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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 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. |
