpredictable World, June 16, 2009  

India’s ICICI Bank CEO K. V. Kamath:  Falling Prices Can Drive Growth Even in a Downturn
India Knowledge@Wharton
 

The Unthinkable:  Who Survives When Disaster Strikes, and Why
By Amanda Ripley 

Wharton Leadership Conference:  Leading in a Dynamic and Unpredictable World, June 16, 2009

 

The 13th annual Wharton Leadership Conference is scheduled for June 16 in Philadelphia on "Leading in a Dynamic and Unpredictable World.”  For information on the conference, click here,  and for registration, go to here.  Early bird registration is still available now through March 31.


 

INDIA’S ICICI BANK CEO K. V. KAMATH:  Falling Prices Can Drive Growth Even in a Downturn 

India Knowledge@Wharton 

During the World Economic Forum in Davos, Switzerland, which ended February 1, Michael Useem interviewed K.V. Kamath, who has served for more than a decade as chief executive of ICICI Bank, the largest private bank in India and a major player in the Indian economy and beyond.  Below is an edited version of the conversation.

 

Michael Useem: We spoke in 2006 at this event, and at that time, you said that in order for ICICI to break into the top tier of global banks, it would have to leverage India's rural economy. Has that strategy worked?

 

K.V. Kamath: That strategy has worked to some extent, but other strategies have worked out better. For example, our strategy to broad-base our business across the world, particularly to try to connect with non-resident Indians, and corporate India, which is going global, gave us momentum during the past two or three years. Now that the global presence of Indian companies is in flux [because of the slowdown], it gives us a good opportunity to return to our rural strategy.

 

You may wonder why we did not perform better on the rural front in the last three years.  There were two reasons. First, our entire rural strategy was based on technology as a disrupter. Technology did become the disrupter, but looking at the advent of mobile technology, we thought that that's going to be the lowest cost option to reach into the village. Second, in the last three years, the penetration of mobile technology into the village wasn't as deep as we would have liked it to be. It is getting there now. So we are looking at another 18-month horizon before rural India gets to a position where we can actually deal with the telephone instrument as the default device [for mobile banking].

 

Useem:  To shift gears, let us talk about the fact that you have announced your plan to step down at the end of April. Chanda Kochhar, your chief financial officer will take over as CEO at that point. This major announcement was made in December. I have read that Narayanan Vaghul, your predecessor in the chief executive position, now chair of the board, knew in the first few months after meeting you that you should be his successor. Along those lines, how long did it take you to identify Ms. Kochhar as your successor?

 

Kamath: There has been a change in the context during the time that Mr. Vaghul thought of me as somebody with the ability to take his place, and the last few years. In recent years, ICICI has become a more broad-based organization; its mission is now on a much broader footing, and there are several business lines. The strategy I adopted during the last 10 to 12 years was to see who could be groomed to grow into what I'd call the leadership context. I wanted to ensure that we had at least four capable people who could be considered possible and potential successors. Each had to be a proven leader in his or her own business. We had people in our various subsidiaries, and we had people within the bank. In the last two years, we further refined the criteria we wanted in this new leader.

 

One element that I put in – which today, when I look back, seems particularly timely – was to look for somebody who could deal with complexity, shocks and disruptions in a stable way. Typically in most leadership situations, this attribute is not considered to be of the highest importance, but we made it the No. 1 quality. And, of course, all the other leadership traits were also required. So everybody was tested, but as the cone grew narrower on its way to the top, Chanda Kochhar emerged as the leader.

 

Useem: Could you speak further about that testing process? How did you go about acquiring the information you needed and, of course, the board needed, to decide that Ms. Kochhar was the one? I realize this process probably took 12 or 18 months to go through. Could you explain how you managed the way you gathered information, consulted with your board and made the final decision?

