5 days ago
CEO and author Shiv Shivakumar: ‘A wide pay gap hurts employee morale'
Every time companies' annual results are announced, there's one figure that is tracked even more keenly than the bottomline—the whopping pay packages CEOs take home, even as the average employee has to make do with paltry hikes which barely cover the cost of living. Shiv Shivakumar, former chief executive of PepsiCo India, Nokia India and one of India's longest-serving CEOs, who recently published his latest book, The CEO Mindset, which touches upon leadership thinking, strategy and personal growth, says CEOs need to be aware of such disparities because reaching the corner office isn't just about talent. In an exclusive interview with Mint, Shivakumar delves into what it takes to rise to the top in the business world, as well as what we can learn from the recent spate of scandals engulfing India Inc. Edited excerpts:
You talk about having a certain mindset to be a CEO, which is not developed only after bagging the top job, but displayed throughout one's career. Can you elaborate on that?
I call it the 'C.H.A.R.L.I.E' mindset. C stands for communication. In today's hyper competitive world, if you cannot build a simple narrative that hits home, you're gone. H is holistic thinking—even when you're a junior manager, you are looking at the big picture. A is absolute standards, where you want to be the absolute best at what you do, and not just better than your co-worker. R is reframing of issues, the ability to look at a problem from a different perspective. L stands for legacy thinking, which means you want to leave behind a legacy, no matter what your role. I stands for investing in people, which means your team members should be better off at the end of your tenure than when they started. And E is ethical execution, which is often the first thing that is flouted before a company starts seeing more trouble.
Speaking about ethical execution, India Inc has seen a spate of scandals recently, like the accounting mismatches at IndusInd Bank, the Gensol-BluSmart crisis etc. What are your views on these cases?
When do corporate governance issues crop up? First is when you have a charismatic, long serving CEO who thinks he or she is above the process. Examples of that are Jack Welch and Carlos Ghosn. The second type of thinking is a bully CEO, and Jeff Immelt was possibly close to being labelled that. The third is because of weak boards, where the board of directors are not able to tell the CEO 'hey, this is not okay'. In a lot of instances, it is also due to the overarching goal of the CEO and company to be number one. The auto industry with VW, Toyota etc are examples of this. When people stretch for the number one position, they have usually broken the processes that took them there.
What can be the antidote for these issues?
First is to have a strong whistleblower policy. Whenever something is going wrong in a company, a lot of people can clearly see it, but are afraid to speak up. A good whistleblower policy first protects the whistleblower, and then the company itself, not the other way around. Secondly, you need to have a strong audit committee. In the examples you mentioned, the audit committee should have picked up the signs of wrongdoing or conflict of interest. But irrespective of the processes, ultimately the most important thing is human behavior. You cannot design systems for flaws in human behavior.
Another recent case is that of former ICICI Bank CEO Chanda Kochhar, who is facing accusations of receiving kickbacks for granting loans to Videocon. This case is sub-judice, but in instances where guilt has been established in courts, do you think the guilty executives should be forced to pay back their compensation?
If there are mistakes which are fiduciary in nature and deliberate, then yes, I agree that compensation should be clawed back from the guilty CEOs. But we must also recognize that many 'mistakes' in business are nothing but wrong strategic calls, or business decisions which ultimately did not work out. So we must make that distinction before clawing back.
Another persistent narrative around CEOs is their huge pay packages, often touching 300 or 400 times the median salaries at their own organizations. Do you think such a wide pay gap is justified?
No, it is not. Once you pay a CEO a certain amount, the people reporting to him too expect a certain threshold. And the people below them as well, and so on. There's a cascading effect. Also, the average CEO tenure in India is 4.5 years, which is lower than the global average of 7.2 years. So it is not as if the CEO is providing dramatic results in such a short time period. I believe that there will be some regulation sometime on this issue or shareholders will object.
Also, there is a perception that these private companies' CEOs are paid a lot. So when we go to deal with other people in the ecosystem, be it the government or civil society, they look at us as if we've sold our souls to the devil for money. That's not a good thing for anybody who wants to be part of society. I know young people today are turned on by high salaries, but a wide pay gap hurts employee morale dramatically.
What are some common traits you see in middle managers who eventually go on to occupy the corner office?
Middle managers who make it to the top are excellent at collaboration. Most middle managers are in charge of some vertical or business function, and they fiercely guard their domain. But those who reach the top are excellent collaborators, they share information liberally and take an institutional view and not just a functional view of things. Also, they put up their hand when there's a crisis and are also good at coaching their people.
Conversely, what are some of the mistakes ambitious people commonly make while climbing the corporate ladder?
The biggest mistake ambitious people make is that they believe it's all about themselves and not the institution. They think they are bigger than the process. Ambition is not bad, but it becomes bad when you wear it nakedly. Collective ambition is what an institution wants.
What is your advice to people who aspire to reach the CEO position one day?
The first quality you must cultivate is patience. It will take you 15-20 years to become the CEO of a mid-sized company with ₹5,000-10,000 crore revenues. Secondly, no matter how skilled and proficient you are, you will make mistakes. But what ultimately matters is your ability to learn from your mistakes. Thirdly, you have to constantly reskill and relearn as you go along. And finally, you should enjoy the journey rather than hanker for a particular title, because you must understand that luck too plays a part. In the past, 3% in an MBA batch made it to the CEO role, today, it might be 5-7%. I always say that being a CEO doesn't mean you're necessarily better than the others, but that you might have been luckier than the others. Talent plus luck matters.
