Take an organization with business divisions that overlap, add rapid growth, and flavor with problems arising from an uncertain environment. What you have, potentially, is a recipe for confusion. At Wipro, India’s third-largest software services firm, however, little evidence of confusion has appeared despite the turbulent winds that have buffeted the company for the past few years. Revenues have grown to nearly $4 billion today from $1.35 billion in 2005, when former CEO Vivek Paul left to join Texas Pacific Group, a private equity firm (see Confessions of an Aspiring Venture Capitalist). Wipro has had no CEO since Paul’s departure, with chairman Azim Premji — who owns more than 80% of this Mumbai- and New York-listed company — combining the roles of both chairman and CEO.
That situation changed when Wipro announced in mid-April that it had appointed not just one CEO but two: Girish Paranjpe and Suresh Vaswani. Paranjpe has been with Wipro since 1990 and most recently was president of the BFSI (banking, financial services and insurance) vertical of Wipro’s global IT business. Vaswani is a 23-year veteran at the company and was, before his promotion, the president of Wipro Infotech. In addition, he oversaw some areas of the global practices of Wipro Technologies.
Wipro’s organizational structure is complex and sometimes baffles outsiders. The IT business has two organizations — Wipro Infotech and Wipro Technologies. The latter handles the global business while Wipro Infotech serves India, West Asia and Asia Pacific. In functional terms, the company has a matrix structure with three verticals and two horizontals. The verticals are the $1.06 billion technology business (which is in the product engineering and the telecom service provider space); the $1.4 billion enterprise business (targeted at manufacturing, healthcare, retail, etc.); and the $799 million financial services business. The two horizontals are the $1.1 billion global practices business (testing, package implementation and technology infrastructure services) and the $290 million BPO (business process outsourcing) operation.
These verticals and horizontals are headed by executives who were expected, after Paul’s departure, to function as CEOs. But, Premji got roped into the day-to-day functioning, and inevitably he was overburdened. “It pushed too much of the operating load on me and was getting counter-productive,” says Premji.
Premji is confident that the new arrangement will work. In an interview with India Knowledge@Wharton, he said, “We believe that two people who have worked together for more than 10 years and been in the company for more than 15 years would be able to work very well as a team. The fact that 75% of our revenues come from global markets, the fact that we are growing at 30% a year in a service, highly people-intensive industry, we figured that a two-man team at the top would be stronger than one man at the top. I continue to be executive chairman, but they are the joint CEOs of our IT business.” (Read a transcript of the interview with Premji about the joint-CEO arrangement.)
The two men occupying the hot seat — or, in this case, seats — are equally gung-ho. Says Vaswani: “Given the size of our business and the ambitions that we have for our business, two is certainly better than one. We do believe that the power of two will help us so far as we are concerned, given our environment.” Adds Paranjpe: “Given the enormity of the opportunity and the task at hand, we felt it was worthwhile to have two of us trying to drive this rather than leave it to one individual to try and do [everything]. And from a personal perspective, it can get very lonely at the top. So, having two people helps.” (Read a transcript of the interview with Paranjpe and Vaswani about Wipro’s reorganization.)
Two Views from Wharton
“The business environment in India gives an impetus to this model of collegial and collective leadership,” says Ravi Aron, senior fellow at Wharton’s Mack Center for Technology Innovation, who has closely studied Wipro’s strategies for the past six years. Companies like Wipro that are anchored in India face both an “Indian premium” and an “Indian penalty” associated with doing business in that country, he says.
The “premium” aspect for companies doing business in India is the combination of access to a highly skilled labor pool and attractive wage levels, says Aron. The “penalties” are the uncertainties in the business environment with respect to infrastructure, power availability, urban transportation and stability in policy regimes. “Even countries in Eastern Europe like Poland and Czechoslovakia can more or less take for granted the availability of urban amenities, power and transportation,” he says.