 

Kamath: There were several elements. The first was what I would describe as "managing the corporate center" – which involved looking at investor relations, the media, external representation of the organization and various profit drivers. I viewed each of these leaders in the context of this framework. At the same time, we started gathering feedback from peers and superiors as well as people around us – including customers and other stakeholders, such as government officials. We exposed these leaders more and more to such situations and continued getting feedback.

 

This process was not as direct as exposing a person to a situation and then coming back and asking, "How did this person do?" It was much more subtle. When you want feedback about managing the business of the company, you can get feedback very directly – you know whether someone is effective or not. But when you evaluate how someone manages external relationships on behalf of the company, you need to seek out feedback in subtle ways. It is not as structured as getting 360-degree feedback. So we used a combination of structured as well as unstructured mechanisms to gain feedback. We continued this process for a year to a year and a half.

 

Useem: Describe, if you could, how you consulted with the board, what kind of input they had into the final decision and how they concluded that Ms Kochhar was the right choice.

 

Kamath: On ICICI's board the nominations committee, which selects the CEO, is called the governance committee. We started consulting this committee some two years ago. We offered them a slate of leaders. They had seen these leaders in the early years, but we went one step ahead. We decided that leaders who were in consideration for the CEO's job – even if they were running subsidiary companies – should be invited to attend every board meeting of the holding company, the parent, so that they could interact with the board members. That would give our board members the opportunity to see them firsthand, talk to them about their businesses, and so on. This was done for two years. Every two months, ICICI's board members got a chance to see all the people who were under consideration for the CEO's position. Each candidate was explicitly told that this was the process. After that, as the date for naming the new CEO drew closer, the governance committee began considering the various candidates and their attributes. In April 2008, the choices were discussed and that was followed by further discussion at the level of the whole board. After that, we made the decision in the last quarter of 2008.

 

Useem: ICICI is well known for developing its own leadership talent, which enables you to have this kind of open final look at four, maybe even more, candidates. As we look back, though, to the experience of GE, as it came up with its successor, Jeff Immelt, in 2001, the two other candidates who were finalists for replacing Jack Welch, within days, had left the company. When Indra Nooyi became the chief executive of Pepsi two years ago, her first act as the new CEO was to go to meet with her counterpart – that is, the person who was closest in contest with her to become chief executive – and to plead with him not to leave the company. Would you offer your thoughts on what you did to retain the talent that was under consideration? What steps did you take to keep the other candidates? What would you advise Ms. Kochhar to do to retain the people who were not picked in her place?  

 

Kamath: Every CEO quickly realizes the strengths that various people bring to an organization, and what should be done in that context to keep the organization focused and intact. I'm sure Ms. Kochhar will do the right thing. This is a heavily board-driven organization, and any major action will need to have the nod of the board or governance committee. The governance committee, I'm sure, will also, in that context, keep talking to the CEO. And I'm sure the CEO will do what is in the interests of the organization.

 

Useem: Let me move to the bigger picture of events around the world during the last few months, as we've hit this huge financial crisis. The U.S., in particular, faces a crisis of such a magnitude that some of our banks are close to being nationalized. India has been through that experience back in the 1960s. From your own experience of witnessing that and watching how banks – state banks as well as private banks – in India have operated in the years since, if you were called into the White House to consult with President Barack Obama, what would be your advice about the role of government in nationalizing or keeping banks at arm's length now in the U.S.?

 

Kamath: Two issues need to be addressed. The first is investor confidence, and the second is systemic integrity. By systemic integrity, I mean that if you allow a massive failure of the financial system in the U.S., the impact would be felt, not only in the U.S., but in the rest of the world. These two issues are of paramount importance. Within this overall context, the problem could be approached in several different ways.

 

If you have taxpayer money being used to rescue the banks – whether you call that nationalization or something else – the taxpayers have to get a much better deal than it might have been if you had another investor's money coming in. For example, consider the issue of large bonuses that have been paid out on Wall Street. In fact, this should have been a pre-condition before public capital was used to bail out the banks. I just cannot understand how the government could put in such large sums of money without any conditions about bonus payments. Bonuses should have been zero. There is this myth that people would leave to go to other jobs, but that was just nonsense. When you are up against such a situation, hard action is required. The terms could even have been, "We will take a look at reasonable compensation." I am not saying there should be controls. If this is done, you have a structure that is built on trust and which people can support. That is what should have happened in the governance context.

