My succession plan will be ready by September

2010’
Anupama Airy, Hindustan Times
May 24, 2010
"Starting on a salary of Rs 670 per month as a junior engineer at Larsen and Toubro (L&T) in 1964,
AM Naik now takes home Rs 12 crore per annum as the company’s CMD. He is credited for turning
L&T around from a languishing giant to a fast-growing $10 billion (Rs 47,000 crore) conglomerate. Na

ik, who retires in September 2012 after 46 years with the firm, spoke to Hindustan Times
about his succession plan. Excerpts:"

Have you identified who will succeed you when you retire?

Not yet. The process is on. A leadership programme by McKinsey and Bains is on. L&T is a complex
company and no single firm can put in place a plan for it. Bains is looking at our product businesses
and McKinsey our project businesses. We will then have a convergence of the plans of these two
companies.

I think we should be able to take a final view on the succession in L&T by September this year.

Would your successors be from within L&T or are you open to an outside professional?

I am not saying I am not open to an outside professional but my belief is that due to its complexity,
only an insider can take over the reins of L&T.

What are you looking for in your successor?

He should be heavily networked, one who can even network at the level of the Prime Minister. He
should have a charismatic and magnetic personality. He should have everything that an outstanding
leader should possess.

L&T’s status being what it is, it needs a CEO or chairman of that level, who is respected by all
industrial colleagues, most of who are owners, some professionals like me and some multinationals.

We have 22 businesses. Even if we combine some of them, we still have around 18 real time
competitors. It is an 18 CEOs job rolled into one. So, I am looking for someone who can handle such
a load.

I could do it because I had time, I have already put in 46 years.

But why the delay? Even Jack Welch, a name synonymous with GE for many years, announced his
succession plan two years before he was to retire...

Since the year 2000, I have been telling my colleagues to do succession planning. They all thought
we still have enough time. But for the last two years, I have been driving them as most of the people
on the board now are very old.
Some have gone to US, Europe and joined as leaders in the domestic industry. For instance,
Microsoft India chairman Ravi Venkatesan is an L&T man. So is Rajendra Pawar at NIIT and Suresh
Vaswani at Wipro.

I go around the US and one in 30 people I meet say they got the first appointment letter from L&T. So
my first focus is to fill this level of the next generation . That is why we brought Ravi Uppal from ABB
and Sudip Banerjee from Wipro.

There are rumours that Uppal could be the next L&T chief, though he is not on the board.

I don’t want to speculate. He may not be on the board today but he will, at the right time. But he has
always run a product company. A project company like L&T is different, the risks are 100 times more.
Let us wait for the right time for the right man. Who will succeed me is the prerogative of the board.
The institution I have created from almost nothing to what it is today, needs to have the best.

Post retirement plans...

My friend, former SEBI chairman M. Damodaran, said I wear the overcoat of L&T, and if my skin is
ripped apart, millions and millions of "L&T" labels will come out. Everything has to come to an end
some day. I, too, shall move on.

View from the top: AM Naik, CMD,

Larsen & Toubro
21 May, 2010, 03.42AM IST,ET Bureau
Raised in a humble family of teachers in South Gujarat, Mr Naik today sits atop the first Indian multinational in
construction sector. There is plenty the freedom fighter can teach India’s budding entrepreneurs

Which entrepreneur do you take inspiration from?

My father, who devoted his life to uplifting the underprivileged.

An entrepreneur to you is...

One who multiplies shareholder value.

Your favourite business mantra...

Devotion with passion.

An event during your startup days which inspired you...

High praise of my work from the hard-driving British head who recruited me.

Turning point of your career...

The decision to leave a highly paying first job and opt for L&T at a much lower salary.

The most daring decision you took in your career...

Restructuring the company in 2003.

Did you always want to get into business?

I’ve always wanted to be a self-made entrepreneurial leader.

Can entrepreneurship be taught?

It can be learnt. It is acquired, not necessarily inherited.

