Overview: The Men Who Built Empires

Well, it’s best to come straight to the point.

What is it that defines a great CEO? While qualities like credibility, competence and caring are much talked about and are absolutely crucial for leading effectively, we at BW Businessworld decided to approach the task rather scientifically, basing the rankings of top corporate czars on hardcore data, and not on mere reputation alone. Apart from that, we looked at the increase in total shareholder return for the company along with its market capitalisation.

We roped in Grant Thornton as our knowledge partner and began with raw data of listed companies from Ace Equity to which filters were applied to include only those that satisfied basic parameters such as ‘no losses in the past three years’ and ‘revenues higher that Rs 250 crore in fiscal year 2015. The important inclusion this year is the metrics of environment, social and governance (ESG) factors.

What’s more, we also took into account the performance of active CEOs, and considered only those who have been in the same job for at least three years. Well, that was just an entry point since most of the CEOs who have featured in the coveted list have been there for a much longer period. And this is irrespective of the category they belong to: multi-national corporations, promoter-run domestic firms and organisations headed by professional managers. Of the twelve leaders that we have featured in the most valuable CEOs list this year, interestingly, a handful belongs to a professional background. And even in this category, there are some who have worked in the organisation for several years.

Consider this: Y.C. Deveshwar joined FMCG giant ITC in 1968. He was appointed as a director on the board of the company only in 1984; he later became the chief executive and chairman of the board in 1996. He is, in fact, the longest serving CEO in the country today.

Now, there could be several ways of judging and measuring the value of a CEO, but growth is the best indicator. In 1995-96, ITC reported net revenues of Rs 2,536 crore. Almost 20 years later in 2014-15, it reported net revenues of Rs 36,083 crore. That’s a CAGR of more than 15 per cent. During the same period under Deveshwar, the net profit grew at a CAGR of 20.9 per cent, while market capitalisation CAGR clocked a healthy 23 per cent.

This definitely says a lot about the leader. HDFC Bank, for instance, has grown at 20 per cent-plus annually for almost a quarter of a century under the leadership of Aditya Puri and its stock today commands the highest premium among banking companies across the world. Puri’s success has got a lot to do with how early he spots the ball — to borrow cricketing imagery. Well, these stalwarts are from the ‘Heavyweight’ category where revenue of companies during the last fiscal was above Rs 20,000 crore.

Across diverse categories such as ‘Very Large’, ‘Large’ and ‘Medium’, this year’s survey has thrown up some interesting trends. For instance, the primary factor that drives high return on capital — from which growth in sales, after-tax profit and return to shareholders in stock price performance spring — also reflects on the performance of these CEOs. In the ‘Very Large’ category, we took into account corporate houses with revenues between Rs 7,500 crore and Rs 19,999 crore during the last fiscal. Similarly, companies that clocked revenues between Rs 2,500 crore and Rs 7,499 crore were categorised as ‘Large’ and those with lowest turnover — Rs 250 crore to 2,499 crore — were listed in the ‘Medium’ category.

Now, irrespective of the size of the company, here’s what analysts say that CEOs often end up doing that doesn’t work for the company. They first work hard for a span of five to six years to create high return on capital; and that is when the market rewards them with a direct increase in stock prices. Thereafter comes a time when investment banks and other advisers suggest some serious expansion of the balance sheet. Many corporates venture into other domains, and end up taking a lot of debt, all of which drives the business down. Look at the UB Group, promoted by Vijay Mallya, who liked to be called the ‘King of Good Times’ but eventually ran into the risk of being left without an empire.

Adventure is good, but CEOs definitely have to be careful while diversifying in the name expansion that creates no real value. However, does that mean that expansion plans should not be undertaken? In fact, they are a must! A good CEO is one who is capable of taking measured risks to fuel growth since without growth, a company dies. The strategy lies in drawing the right balance between risk-taking abilities and staying grounded. This can be achieved only if CEOs are able to make the most of the opportunities around and yet keep the performance engine humming.

A strategic move, if well thought through, can fuel a company’s performance as several top corporate honchos have proved already. Take for instance, C. P. Gurnani. The CEO and the managing director of Tech Mahindra — popularly known as ‘CP’ within his peer group — played a pivotal role in the three-year transformational journey of Mahindra Satyam and spearheaded the company’s eventual merger with Satyam Computers. With his vast experience across diverse categories such as startups and turnarounds, joint ventures, mergers and acquisitions, CP has led Tech Mahindra with his strategy and philosophy that helped the IT giant emerge as a name to reckon with even in the global telecom ecosystem. In a career spanning over 30 years, he has earlier worked with HCL Hewlett Packard, Perot Systems (India) and HCL Corporation.

India Inc.’s Highest Paid Bosses
Finally, if there is something that elicits significant reader interest, it is the remuneration package of the top bosses of corporate houses. In fact, thanks to the provisions listed in the new Companies Act and revised disclosure norms put out by market regulator Securities Exchange Board of India, it is easier to gauge the hefty pay package each CEOs is earning. This is possible as listed entities now have to make detailed disclosures about compensation to their top executives.

Lets begin where we left off and take the example of CP. During the 2014-15 fiscal, he earned a total of Rs 165.57 crore, of which Rs 163.14 crore came through stock options. With the new disclosure norms in place, companies now also disclose the perquisite value of stocks their CEOs earned in a year through exercising their options which were vested to them over a few years. HDFC’s Puri in 2014-15 drew an annual remuneration of Rs 32.8 crore, of which Rs 25.4 crore came through stocks received under Esop.

Stock options are indeed becoming a very important tool for wealth creation for both shareholders and professional CEOs. According to a recently published report by Aon Hewitt, the pay-offs from Esops over the past four years have been three to five times their value at the time of granting these stocks. For the companies, stock options have become a potent tool to address shareholders’ criticism of promoter-CEOs taking hefty salaries.

As per the latest list available with Ace Equity, Sun TV Network’s executive chairman Kalanithi Maran and wife Kavery Kalanithi, executive director in the company, both took home a pay cheque of Rs 61 crore each during the last fiscal while TCS CEO N. Chandrasekaran took home Rs 21.2 crore, a 14 per cent pay hike over previous year, but in line with TCS’ topline growth of 14 per cent. Hero MotoCorp’s chairman and managing director (MD) Pawan Munjal took home Rs 44.62 crore in pay in fiscal 2015 while his brother, Sunil Munjal, joint MD, got Rs 42.46 crore.