 

Second, I think the current challenge calls for a good bank-bad bank solution. There is no other way. If you go back a few years to what the Chinese did, it was essentially a good bank-bad bank solution to their banking crisis. Chinese banks had gross EPAs (external payments arrears) equal to 50% of the country's GDP going back eight years. That situation has been cleaned up – even though hardly anybody knows about it. What they essentially did was to take the troubled assets outside the banking system and say, "The government will tackle these problems." As for the rest of the assets, the banks were allowed to get on with their business.

 

Now, China's situation is slightly different from the U.S., because China was not running a budget deficit. They had a budget surplus, so they could do that. In the U.S. context, I think the government would need to simultaneously work on closing the budget deficit so that credibility in the U.S. currency and the U.S. system is maintained.

 

Useem: I have a two-part question now, coming back to India, on the impact of the world financial crisis. How is the crisis affecting banking in India? And second, has the crisis affected how you think strategically about where your own bank should be going now?

 

Kamath: To answer the first part of your question, even though the Indian economy has been opening up, the economic system here is not too integrated with the world. In international trade, exports are just about 17% or 18% of GDP. So while we are impacted by the financial crisis, the situation is not dire. Indian banks have been very conservatively leveraged since 2002. The total capital-to-asset ratio in the Indian banking system is probably eight or so, which is probably among the best in the world. So there are no time bombs sitting there in terms of what could happen.

 

In terms of our own view of the world, we need a lot more clarity before we go out aggressively with a global push.  Several questions need to be answered. For example, will protectionism surface across the world? Will trust be restored – though the rating agencies have effectively failed in what they were doing? We need to understand these issues before we can commit significantly more capital to global businesses. The good news here is that India has a huge domestic opportunity, because the country continues to grow at 7% to 8%. I would say that despite all the problems, this year and next year we are looking at a growth rate of 7% to 7.5%. So we have certainly enough to do back home.

 

Useem: Let's stay with this issue of the opportunity within the crisis. As you do look at the next couple of years, what are some of the opportunities that you would not have seen six months ago, but you do see now because of this crisis?

 

Kamath: The big opportunity is that the crisis has brought along a major correction in global prices. Oil is now at less than one-third of what it was, and that is true of most commodities. To me, this is a huge driver in terms of what will happen in the world. This is very important for a developing country because we are looking at product prices that are just 50% to 60% of what they were six months ago. The opportunity in the global economic crisis is that falling prices can drive growth momentum – and this is especially true for developing countries. It means better opportunities for our companies.

 

Useem: Let me ask you now about your role as president of the Confederation of Indian Industry. In view of the publicized governance problems and malfeasance at Satyam, what advice would you give to other Indian companies, including your own, on how to respond to the shadow that has been cast across Indian business, at least as it is viewed from outside the country?

 

Kamath: The first thing that India needs to communicate is the robustness of the entire process, notwithstanding Satyam. The robustness of the process starts with the robustness of financial institutions – in this case, the banking regulators. The second [thing] is the rapid action that the government took, literally, within 48 hours of bringing a new board in. I think it's a huge signal to the outside world. I have not seen this sort of an action in any other failure that took place in the U.S. We should now give this new board time to see how they will resolve the challenge. I would like to believe it's a one-off thing that has seen a rapid response from the government, and I think the basic institutional framework which governs [situations like these] is in place.

 

Useem: If other Indian chief executives come to you in the months ahead and ask you for advice on what they have to do to ensure that their companies have the best governance – both for internal purposes but, also, for purposes of reputation with international investors – in what area would you say governance of many companies in India needs the most work?