Naik’s advice to startups

Build a team entrepreneurially and inspirationally

‘Inclusive growth’ is the way for ‘sustainable growth’

In a business, don’t overlook the underprivileged

AM Naik - A rare interview to MoneyLIFE

September 15, 2008

By 2010, we will hopefully come to the take-off point to becoming a true

Indian multinational in our sector

He came from a family of teachers, but was essentially a kid from a village in
south Gujarat who, by his own admission, was poor in English because he used
to think in Gujarati and then translate his thoughts. But language was no barrier
to Anil Manibhai Naik, 65, in rising to the top slot in Larsen & Toubro, an
engineering and construction giant, or putting it on the path to being a
multinational entity and creating enormous value for shareholders. He achieved
this through sheer hard work and through what he calls “devotion beyond
dedication”. He is the first professional to head the blue-chip company set up by
two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro with
financial help from the father of NM Desai (another former L&T chairman). As the
executive chairman of Larsen & Toubro, Naik has steered the company through
some of its most turbulent times. Under him, L&T has recorded probably the
most robust performance and the scrip has had the fastest rise in its history. His
prime concern now is attracting and retaining talent for L&T, his biggest pride is
in being “partners in nation building” and his big regret is that he has been such a
workaholic that he did not spend enough time with his family

ML: Would you start by telling us something about your background?

Naik: My upbringing has a lot to do with who I am today. Our family was called
the ‘teacher’s family’ - ‘Master Kutumb’ in Gujarati -- as my grandfather was the
headmaster of the Gurukul school. My father, a MSc and MEd in those days,
came to Mumbai in 1944 and was a senior teacher at Hansraj Morarjee Public
School at Andheri, one of the best schools in those days. He had participated in
the Quit India Movement in 1942. But, in 1952, he left Mumbai to go back to our
village to serve the community. He became the Principal of a new high school
that was being started there. By then, my sister had finished her SSC exams. My
father strongly believed that girls should study and, in spite of great opposition,
he got my sister to be the first doctor and MD in our community. Anyway, after
spending my early childhood in Mumbai, in 1952,
I suddenly found myself in a small village school, sitting on the floor after
having come from a city where schools had benches. To cut a long story short, I
went to Vallabh Vidyanagar from where I graduated as an engineer and came
back to Mumbai in 1963. I was an engineer but my English was poor. When I
came to Mumbai, my father gave me a note introducing me to Viren Shah of
Mukand. I went to see him at his Kurla office. I gave him my father’s letter and he
sent me to his personnel manager who gave me a form to fill up. Being poor in
English, I had made seven-eight mistakes in filling the form. I would have got a
job at Mukand because of Mr Shah, but I decied to wait a while and joined a
small company called Nestor Boilers. Those days, Larsen & Toubro (L&T) only
hired from the IITs and that too only the top 10 people got the job. So I knew I
could not get into L&T. I did very well at Nestor and moved up fast. In contrast to
college, where I hardly attended any lectures, at work, I never took a day off in
the first 21 years of my working life.

ML: What brought about the change?

Naik: I became serious. I thought to myself that my student life is over; let me
build my career. I had joined the company at Rs350 a month, although I could
have got Rs400 at Mukand. But here, I got Rs500 on confirmation and then I
became a workshop in-charge by the time I turned 22. After that, I decided to
apply for other jobs, including L&T, which was my dream company. After several
months, I got a call from L&T. I went for an interview and met one Mr Baker. Mr
Baker asked me a few questions on design and, after some discussions, offered
me Rs760 for the job of an assistant engineer, a supervisory, grade-B post. I
agreed because I wanted to get into L&T. He then took me to meet the boss, Mr
Hanson at the corporate office at Powai. As I mentioned earlier, my English was
weak -- I used to think in Gujarati and translate it into English. Sometimes, this
led to misunderstanding. Mr Hanson was stern, serious and never laughed. He
asked me the organisational structure of Nestor and the number of people who
reported to me. When I said 350, he remarked - “Oh that is a lot. You will not get
that kind of responsibility in L&T for a long time”. I did my translation and said:
“Who knows, time will tell”. When we left the office, Mr Baker had a long face. He
took me to his cabin and kept mumbling all the way. Finally, he sat me down and
said, “Sonny boy, the old man thinks you are overconfident, so I am afraid I can
only offer you the job of junior engineer, starting at Rs670 which is a grade lower
than assistant engineer which is supervisory B. I told Mr Baker not to worry. It
was my dream to join L&T and I will take it.

As I was getting up he said, “If you do a good job, I will give you what I promised
on your confirmation.” I joined L&T on March 15, 1965, got the promotion I was
promised in six months and, in April 1966, I was promoted a grade higher to the
supervisory level. Suddenly, in 1966, I got the entire workshop as my
responsibility and I became the workshop incharge within 18 months after joining.
Some 800 people reported to me and I was not yet 25. In 1968, I became
covenanted which was very prestigious. I used to come to work every morning
before the shift started and work all through. I did not take any leave except once
when my leg got jammed in a battery-operated vehicle. For three days, I did not
come to work but, on the fourth day, I came to office on crutches. My office was
shifted from the first floor to the ground because I could not climb up. Since
phones were not readily available, I used to tell my wife while leaving for work
that if I am not back by midnight, I would be back the next morning.

