 | Uday KotakExecutive vice-chairman, managing director, and principal founder, Kotak Mahindra Group |
Uday Kotak entered the finance business in the early 1980s, shortly after his graduation from business school, by spotting an arbitrage opportunity. Kotak noticed that banks were paying depositors interest rates of 6 percent but making short-term loans at 17 percent. Kotak built a flourishing trade-finance business by borrowing money from family and friends at 12 percent and providing short-term trade credit to suppliers of a subsidiary of Tata, one of India’s strongest companies, at the bank rate.
From that humble start in trade finance, Kotak built one of India’s largest financial institutions by being quick, nimble, and willing to take risks. The Kotak Mahindra Group, as the firm is now known, entered the auto leasing business when it was a novelty in India. In the 1990s, it formed a joint venture with Ford and with Goldman Sachs. In 2003, Kotak Mahindra Finance became the first Indian company to convert to a commercial bank.
Today, Kotak Mahindra has the second highest price-to-book ratio among major global banks, and the bank’s market capitalization has grown by 30 times since going public in 1992 to about $6 billion. Kotak owns 48 percent of the stock. Even so, he wants the bank to continue its hungry search for the next great opportunity and retain its up-from-the-bootstraps culture.
Although Kotak Mahindra did not teeter on the brink of extinction, as many Western banks did in 2008 and 2009, the firm faces its own challenges. India is a competitive hothouse. Young employees are restless. And the bank itself is a young institution that has yet to pass leadership reins to a new generation.
In his conversation with Janmejaya Sinha, a senior partner and managing director of The Boston Consulting Group, Kotak outlines his views on leading a dynamic organization. Excerpts from their conversation follow.
How have your thoughts on leadership changed over the past 20 to 30 years, and what have you learned?
First, you need to be brutally honest with yourself. The members of the leadership team need to be brutally honest with one another. We also try not to be too self-congratulatory. As a firm, we have gone through many trials by fire, and we have come out of each of them having learned something. One of those lessons is, “If something seems too good to be true, it is too good to be true.”
Other than honesty, what attributes would you see in a leader?
The ability to seize opportunity is critical. The trouble with opportunity is that it never announces itself when it is there. As a firm, we have done fairly well at recognizing opportunities in bill discounting, car finance, the Goldman and Ford joint ventures, asset management, life insurance, and banking. But there's a thin line between conviction and foolhardiness. I think our culture of brutal honesty has helped us avoid entering businesses that may have looked appealing but would not have been a good fit.
The world is a different place because of the financial crisis. How has the crisis affected Kotak Mahindra? Will you lead differently in the future?
The bank of the future must have three qualities. The first is prudence. Banks should not take on excessive leverage. The second is simplicity. The bank of the future will have simpler products that rely less on derivatives. The third is humility, or a lack of arrogance. Financial services should be a business that serves the real world.
If you had one thing to do differently in terms of leadership, what would it have been?
I wish I had a much better grasp on the speed of the evolution of technology; it always amazes me how my kids are much smarter than I am in this area. Technology will likely play a key role in bringing banking services to the unbanked in India.
Why has your team stayed together for so long?
We have spent a lot of time working together. Throughout the 1990s, during every crisis we would huddle together like a cricket team. Growth also has helped to keep the team together. As we grew, the team took on more responsibilities, so there was a significant growth path for everybody.
Did the team members always get along with one another?
No. The world is never perfect, but I think we have the ability to be frank with one another. We have conducted several organizational and developmental workshops that helped us think through roles and responsibilities.
How do you see your role changing in the future?
One of the big leadership issues is how you balance the big picture with detail, especially as the firm grows. A leader who only sees the big picture and forgets the small trading unit taking disproportionately large risks will encounter trouble, as we saw in 2007 and 2008. At the same time, if a leader is too hands-on, he or she will not be able to manage the institution effectively. The balance also needs to change from time to time. During a crisis, you need to pay attention to the details. The ability to get that balance right is a very important aspect of leadership.
In 1996 and 1997, for example, business was strong, and it required me to be out front and public. I realized then that the firm needed to be institutionalized. An individual can have a reasonable dominance for a while, but over time that dominance will limit a firm’s progress. One of the biggest challenges for managers is letting go.
Do you see the role of government changing in your business?
No. We have a strong banking regulator in India, and we have a constructive relationship with the regulators. My salary, for example, is set by the regulator. As a firm, we have respect for regulation and regulators. One key to our success has been that we watch the regulatory environment very closely. If we had a hostile relationship with regulators, it would have been much more difficult to achieve what we have achieved.
Do you think it will be easier or harder in the future to attract talent, especially young people?
The leaders of our firm all possess middle-class values. We grew up together and share many of the same beliefs, especially hard work, loyalty, and shared sacrifice. Today’s younger people are very different. They want success to happen quickly and are much less loyal to institutions. One of our challenges is overcoming the gap between the culture in society and the culture we want to build in the firm. On the positive side, the new generation is significantly more tech savvy and much more ready to change than previous generations have been.
What are the leadership challenges as Asia continues to gain economic power?
Let’s look at 2010 and beyond. There are three possible global scenarios, particularly for the West. Scenario one is an even deeper crisis; scenario two is sluggish growth; and scenario three is sharp recovery. I would bet on sluggish growth for the West.
How would that affect India? Global liquidity would be adequate, and interest rates would be low. Capital would chase growth and would flow to India, which would continue to have strong domestic consumption. We would, however, see an impact on trade flows. So, I think it is reasonable to assume that in 2010 and beyond, domestic GDP will grow around 8 percent annually.
Mountain climbers have a different view the higher they climb. What do you see now that you did not see ten years ago in terms of confidence, aspirations, people, or any other issue?
I think that today we have much greater confidence in our ability to achieve sustainable growth, but we need to make sure that we do not become complacent. We need to make sure that we stay nimble enough to spot and grab opportunity. We want to have the stability of an institution but maintain the nimbleness of a start-up.
How will you retain your culture in the face of a changing society as you continue to grow?
One of the big lessons I have learned from Goldman executives is how brilliantly they manage their “one-firm culture.” We are deeply committed to building one firm. It is getting tougher. Somebody told me the other day, “Uday, we have 18,000 people, and you probably know 500.” Connecting, communicating, and having processes that encourage people to think of the medium-term rather than then the short-term horizon are all critical. These challenges are becoming increasingly difficult as the gap between our firm’s culture and the culture of civil society grows. We have not found the perfect solution, but the future of this firm is deeply dependent on this issue.
Western banks may be a bit shaken now, but they will eventually try to expand in Asia-Pacific. How will their attempts to move into this region affect Kotak Mahindra?
If what you create cannot outlive you, then you have failed. Our ideal outcome is that we keep growing and that family ownership will dilute. We need to make sure our employees own more and more of the company. When we need capital for growth, we need to be willing to dilute the family ownership. Eventually we will reach a point in time when Kotak Mahindra will be a widely held institution, charting its own destiny and largely independent of the original owners.
What advice would you give to a new leader in his or her first year on the job?
I have five rules of leadership. One, have the courage of your convictions. You need to be really convinced of what you are doing because people are often of two or even three minds. Two, face reality. If there is a problem, do not wish it away. You have to deal with it. Three, think long term. Four, understand the new generation and what it wants. Five, stay the course; yes, importantly stay the course.