 

Kamath: I think, at the basic level, honestly and transparency. We will have to find a way to communicate that transparency, whether it is through what we publish in our reports, or whether it is the way in which we will seek out monitors and those people who evaluate us. To me, that would be the basic way.

 

Useem: Mr. Kamath, I'm going to close with two more personal questions. You step down as chief executive at the end of April. What do you do after May 1? You are going to become non-executive chair of ICICI. What does the future hold for you personally?

 

Kamath: Very simply, I will continue to spend maybe 25% to 35% of my time with ICICI. Secondly, I want to keep one third of the time to myself – that is, to be with my family. I have two growing grandchildren and I want to spend time with them. And in the same 35% of my time, I would like to learn all the things about which I am ignorant. There are a whole lot of things out there which I don't know [much about] – arts, literature, philosophy, music, dance. I'm an illiterate. I know engineering. I know technology. I know banking. And I know maybe a little bit of leadership – but that's not the world. There's a whole lot there. So I need to learn to educate myself. The remaining 30% of my time will go to other public activities, whether at the management level or otherwise. We'll see as we go along. So break it up into one third, one third, one third.

 

Useem: I will close on this. You've had a distinguished career in banking. You took a stint with the Asian Development Bank. There have been some twists and turns in your own career path. Looking back, what do you consider your most important single career decision along the way?

 

Kamath: I think the most important single decision along the way was to come back from the Asian Development Bank to India in 1994.  

 

 

The Unthinkable:  Who Survives When Disaster Strikes, and Why 

 

By Amanda Ripley

 

Below is an excerpt from The Unthinkable: Who Survives When Disaster Strikes – and Why. Homeland security writer for TIME magazine, Amada Ripley offers a look at instinct and disaster response through the psychology of fear.

 

Largely because of where we live, disasters have become more frequent and more expensive.  But as we build ever more impressive buildings and airplanes, we do less and less to build better survivors. 

Disasters have become more frequent and more expensive. But as we build ever more impressive buildings and airplanes, we do less and less to build better survivors. 

How did we get this way?  The more I learned, the more I wondered how much of our survival behaviors – and misbehaviors – could be explained by evolution.  After all, we evolved to escape predators, not buildings that reach a quarter mile into the sky.  Has technology simply outpaced our survival mechanisms? 

But there are two kinds of evolution: the genetic kind and the cultural kind.  Both shape our behavior, and the cultural kind has gotten a lot faster.  We now have many ways to create “instincts”: we can learn to do better or worse.  We can pass on traditions about how to deal with modern risks, just as we pass on language. 

So then the question became, why weren’t we doing a better job instilling survival skills through our culture?  Globalization is one of those words that gets hijacked so often it loses its meaning.  That’s partly because the word encompasses so much, including opposing ideas.  In the past two centuries, we have become far less connected to our families and communities.  At the same time, we have become more dependent upon one another and technology.  We are isolated in our codependence, paradoxically. 

More than 80 percent of Americans now live in or near cities and rely upon a sprawling network of public and private entities to get food, water, electricity, transportation, and medicine.  We make almost nothing for ourselves.  So a disaster that strikes one group of people is more likely than ever to affect others.  But just as we have become more interdependent, we have become more detached – from our neighborhoods and traditions. This is a break from our evolutionary history.  Humans and our evolutionary ancestors spent most of the past several million years living in small groups of relatives.  We evolved through passing on our genes – and our wisdom – from generation to generation. But today, the kinds of social ties that used to protect us from threats get neglected.  In their place, we have substituted new technology, which only works some of the time. 

In May of 1960, the largest earthquake ever measured occurred off the coast of Chile, killing a thousand people.  Luckily, Hawaii’s automated alert system kicked in, and tsunami sirens went off ten hours before the island was hit.  The technology worked exactly as planned.  But it turned out that most of the people who heard the siren did not evacuate.  They weren’t sure what the noise meant.  Some thought it signaled that they should be alert for more information.  The technology was there but the traditions weren’t.  A total of sixty-one people died in Hawaii that day. 

