How to run a company: Nykaa's Falguni Nayar must learn from Tatas & Mahindras

From a career banker to an entrepreneur and then suddenly becoming the richest woman of India has made Falguni Nayar the brand new role-model for one and all in the country. Nayar's company Nykaa share price nearly doubled over the IPO range on listing, ascribing India's biggest cosmetics retailer a market cap of over Rs 1 lakh crore and its founder Falguni Nayar a net worth of nearly whopping Rs 56,600 crore.

This also makes Nayar the second wealthiest woman promoter in the country behind Savitri Jindal, chairman emeritus of O P Jindal group companies. According to Bloomberg's billionaire list, Savitri Jindal is India's richest woman promoter with a net worth of around one lakh crore. She was also the minister in Haryana government.

These fat figures and numbers apart, now onus would be on Falguni Nayar to build her company brick by brick. Of course, that would be possible if she inducts brilliant and time-tested marketing, financial and other professionals. One also expects from her that she would understand the importance of having professional CEO who would run company/ group. The CEO should implement her vision of growth for the company in a time bound manner. She must distinguish the role between the Promoter and CEO.

Nayar's Nykaa has currently eight members board. In this board, apart from her as a Promoter and CEO, her husband, Sanjay Nayar, and her two kids, Adwita Nayar and Anchit Nayar, are also there. While Sanjay Nayar is a Non- Executive Director, Adwita and Anchit are Executive directors. While, nobody questions the competence and experience of Nayar's husband who was heading the Indian operation of Citi Bank for several years. And he is currently the India Chairman of the global private equity giant KKR. Who can question her as to why her kids in the board?

However, she should know or somebody should tell her that most prestigious companies in India and abroad have realized that they cannot run their venture like a family business for an indefinite period. They have to look after the interests of their share holders very carefully and diligently. Indian corporate world used to be run by their promoters like a shop as recently as couple of decades ago. However, it has undergone a sea change post economic liberalisation. The high-point of this development came when Tata group had appointed N Chandrasekaran as Tata group chairman in 2017. Prior to him, who was CEO of cash-rich Tata Consultancy Service (TCS), there was no precedenceˈ of a non- Tata heading the behemoth salt to steel group. Take another brilliant example. Dr Anish Shah will soon take over as CEO and managing director of Mahindra and Mahindra (M&M). Long-serving Mahindra & Mahindra group chairman, Anand Mahindra, will step down from his executive role to become the non-executive chairman by the end of this year. While both Tata and (M&M) are global brands of India with outstanding track record and massive revenue/ profits. Both have massive work workforce. However, they have made their names thanks to the kind of leadership they got over the years and decades. If Tata had gem like Rattan Tata at the helm of affairs before Chandrasekhran, Mahindra was navigated by extremely inspiring Anand Mahindra. Before him, Keshub Mahinda was there. He is the grand old man of Corporate India. They took up very bold decision and hand-over the bastion of their group to 'outsiders' with phenomenal track record.

Even the promoters of IT giants like Infosys, HCL and Wipro Limited have appointed professional CEOs. In all these companies/ groups promoter or his/her family is not holding the position of CEO. These are some of the most glittering companies of India. They have realized pretty well that professional CEO should run the company under their watchful eyes of their promoters. The likes of Rattan Tata, Anand Mahindra, Azeem Premji, Shiv Nadar and N Narayan Murthy just monitor the company from outside. They give total freedom to their CEOs to take their firms to other levels. All these gentlemen have appointed non-family member as CEO rather than their kids. They guide their CEOs. That is the way all progressive companies should be run.

It should be remembered that separation of the roles will reduce excessive concentration of authority in a single individual. Having the same person as the Chairman and the CEO is thing of the past. The underlying idea for such a separation is not to weaken the position of a promoter, but to improve the corporate governance. The objective is to provide a better and more balanced governance structure by enabling more effective supervision of the management.

The opposite argument is that in a niche industry, finding a suitable talent for a separate CEO or MD role could be a difficult task. Even if a company manages to find such a candidate, it may come with a huge cost/ risk. Another fear is about maintaining secrecy on important decisions or trade secrets.

Certainly, all these fears can be addressed. After all, the companies run by professionals are doing extremely fine. However, a large number of companies in India that are doing exceptionally well, are run by promoter CEOs or family members. The examples include Bajaj, Hero Group, Dr. Reddy's, Lupin and Sun Parma. There are still many who feel that the promoter style of management is better as their money invested in the company, which put more effort in long-term shareholder values. This is very regressive view. After all, the likes of Sundar Pichai, CEO of Google, Satya Nadella, CEO of Microsoft, Indra Nooyi, CEO of Pepsico, Anshu Jain, President of Cantor Fitzgerald & former CO CEO of Deutsche Bank and many others are the shining examples when professional CEOs have outclass everyone.

And if we talk about India, the likes of N Chandrasekaran, Salil S Parekh (Infosys), Gopal Vittal (Airtel),Aditya Puri (HDFC Bank) and Vivek Gambhir ( Godrej) have proved their worth. Hope, Falguni Nayar would ensure that her company is also being run by professional rather by family.

(The author is a Delhi-based journalist who closely follows South Asia, business, Delhi and Indian Diaspora)