By Ruma Dubey

L&T has been a major gainer on the bourses today. And this time around, it is not about securing a huge order but more about an internal management restructuring decision.

The company, today morning announced its decision to split the role of Chairman and Managing Director (CMD) into two positions. It has now appointed Mr K Venkataramanan as Chief Executive Office and Managing Director with effect from April 1, 2012 while Mr. A. M. Naik, will continue as Executive Chairman of the Group. The company has stated that Mr K Venkataramanan will be responsible for the businesses of the company. Mr. A.M. Naik will focus on completing the portfolio restructuring, institutionalizing the 10 Independent Companies (IC) structure, mentoring and developing the leadership team and future leaders to face the global challenges.

The question vexing many is - Why is the market celebrating a regular rejig operation at L&T? Well, this is not a routine rejig. This is restructuring at the top management level. Mr.Naik has always been the face of L&T and it is probably plastered in our minds that he is the CMD. For that to now be split into two is a new thing. Handing over the day-to-day running of the company to another able person while Mr.Naik himself concentrates on ‘ideation’ and forming a vision for the 10 verticals is being viewed as an excellent idea. More importantly, the market is happy that there is no confusion as far as succession goes. With things getting streamlined right now and putting the new man at the helm while the old is already in charge, speaks volumes about professionalism at L&T.

Significantly, this rejig shows how when an organization is run professionally, not as a family run business, succession plans are much easier to make and implement. The years of man-hunt by Ratan Tata for filling in his shoes; siblings fighting for control, makes one wonder about the way family businesses are run in India. Is it right to ask a son or a daughter to take over even though he/she may not be as fit or as good as another senior employee in the company? Does the senior employee, when working in a family run business always keep in mind the fact that he will never become the CEO or CMD as he is an ‘outsider’ when it comes to that one position?

The reason is simple – to protect one’s investments and assets. When a person puts up a company, investing his money and then builds it up to a conglomerate, he naturally wants to ensure that his investment and assets built stay within the family. The senior employee more fit for succession might take the company higher but what is the guarantee that he will not squander away the money, leaving his children high and dry?

What about abroad? How come companies there do not necessarily always put their son or daughter at the helm? Warren Buffett is not looking at his son succeeding him nor is Bill Gates at this moment. Steve Jobs too did not do that. (Their children are too young) In most of the companies there, it is talent which ensures top notch positions. Yes, the promoters there too wants to protect his investments and assets and his children’s future too; but their children and family continue to hold stocks in the company, they do not ‘run’ the company or meddle in day-to-day management.

It is thus easier for Mr.Naik to name a successor when he is also an ‘employee’ in that sense. Yes, L&T was founded by two Danish engineers, Henning Holck Larsen and Soren Kristian Toubro but it now being run by indigenous talents. A quick glance at the shareholding pattern shows that there is no identifiable promoter in L&T. LIC holds 18.69%, L&T Welfare Employees hold 12.16%, SUUTI holds 8.27%, GIC holds 2.06% and New India Assurance holds 1.19%. Directors along with their relatives hold 28,00,694 shares or 0.46% stake.

ITC is another such professionally run company which has no identifiable promoter. And it is also one of the bluest of the blue chips to hold in one’s portfolio. ICICI Bank, IDFC, Federal Bank, IFCI, Karnataka Bank are other similar independent companies.

Clearly, independent companies are veritable blue chips and almost always a huge success. Like the Bhagwad Gita says, “Always perform with detachment any action you must do; performing action with detachment, one achieves supreme good.” Looks like this sacred truth of life works in the corporate world too!