Customers as Thought Leaders
S+B: In your book, you also emphasize unstructured annual meetings with customers and business partners. What happens there?
NAYAR: We believe that our customers know more than we do, and that different industries have a lot to learn from each other: financial-services firms from retail, retail from manufacturing, American from Chinese, and Chinese from Japanese. Talking to each other is a big attraction. In 2009, 650 executives at the “chief X officer” level came. We were expecting 400. Each year, attendees include many people who are way ahead of everybody else in their thinking, and some who might be working with our competition.
The meeting lasts one and a half days, with attendees speaking on topics they choose. We invite our customers as thought leaders to talk about what they are doing. They may also talk about our work. For example, in one panel at the 2009 meeting, four CEOs discussed how Employees First, Customers Second had helped customers. No HCL employees sit on these panels, and HCL does not make sales presentations at this gathering. It is all collaborative learning, and is thus very popular with C-level executives.
S+B: We’ve talked about employees and customers. What about your shareholders?
NAYAR: HCL is a publicly traded company, and shareholders are very important to any growth-oriented company. But we have been very careful in our internal references to shareholders. When we were doing transformation, we did not make too many statements internally about them. And I don’t agree that CEO compensation should be linked to share prices, because too many different variables can affect the stock price. Compensation should be based on an audited P&L along with balance sheet results on key factors. For example, it is very important for us to reduce our carbon footprint dramatically. In the short term, however, the market won’t understand. CEOs must make decisions that will be good for the business and for society in the long run, but that may not be valued by the market today.
At the same time, we keep refining the way we communicate with our shareholders. On our website, our quarterly results run close to 40 pages. I think that kind of transparency is rare in the world. Once a year, we make a five-year strategy presentation, explaining the megatrends we think are important, and where we are trying to go. We do a lot to educate our shareholders and to help them understand our thinking. We have seen more than a 70 percent appreciation of our stock price in the last 12 months, suggesting that Employees First works for shareholders too.
S+B: You’re not concerned about competitors seeing the information?
NAYAR: Somebody said to me about the Employees First program, “Vineet, your competitors will copy this, and therefore, it will not be a differentiator.” My response was, “If our competitors can post the results of 360-degree evaluations, more power to them.”
S+B: Most of your management innovations could be implemented anywhere. Is there anything that you do that reflects your company’s Indian background and cultural roots?
NAYAR: HCL is in 26 countries. During the recession we created jobs in the United States and the United Kingdom. Ninety percent of our revenues come from the U.S. and Europe, and in Europe, more than 90 percent of our employee population consists of people from the local country. Indian philosophy is not appropriate in every situation.
But some management innovations certainly reflect our Asian roots. For example, we are influenced by the idea of microfinance organizations, such as the Grameen Bank. These are self-run, self-governed micro-organizations that make up one big whole, without a formal hierarchy or ownership structure. And yet they have big market caps. I take my inspiration from a book called The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations, by Ori Brafman and Rod A. Beckstrom (Portfolio, 2006), which uses the images of those two animals — with similar shapes but very different internal structures — to describe decentralization trends in companies.