Worker discipline was an issue in L&T. The workers would go catch fish from the
Powai Lake to fry and eat. I was told not to go to Powai after seven in the
evening. Six months before I joined, a foreman was knifed by a worker.
I used to go to the factory at 8 pm, 9 pm and even at midnight. I used to stand at
the attendance punching machine to watch when people leave. Until I did that,
they used to leave at 11 pm. when the shift was due to end at 11.55. I would
switch off the engine of my car when it entered the gate to avoid making my
presence felt. Initially, the workers opposed my disciplinary actions, but soon
they realised that I knew each worker personally -- their family, their difficulties,
where they came from and everything about them. I was firm but I built a
relationship with them. I also got a lot of sympathy because they could see that I
worked from 7.30 in the morning until late into the night.

ML: Did you think that you would rise so fast?

Naik: When I graduated, our expectations used to be very low. If asked what do
you think you would be paid at the end of your career, I would say I would get a
four-figure salary. And if somebody had asked me in 1968 how far I would go in
L&T, I would have said I would become a general manager because that was my
benchmark. I became the youngest production manager, and the youngest
deputy general manager. Then, a new story began -- on 1st April 1974.
There was a change in L&T’s management. The Europeans went away and
senior Indian managers became directors. All of a sudden, seniority and not merit
became the criteria. I then spent the longest ever stint in the history of L&T in one
grade -- six years as a deputy general manager. In November 1979, I became a
joint general manager and remained there for seven years. So, until 1974, I had
the fastest rise ever in L&T and, from 1974-1986, I was the slowest ever to be
promoted.

ML: In these 12 years, were you not tempted to leave?

Naik: I was frustrated but I was too devoted to the organisation.

ML: But why at L&T?

Naik: It may sound strange but, at L&T, I got the best opportunity to exploit my
skills as an engineer and also work for what is good for the country. I don’t think
there was any other company which could provide me that kind of a platform. I
had an opportunity to leave, but I didn’t even go for the interview.
ML: Didn’t you want to join the public sector? Those days, public sector
companies were called the temples of modern India and were into nation
building.
Naik: L&T was providing that. In 1965, we were chosen as partners for building
nuclear reactors. In 1971, we delivered India’s first nuclear reactor and set up
nuclear steel generators. BHEL (Bharat Heavy Electricals Limited) was the only
other company selected. In 1972, India launched its space programme. Once
again, L&T was invited to participate and we did. I was the one responsible for
taking the programme further. I was already in-charge of the whole
manufacturing and then from SLV (space launch vehicles) to advanced SLV to
PSLV (Polar Satellite Launch Vehicle) to GSLV (Geosynchronous Satellite
Launch Vehicle) and now to advanced GSLV. Most of L&T’s expertise has been
built from scratch. Therefore, it is easy for me to relate to any situation. If
someone tells me today about nuclear reactors, I know exactly what he is talking
about.
If these challenges and freedom of work, action and empowerment were not
there in L&T, would I have stayed? Possibly not. L&T provides tremendous
freedom. We do make mistakes but we learn from them. This company gives you
the feeling of ownership over what you do. I never felt that this company did not
belong to me, although our salary got frozen during the socialistic regime for
years together and when it was finally removed, our children started earning
more than us, especially in the IT industry. In 1989, I became a director on the
board and, in 1999, I became the CEO. But if I look back at what made me stick
on, it was great excitement, feeling of owning the company, empowerment and
environment. Of course, it was a hard decision.

ML: What happened during the time the Ambanis came into L&T? How did
you feel about that?
Naik: Frankly, it was a matter of concern to all. But what discussion chairman
NM Desai had with the Ambanis none of us knew. They came in as protectors
against the Chhabrias who had acquired 4%, but I was away from the inner circle
at that time to really know what was going on.

ML: But weren’t you worried that it would no longer be a professionally run
company?
Naik: I never understood what was going on in the inner group of five-six people.
I was one step away from it, till I entered the board in 1989. In 1988, I was the
one who took Dhirubhai and Mukesh on a shop-floor tour of our Powai works.
They never interfered. They understood that I am my own man and I always had
an arms’ length relationship but, at the same time, they respected me as a
professional. They used to take my advice on petrochemical plants, particularly
reactors, even before they came in. In 1986, Mukesh requested me to look into
the leakage in the Patalganga plant, which L&T had built.

