This first-ever ranking of Indian CEOs, based on the long-term shareholder returns they generate, builds on Morten Hansen, Herminia Ibarra and Urs Peyer's pioneering article in the January 2010 issue of the Harvard Business Review, or HBR, which ranked 1,999 corporate leaders from 1,205 global companies on the shareholder performance they delivered over the course of their tenure.
We collected data on 374 CEOs of 202 publicly traded companies on the Indian stock markets drawn from the S&P CNX 500 since 1998. We analysed our data to see which factors increased the likelihood that an executive would be placed high in the ranking. To this end, we searched for attributes of the CEOs as individuals, characteristics of the companies they led, as well as the features of the broad industry sectors in which their companies participated.
While our ranking includes many of the 'usual suspects', such as Mukesh Ambani of Reliance Industries, Sunil Mittal of Bharti Airtel, and A.M. Naik of Larsen & Toubro, it also throws up some intriguing surprises.
We found that CEOs with an MBA degree did much better in our ranking. Interestingly, the successful CEOs in our list were as likely to head an Indian private sector company as lead a foreign multinational operating in India; there was no difference between these two types of enterprises.
However, leaders running state-owned enterprises did less well than either of the two other categories. Furthermore, a successor CEO who ranked high in our list typically had a predecessor who did not do as well. That suggests a 'runway effect': better to take over after a poor-performing CEO than take over from a CEO who was performing well.
Finally, industry matters but in a surprising way. We found that CEOs running companies in the telecom services sector and the information technology sector were less likely to secure a high rank in our list. In contrast, CEOs running companies in infrastructure-related sectors fared much better.
HOW DID WE IDENTIFY CEOS?
We define a CEO as the person holding the highest executive position in a specific listed company. For example, we identified Bhaskar Bhat (No. 4 on our list) as the CEO of Titan Industries and not Ratan Tata who is the head of the Tata business group that Titan Industries belongs to. Our ranking highlights the performance of the CEO irrespective of whether he/she is a professional manager (e.g., R. Sridhar, CEO of Shriram Transport Finance, No. 6), a member of the founding family (e.g., Mukesh Ambani, CEO of Reliance Industries, No. 7), or the original founderentrepreneur (e.g., Sunil Mittal, CEO of Bharti Airtel, No. 5). Indian companies use terms like 'Managing Director', 'Executive Chairman' or 'Chairman and Managing Director' to identify the highest executive position; we researched on a case by case basis to identify the leader of the operating company in question, not the leader of the business group that the operating company might be affiliated with.
Further, we examined CEOs' performance over an extended period - as opposed to focusing on yearly performance. Our ranking covers individuals who started their jobs as CEO during the time period January 1995 to June 2009. That is one reason why you will not find N.R. Narayana Murthy (Infosys), Azim Premji (Wipro) or Deepak Parekh (HDFC) in our list. They all took the helm before 1995, though they probably would have done well if included.
Our long-term focus and analysis of Indian companies is particularly timely. Indian companies have been exposed to serious foreign competition only since the economic reforms of 1991, and that decade saw many of them improve their game significantly to emerge stronger and grow rapidly in the 2000s. The question of what makes for good executive leadership takes on increased importance as these companies face new challenges resulting from this rapid growth, as well as a possible cyclical slowdown in the Indian economy in the next few years.
JUST HOW GOOD WERE THE TOP INDIAN CEOS
The No. 1 CEO on our list is Naveen Jindal of Jindal Steel and Power, or JSPL, the most valuable steel company in India today with annual revenues of about Rs 13,200 crore, or approximately $2.6 billion. An MBA from the University of Texas at Dallas, Naveen Jindal acquired control over the ailing Raigarh plant of the Jindal group when his father, Om Prakash Jindal, arranged an amicable four-way split of his business empire between his four sons in 1998. Naveen Jindal's remarkable turnaround of the Raigarh sponge iron mill through a backward integration strategy led JSPL to cheaply acquire access to valuable raw materials such as coal and iron ore at a time when competitors were paying much less attention to these inputs. This strategy insulated JSPL from price volatility in commodity markets, thus bringing down production costs and boosting profitability. Buoyed by this success, JSPL has now set very ambitious decade-long targets of scaling up annual steel production six-fold to 20 million tonnes. The company also plans to become a large power producer by scaling up almost 15 times to deliver a generating capacity of 15 gigawatts of power. In addition, JSPL has significant investment plans for its iron ore mines in Bolivia. During his tenure, Naveen Jindal has delivered a staggering total shareholder return, or TSR, of 13,784 per cent, increasing JSPL's market capitalisation by some Rs 60,600 crore (about $12.1 billion).
