Sucheta Dalal :Succession Drama At Ernst & Young (10 Nov 2003)
Sucheta Dalal

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Succession Drama At Ernst & Young (10 Nov 2003)  

Great governance will simply not be achieved in large corporations if the concepts remain at 30,000 feet. Companies must have fundamental internal controls and processes in place to implement the principles and concepts and to ensure that they are followed consistently”. This quote, attributed to Ernst & Young (E&Y) finds pride of place on the website of the Open Compliance & Ethics Group (OCEG) which works at developing compliance standards and guidelines.

But last week, it is the quality of internal processes that were being whispered about, when Bobby Parikh, CEO of E&Y in India suddenly quit the firm for ‘personal reasons’.

The consultancy world attributes Mr Parikh’s exit to succession issues at E&Y. That itself ought not to merit a discussion. Every organisation has several people vying for the top job, but only one of them gets it. Several large multinationals, which groom at least two people for the top slot, have a tradition where the person who loses the race exits the company. It is a way of eliminating rancour and ensuring smooth and transparent succession with undivided loyalty to the new leader.

But that is not how things happened at E&Y. People in the know say that the firm, which makes a business out of preaching good governance practices and hands out awards to the corporate leaders, decided its own succession at a hush-hush meeting in Delhi recently.

At that meeting, 48 out of the 61 partners of E&Y are understood to have elected Rajiv Memani as CEO and chairman elect of the firm through a show of hands. A stunned, Bobby Parikh, who had joined E&Y in 2002 after the demise of Arthur Andersen, resigned immediately. Around a year ago, Mr Parikh had joined E&Y with a team of 27 partners, 750 employees and almost all of Andersen’s Indian accounts intact. Industry sources, who are in touch with Mr Parikh say that he is upset and is negotiating a couple of alternative assignments.

So what if Bobby Parikh lost out to Rajiv Memani, in what appears to be a straight fight for chairmanship? Well, two things. First, that E&Y flatly denies there was ever a meeting that discussed the succession issue or anointed Rajiv Memani as the next leader. The official line from E&Y is that a meeting to decide a successor is still to be held. But denials seem unconvincing in the face of so many sources saying the opposite.

The more ticklish issue is that Rajiv Memani is the son of E&Y’s current chairman Kashi N Memani and the decision smells uncomfortably of nepotism. Especially because Kashi Memani is understood to have presided over the meeting and allegedly remained present when his son was elected through a show of hands. Mr Memani is now out of the country and since E&Y denies that succession has been decided, the information cannot be officially corroborated.

The drama preceding Mr Parikh’s quitting poses several questions. First, whether Bobby Parikh’s succession at E&Y was as much of a ‘done deal’ as people close to him seem to believe, or is it that the Arthur Andersen team that came along with Parikh, hadn’t yet settled in and integrated into the E&Y set up when this storm blew up. Sources say that a tussle between the two has been brewing at E&Y for some time. But if the numbers supporting Rajiv Memani are to be believed (48 out of 61), he seems to have emerged a clear winner.

The questions that are, however, being raised are — would the numbers have been different if there was a secret ballot and his father had not been present at the meeting? And secondly, why hide the succession if Rajiv is indeed the best candidate for the job?

Since E&Y denies that there was a meeting, the partners will have to hold another meeting to affirm Rajiv Memani’s succession openly, but there won’t be a contest at that time because Bobby Parikh is already out.

That may still not be the end of the story. Although Bobby Parikh has quit alone and claims that he will go ‘solo’, industry sources believe that if he strikes a deal with another firm or teams up with former Arthur Andersen colleague Ashok Wadhwa of Ambit, there is bound to be some movement of people and accounts out of E&Y India.

A leading consultant says: “Bobby should have secured his position when he was appointed, but he was hoping to convince everybody later”.

Clearly, he didn’t have enough time to do so. In the meanwhile, E&Y may moralise that “corporate governance is not merely a prescription pill of regulations, available over the counter” and earn fees by “customising” enterprise specific codes for corporate India, but when it comes to its own succession planning, it doesn’t necessarily practice what it preaches. E&Y, more than others, ought to know that non-transparent process often lead to false and ugly speculation. For instance, conjecture about nepotism in ‘engineering’ its succession, cannot help the credibility of its future chairman. I have even received e-mail speculating that E&Y as an organisation is developing ‘fault lines’ based on ‘ethnic and parochial considerations’.

It is most amusing that a reputed international firm, that too a professional consultancy company should be grappling the same sort of issues that regularly afflict family-run Indian companies. And that it is handling them just as badly.

The lesson from E&Y is that Indian business ought to re-examine its adulation of all things foreign. Since India embarked on its liberalisation programme in the early 1990s, top Indian companies have believed that credibility comes from foreign associations. They switched to auditors with foreign affiliations, paid millions of dollars in consulting fees to foreign consultants for mediocre suggestions and recast their accounts according to the American GAAP. The finance ministry also opened its doors with greater alacrity to foreign institutions investors, foreign investment bankers and foreign consultants. Why, even today, it feels the need for a foreign public relations agency (Financial Dynamics) to project a more ‘shining’ image of India.

More instances like E&Y’s succession drama would hopefully knock the pedestals out from under the foreign firms and level the field for competent Indian professionals.

-- Sucheta Dalal