After the 1990s, the management was always very united and all the employees
stood by it to keep the professionally managed character intact. We never
realised that we were not owners, till we were taken over. This was uppermost in
my mind when, in 1999, I decided to bring in employee ownership. After all, Mr
Larsen and Mr Toubro were basically employees; they were not businessmen.
They came to India for installing the ACC plant and running it for three years.
Then, the Second World War broke out; they got stranded in India and started
Larsen & Toubro to do ship repairs. They didn’t have the money; they borrowed it
from Mr Desai’s father and that’s how NM Desai became one of the co-founders
and a director at 32. Interestingly, L&T had no chairman since 1991 till December
2003 when I became the chairman.

ML: What do you rate as your most significant contribution as the CEO?
Naik: I had made an action programme of 90 days when I took over on April 20,
1999 and put forth my vision for the next five years. The first thing I did was to
bring back the merit-based system. I said our biggest task was to attract the
younger generation, knowing that it is going to be a very serious problem for this
company to attract even one engineer, unless we change our way of rewarding
them. Even today, I say L&T is a vehicle which is run by four wheels -- the front
two wheels are training and HR and the rear two wheels are technology and IT
and the spare wheel, is sheer devotion. This is what takes L&T forward -- driven
by values, culture and tradition. The first two years of transformation were very
painful, because the economy was in a horrible shape. I wanted our strategic
plans to be accepted by all the employees, so I started a large-scale interactive
process.

I also had P Subramanyam, then chairman of UTI (Unit Trust of India), the CEO
of Morgan Stanley and stockbroker Anand Rathi to give a frank opinion about
L&T -- what people in the stock market feel. Until then, if you talked about the
stock price or shareholder value, it was considered not in the interest of the
employees. They would speak about the beautiful bridges that we have built,
temples that we have built… shareholder value was not a great word. That is
why, for 10-15 years prior to 1999, L&T’s share price had remained stagnant
except during Harshad Mehta’s time. When I took over, it was Rs160 and Kumar
Mangalam Birla actually made an open offer in February 2002 at Rs190,
including the cement division. I started saying we have to create shareholder
value. Everybody said, L&T is a great company technically but what is your
market cap? Even today, I ask, do you want to remain independent or do you
want to be taken over and the reply is we want to remain independent. I ask: can
we have a low market value and still be independent, when someone can sign a
four to five hundred million dollar cheque to take us over? This has gone deep
into every manager’s mind. If you want an independent professional company,
you have got to make it valuable; you have to make it so expensive that people
stay away from you. We got a trust formed and we took over the Birla stake in
that and then a stock option scheme was launched in the first 90 days, which has
created a lot of value for the top management. Otherwise, I would have lost all
my senior managers. Stock options are the reason we have a fairly stable top
management for the last seven years.
This changed the whole company’s attitude. Today, my junior manager looks up
L&T’s share price on the Internet since he has 500 shares. This is how
shareholder value begins to get created in the minds of people. But the most
important thing is that I touched their soft spot -- you want to be independent or
one day be a part of somebody? Make the market cap Rs75,000 crore and very
few people can sign billions of dollars needed to take you over.

ML: What about the period when Kumar Mangalam Birla acquired a stake?
Did his move take you by surprise?
Naik: Yes. I was in America and I got a call first from one of my colleagues
saying that Ambanis are looking for me to tell me that they have sold their
shares. Later, Mr Birla called me saying that we have a long history together -
“you knew my grandfather and my father had high praise for you. So, let’s work
together…” and all that.

ML: What was your reaction?

Naik: I was very innocent still. I knew the Birla group and its three generations
but when the open offer was made, I slowly got the feeling that possibly there is
more than what meets the eye… I don’t want to get into all that because they are
all my excellent customers. We have just signed a contract to build a 30 million
tonnes refinery for Reliance -- the largest again. So, as far as I am concerned,
L&T exists because of its customers and well-wishers. In any case, L&T is so
unique that nobody has fully understood what it is doing. Some people think it is
a construction company. Until it was in cement, people knew L&T as only
manufacturing cement but the fact is that we are now building nuclear reactors.
We are now participating in fast-breeder reactors. Another major transformation
was from being foreign-technology dependent. For this, you need to have pride in
yourself. Of course, we still have a long way to go because technology
advancement continues every day. But the fact is we are able to stand up with
our own products in switchgear and we are still No. 1 in India. We have a 42%
market share and we are competing against the No. 1 company - Siemens --
which has been in India for 30 years, No. 2 in the world -- ABB, and No. 3 in the
world -- GE. All these are $50-60 billion companies. GE is a $200 billion
company and we are one tiny little L&T in the global arena, fighting them all with
our own products and winning awards at international exhibitions.