Companies like Wipro need two CEOs because of the complexity of doing business in India, Aron argues. “On the one hand, you have to manage offshore client relationships and business development by staying really closely tuned to what is happening in international markets. On the other, you have to be embedded in India to manage the country-specific challenges,” he adds. “Sometimes these two faces of complexity are quite divorced from each other; they are different sets of challenges. It may be difficult for the same CEO to handle both ends.”
Another reason such a “collegial leadership model” works in some Indian companies is because of what Aron calls the “founder effect.” The founders of companies such as Wipro, Infosys Technologies and HCL Technologies “are entrepreneurs in some senses, and are more principals than employees,” he says. “They have very strong shared values and they have seen their companies grow over the years. Conflicts between CEOs often occur because of vastly divergent visions and different skills; that’s not the problem with these people,” Aron notes.
Aron believes the twin-CEO model should work well at Wipro based on his personal knowledge of the relationship between Vaswani and Paranjpe. “Suresh and Girish are very compatible personalities,” he says. “Both are hands-on, have a great deal of discipline, never miss the details, and have a strong sense of not going after expensive, blue-sky ideas until they can be validated by research.” Aron says Premji, too, will be comfortable with the new order because of what he describes as “an extraordinarily numbers-driven environment” at Wipro where “a direction will emerge” after individual executives make their business cases. “Generally, a strategic direction emerges whether you have two CEOs or one,” he says. “There could be tactical differences, but those can be resolved.” In addition, Premji will be involved in all key management decisions, and has “always been part of the analytic filter that all decisions must pass through,” says Aron.
Wharton management professor Peter Cappelli sounds a cautionary note; he points out that he hasn’t seen the twin-CEO model work effectively in Western corporations. “Generally, in the world of governance, this is a situation to avoid,” he says. “My guess is that what ultimately happens is the co-CEOs confront the possibility of a stalemate, but there is also the possibility of them continuing to disagree, and so they may end up negotiating settlements all the time. In principle, that is not bad if they actually have the interpersonal skills to negotiate conflicts as opposed to just stalemates.”
Cappelli points out that in companies that have twin CEOs, the board of a directors could help resolve disputes. The real problem, though, comes up while trying to make decisions that reinforce the company’s culture or which make for a consistent strategy. Cappelli warns that if the two individuals differ about business direction, “you could end up with practices that don’t represent either vision because the parties are negotiating compromises along the way.” That, he says, “is arguably the worst of all possible worlds.”
Cappelli also doesn’t recommend shared power at the CEO level by carving out two autonomous business units as a way to retain top management talent. “You are basically structuring a whole corporation around these two individuals with the goal of trying to keep two people,” he says, adding that he doesn’t approve of “turning the organization on its head just to make that happen.”
Like Cappelli, some observers in India are a shade circumspect. “I believe that, in the long term, it is critical for any business to have a single CEO,” says Sudhir Sethi, chairman and managing director of IDG Ventures India, part of a global network of local venture funds. “Wipro may adopt this approach for two to three years.” Sethi, however, sees several positives. “Wipro’s adoption of a joint-CEO structure is a step indicating to internal senior management the potential of rising to the top,” he says. “To the other stakeholders, this move signifies depth of its management cadre in the IT business. The IT business is large enough to need two CEOs.”
The other side of the coin, of course, is the notion that this is the easy way out. Wipro has lost some senior people recently. Appointing an outsider as CEO — or promoting just one person — could have led to further departures. “A decision to opt for a joint-CEO structure sometimes also implies that the two may have co-skills and that there is no frontrunner,” says Nandita Gurjar, group head of human resources at Infosys Technologies. She makes it clear, however, that she is not talking about the Wipro duo, but in general terms.
Track Record of Co-CEOs
In 1999, Chief Executive magazine examined a number of joint-CEO instances that had been created because of mergers. Joint CEOs are regarded as one of the vehicles that can help in the integration of the merged entity. Still, the article raised questions about the viability of such arrangements. “Historically, the co-CEO structure has a dubious track record. Yet
companies continue to tinker with the concept,” said the article. “With prospects of success so grim, why (are there) so many attempts to breed a healthy two-headed behemoth? For one thing, the concept looks good on paper. In theory, sharing the CEO chair should leave both leaders sitting pretty, blending complementary skill sets and experience and easing the strain of overwhelming responsibility. In practice, it’s not that simple. As critics of the dual CEO structure are quick to point out, failures outnumber success stories by far.”