It’s hard to trace a single cause for why we do what we do under extreme duress….  I’ve tried to resist the urge to concoct one grand narrative.  But even in that complexity, simple truths emerge.         

Source:  Amanda Ripley, The Unthinkable: Who Survives When Disaster Strikes – and Why, Crown/Random House, 2008.

 

Rejuvenation and Performance:  Taking Time Out

 

By Stewart Friedman

 

Stewart Friedman blogs about how to improve performance in all domains of life – work, home, community and self – by integrating them well.  Below is an excerpt from his posting of February 25.   

 

A New York Times story reports on the positive impact school recess has on academic performance....  Here’s how it begins:  “The best way to improve children’s performance in the classroom may be to take them out of it.”

 

The paradoxical lesson of this story is relevant not just for school children but for us grownups, too: taking time out to restore and rejuvenate ourselves results not in reduced performance caused by less time dedicated to work, but to increased performance caused by the stronger, more focused effort you bring to work after fruitful rest.  But in the midst of this soul-crushing, terror-inducing recession, how can anyone think seriously, and without guilt, about undertaking activity that isn’t directly reducing costs or increasing revenues?  The short answer is that you can’t afford not to. 

 

Our minds, our bodies, and our spirits can only go so far without some care and feeding. So perhaps the more difficult question is this: How do I do it in a way that works and is sustainable? Here are some tips for the rejuvenation-starved:  

Whatever you do for your recess, try it in small steps for starters. You are much more likely to make it happen if you undertake some activity that doesn’t require a big restructuring of your life.

         

Make a list of the benefits  –  direct or indirect  –  that your recess will have on other people in your life. Not only will you feel less guilty about doing something that at first might have seemed selfish, but you’ll actually be more likely to do it when you realize how it will benefit others.

         

Enroll someone you trust to serve as your coach. It could be anyone, so long as they can provide both support and accountability pressure.

         

After a week or two, get feedback from the people who matter to you to see if indeed you’re better able to serve their needs and interests as a result of taking your recess.

         

Finally, adjust as you learn what’s working and what’s not, again, from the point of view of the people around you. There are tons of ways it might not work! But these will be many fewer if the people around you see your recess as useful for them, too.

 What might this grown-up recess look like in practice?  Here are a few examples:

 

Shut off your BlackBerry or cell phone for 30 minutes each day, whenever works best. Yes, this alone can count as recess. Just shutting off the stream can leave you feeling more focused when you turn it back on.

 

Take a yoga class.  One hour a week is a pretty small step. What’s the benefit to others? Well, if yoga relaxes you, maybe you’ll be a more pleasant boss, parent, partner, or friend to be around. And improving your health and posture might mean less time absent from work. Going with a friend or coworker means you’ll be less likely to skip class.

 

Treat yourself to a weekly food splurge at a farmer’s market or local co-op. You have to buy food anyway, so there’s little extra time involved, and if you’re someone who enjoys cooking and eating, preparing a meal can be a relaxing and creative activity. And it’s just more fun when you get to use fresher or more unusual foods. Benefits? You get to spend more time with your loved ones, and you’re less stressed and distracted at work because you feel more connected to your family.

 

Read a book for fun. Try to set aside 20 minutes a day, at first. How will a little light reading on your part make things better for others? Maybe it will make you a more interesting conversationalist for your friends, or a role model for your kids. Maybe something you read for fun will give you a great idea for something at work - that random cross-pollination is a big part of creativity. Pair up with a friend and agree to swap books. Or, check the book out from the library: if you have a deadline you need to finish by, you’ll be more likely to make the time to read it.

 

Do a crossword during your lunch break. Studies have shown that regularly doing crossword puzzles helps strengthen the mind and may delay the onset of dementia or forgetfulness. Taking at least a 15 minute break during lunch will make you fresher for the afternoon.

 

Source:  Click here.

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