ML: What is the biggest change you have seen from the time you started
your career?
Naik: Opportunities are abundant today. There are so many choices. Secondly,
all over the world, the younger generation has begun to grow faster and more
independently than us. We accepted and valued what our parents told us but
today’s generation thinks that it has grown up and can decide what it wants.
Thirdly, there was tremendous amount of energy bottled up in India. Earlier, if
you wanted to go outside India, you had to get an invitation letter. There were no
head-hunters, no electronic media. Till 2000, there was no analyst community;
the press was not that inquisitive. In India, L&T was people’s dream company for
engineering. Now, GE is offering a starting salary of $75,000 a year. A head-
hunter from Hong Kong or London will call up and ask you to come over in any of
the 11 flights a day to London. You use a credit card to buy the ticket; you are
there the whole day and, in the evening, you collect your appointment letter,
return the next day to office by 11.45, and nobody knows where you were
yesterday.

ML: Has that really been happening?

Naik: These are the possibilities and opportunities of today. Young people come
and ask me to increase their salary after comparing it with other companies. I
have increased salaries by two and a half times in four years but, beyond a point,
I will lose business because I have to compete with the Chinese. Manufacturing
has to compete with the Chinese; construction has to compete with many large-
size companies. If I have to go to the Gulf, I have the whole world to compete
with. In switchgears, I have to compete with products of multinationals made in
China. Remember software companies do not have all these problems, because
China is not breathing down their necks. They are deeply engaged in building a
powerful China. Don’t think they don’t have IT professionals. They have millions
of them but the only problem is that they don’t speak English.

The president of China is not worried about not having software exports. He says
automate the government departments first and then the provincial government.
Some 30% of IT spend in America is on government automation. How much is it
in India? Please tell me how much capacity of the Indian IT industry is being
spent to automate India’s medical science, health ministry, hospitals,
government, etc. We sell our bodies. Infosys and Wipro do not lose engineers to
the Gulf. I lose them to the Gulf; I lose them to IT; I lose them to multinational
engineering companies; I lose them to Australia, Canada, New Zealand, FMCG,
investment banks… everywhere. Simultaneously, I should fill in the void.

People ask why I don’t pay more, but my margin is 5%. All my competitors
around the world pay less than 5% which is the industry margin. Construction
business all over the world works on 2%. The IT Industry earns 30% margins.
India is only adding 4% of value in the product cycle. Every year, foreign
companies come here for designing and I know, within three months, I will lose
20 more guys because they can pay two to three times more. Foreigners get
their design done here. We add 4% of the value. China adds 45%-50% value by
manufacturing it too.

ML: What about the future of L&T? What are the challenges?
Naik: In Hazira, which is the pride of India, we are doubling our capacity. We
have entered shipbuilding. A lot has been done in taking L&T to the next level in
infrastructure building with the help of engineering, project management and
other skills that we are building up, even in the middle of all this turmoil of talent
loss. L&T would have grown faster if we had no turmoil on talent; that’s our only
limitation, not the market place. I am not taking orders or quoting for new jobs
because I don’t know how to deliver in the middle of all these people going away
for lucrative jobs all over the world. Some 70% of the best Indian talent goes out
of India. Out of the balance 30%, 25% goes to non-infrastructure, non-
manufacturing-oriented job opportunities. So, only 5% of the talent is available to
us. L&T grabs the best ones and then, after a year or two, with a golden stamp of
L&T, seven out of the 10 leave. So, within three years, we are back to square
one. All I have to do is training and more training.

I am sure that not many people knew that we were sitting on Rs2,500 crore in
value of project development. Below that, we are now creating a property
development company. L&T transportation infrastructure is all bridges, roads,
metros, airports, seaports and, now, we are going to start L&T power
development where we will have hydropower and in future nuclear power
development. The board has just approved of L&T project finance company,
which will participate in a consortium with banks to finance our infrastructure
projects. Be it in financial services or taking manufacturing to the next level,
becoming more sustainable in engineering and technology and going outside
India to China and the Gulf and all over the world, we have a long way to go.
Therefore, I always say we are 50% to 60% into our transformation journey. By
2010, hopefully, we will really be at the take-off point to become a true Indian
multinational in our sector. I am sure we have hard work to do. My single biggest
challenge is I don’t know how to connect with the younger generation and make
them feel for L&T as we feel for the company.