Promoter Leadership Vs Professiona: The objective of this article is not to discuss the NPA problem as such but one of the essential causes why they happen.

1. PROMOTER LEADERSHIP
VS.
PROFESSIONAL LEADERSHIP
(By Ajay Bhat Monnet Ispat)

2. Last few years have been predominantly thickly overcast with problems of non-
performing assets in the banking system. It’s not that the NPA is a new
development or has been a fresh news, NPA’s are synonymous with lending
business globally so are they in India as well but the magnitude & size of NPA’s in
India after 2010 has been rising at alarming rate.
The objective of my article is not to discuss the NPA problem as such but one of
the essential causes why they happen. Lot has been written on this subject but
among the various reasons yet hidden there is one important & critical reason,
which is not debated & at least has not been cited as one of the key inputs of
this NPA menace.
Let me try to elucidate this, let’s look at top 50 companies referred to IBC in the
past over 18 months. We know clearly they are all over leveraged & their
business models have failed to meet the obligations, hence the reference. Why
are these companies over-leveraged & why did their business model collapse.
One of the striking reasons is lack of competent leadership team, which the
promoters of these companies failed to develop & empower.
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3. I made a salient study of these companies & found this to be a common problem.
Only over-leverage can never be a source of potential trouble in a company to
warrant its reference to IBC or otherwise a change in management. Collapse of
an industry is different from a collapse of few companies in an industry. I am
talking of the latter.
Expansion and diversification was purely driven by Promoters at their choice and
plan with utter disregard to inputs, suggestion or advice of key management
personnel. The so-called growth was essentially driven by debt. Promoters always
believed that their plan of growth would yield returns to take care of capital
employed, which proved never the case. My counterparts in different companies
confided how the promoters of the companies would get involved in all major to
minor approvals or at least passed their hands, the time consumed would
obviously overlook some of the important tasks needing their attention.
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4. Resistance or dissent by any key management team was seen a challenge to the
authority, ownership and exclusivity of Promoters. Therefore there was no
meaningful dissent by any key management person.
Dissent is essential in corporate working, it is not disobedience but expression of
difference of opinion, dissent encourages free flows of ideas, corrects flaws in
decision-making process. Unfortunately it was least accepted & termed as
challenge to the power & authority of promoters in helm. It destroys corporate
culture, makes executives defensive, kills ideas & thoughts small to major
decisions required approval or at least the consent of promoters. It made any
talent in management redundant over a period of time & generate virus of
inefficiency & compromised performance.
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5. There is life cycle of every company, which incidentally is the life cycle of its
promoters. When a company is young its micromanaged by the promoters with
the handful of people around, success at this stage leads the company to stage of
maturity, the company becomes mature, the strength of manpower at senior
level increases but promoters continue to run the companies in the same style &
approach with little delegation & empowerment. It’s still fine, but when the size
starts becoming bigger & bigger, the mechanics of control & management
remains the same, the problems start cropping up slowly. Promoters continued to
keep all strategic, operational, as well as decision of execution to themselves.
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6. News
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o Current board of directors to be disbanded: Ajay Bhat, Advisor, Monnet Ispat & Energy
o TOI Blog
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