Consider Unilever, the Anglo-Dutch conglomerate. For 75 years it functioned with one chairman in London and another in Rotterdam. (The chairman of Unilever plc was deputy chairman of Unilever N.V. and vice versa.) In 2005, the company reported a fourth quarter loss, shareholders were up in arms, and the joint leadership structure was abandoned. Patrick Cescau was named sole chief executive. “We hope the new structure will help us win in the next couple of years,” Cescau said at that time. “In 2005, we won’t change the world, but we will make good progress.” In the past three years, Unilever has performed much better.
“In earlier times, there was a hierarchy based on age and tenure but that has now changed,” says Gurjar of Infosys. “Now the capabilities of individuals matter the most. An organization can have only one king or queen. Otherwise, each will create their own kingdom which could cause conflict and pull the organization in different directions.”
India’s IT firms seem to be exceptions to this overall pattern — many of them have collective leadership structures, which is why the Wipro arrangement is in good company. For example, at Mastek, founder Ashank Desai is still actively involved with the company, though the chairman and managing director is Sudhakar Ram. Desai took a year off to organize the PAN-IIT meeting (a yearly event of alumni of the Indian Institutes of Technology) held in Mumbai in 2006.
Premji cites the example of Infosys. “For all practical purposes, it has a very active team of three at the helm,” he says. Infosys chief mentor N.R. Narayana Murthy, Premji says, spends 80% of his time on Infosys; co-chairman Nandan Nilekani is “completely active”; and then there is Kris Gopalakrishnan, the CEO and managing director.
Some family-run businesses also have joint CEOs. Brothers Shashi and Ravi Ruia, who are now seventh on the Forbes richest Indians list with a net worth of $12 billion, even share the same office room. (Given its size, however, it doesn’t really matter.)
Neeraj Aggarwal, director and partner at the Boston Consulting Group, is of the view that leadership structure needs to be viewed in the context of the organization, and it’s hard to pass judgment from outside. “Any structure can be made to work, and any structure can fail,” he says. “In the case of a joint-CEO structure, a lot depends on the chemistry between the two individuals.”
“A joint-CEO structure can work if both of them have worked together long enough to understand each others’ strengths, and if they have healthy respect for each others’ judgment and expertise,” says Gurjar of Infosys. “While organizational decisions are relatively easier to make because of the rules of the game, it is the trust between the two that impacts interactions and can make or break the structure.” But, she adds, “you can’t go with two CEOs beyond a certain period of time, say around 18 months. Beyond this, the joint CEOs would need to divide responsibilities very clearly.”
At Wipro, it is the practice to revamp the organizational structure every two or three years, primarily because of the company’s rapid growth. The company goes through a process of introspection to find out if it can have something tighter and more effective. Should this happen, the joint-CEO system could potentially make place for a new arrangement in the future. But for today, Premji insists that he wants to make the co-CEO structure work. “We will look at all structures after three years, but that is not to say that we will collapse the two CEOs into one CEO.”
Meanwhile, Paranjpe and Vaswani have their work cut out for them. In an interview with Bloomberg News on June 12, the two CEOs announced that the company is currently bidding on a dozen large contracts — each worth $100 million or more. The goal, Vaswani noted, is “to be among the [industry’s global] top 10 in a three-to-five-year time frame,’ competing for large contracts with the likes of Infosys, which is currently ranked number two.
Premji points out that Wipro is on its way to crossing $6 billion in revenues this year. An organization of this size from India, he says, is equivalent to a European or U.S. company that has $10 billion to $12 billion in revenues, because of the billing rates and the global delivery model. To run an organization of such business volume and complexity, two heads are better than one, he says.