Now compare that with the average performance of the 50 CEOs at the bottom of the full list of 374. These CEOs produced a total shareholder return of -47 per cent, which corresponds to a compound annual return of -16 per cent during their tenure, or an industry-adjusted performance of -76 per cent. On average, these poor performers presided over a loss of Rs 12,800 crore ($2.6 billion) in shareholder value.
THE YOUNG PROFESSIONALS
Our top-performing CEO, Naveen Jindal, who started at the helm of JSPL in his 30s after securing an MBA degree, exemplifies in several ways the CEOs who are most likely to secure a high ranking on our list. Bhaskar Bhat (No. 4 on our list) became CEO of Titan Industries when he was 47 years old, having started his career as a management trainee at Godrej & Boyce Manufacturing after completing an MBA from the Indian Institute of Management, Ahmedabad. Likewise, Sunil Duggal (No. 13) became CEO of Dabur India, aged 45, having started his career as a management trainee at Wimco after finishing an MBA from the Indian Institute of Management, Calcutta.
Our statistical analysis revealed that CEOs who started their job when they were younger and had an MBA degree were more likely to attain a better ranking. Specifically, we found that, other things being equal, a CEO who started his job 10 years younger than the average age (which was 53.2 in our sample) improved his ranking by 15 places. More interestingly, other things being equal, having an MBA degree also improved the CEO's place in the ranking by 15 places.
We believe our results indicate two things: first, an MBA degree does seem to provide some valuable skills for running Indian companies. Second, the prevalence of professional managers armed with MBA degrees suggests that the 'visible hand' of managerial capitalism may be playing an increasingly important role in the Indian economy. In essence, youth and education matter for CEO performance in India.
THE RUNWAY EFFECT IN INDIAN BUSINESS
We then focused on the performance context of the firm when a CEO took over. Does it matter if a CEO took over in a context of good company performance or of poor performance? In our data set we have 122 pairs of predecessors and successors. Our analysis shows that it is easier to follow a poorly performing CEO: there is a 'runway effect', such that successor CEOs following poor-performing predecessor CEOs do better. Interestingly, these findings are consistent with results reported in the 2010 HBR article.
THE INDIAN BUSINESS HOUSE VERSUS THE MNC
We then looked for evidence of whether the organisational archetype of the firm had an influence on the CEO ranking. Clearly, subsidiaries of foreign multinationals (e.g., Hindustan Unilever), firms linked to Indian business houses (e.g., Tata Steel) and public sector units (e.g., Indian Oil Corporation) are very different types of organisations in terms of their culture and ethos, which could plausibly affect the ranking of CEOs who lead them. Our analysis of the organisational archetype revealed two very interesting insights.
First, we found that CEOs drawn from public sector undertakings, or PSUs, were systematically ranked worse. Other things being equal, leading a PSU led to a drop of 35 places in the ranking, which is substantial, given that the list has less than 400 CEOs. Second, whether CEOs were leading an Indian business group firm or a subsidiary of a foreign multinational had no statistically significant effect on their placement in the ranking. In other words, Indian leaders' ability to deliver has less to do with their firms' origins (multinational or homegrown private enterprise) and more to do with the fundamentals of how they lead their business.
These results suggest that over the last 15 years, Indian business groups seem to have evolved into a good milieu for competent people to thrive at the top - be they family members or professional managers unconnected to the promoter family. It appears that PSUs have quite a way to go in providing a similar milieu.
In conclusion, the overall image that emerges from our data is one of hope and optimism: a crop of relatively young CEOs armed with MBAs, often from top Indian business schools, are delivering shareholder performance in an economy where it is a challenge to sustain competitive advantage. A number of these high-quality CEOs are able to perform extraordinarily well in any type of private enterprise - firms linked to Indian business houses or to foreign multinationals. This suggests that traditional Indian business houses are successfully professionalising their upper echelons.