 | Deepak S. ParekhChairman, Housing Development Finance Corporation |
Deepak S. Parekh may be India’s number-one business executive–statesman. At the start of 2010, Parekh retired as chief executive of Housing Development Finance Corporation (HDFC), a $22 billion mortgage lender, but his wings are still spread wide. He has served as the Indian government’s unofficial crisis counselor for decades, appearing on the scene most recently when an accounting scandal erupted in 2009 at Satyam Computer Sciences. Parekh continues to serve on so many government committees and corporate boards that his resume has begun to look as thick as the Mumbai telephone directory.
His accomplishments in public service, however, should not overshadow his leadership of HDFC. The institution has enabled 3.3 million middle-class Indians to buy homes—while never experiencing a cumulative default rate of more than 0.04 percent. Although its stock price suffered during the Great Recession, HDFC’s balance sheet remained strong because Parekh and his lieutenants never engaged in the go-go practices of so many mortgage lenders.
Parekh worked at several Western firms before joining HDFC in 1978. One year earlier, his equally legendary uncle, Hasmukhbhai Parekh, founded the firm as India’s first mortgage lender. Deepak Parekh became chairman in 1993 and oversaw the firm’s cautious diversification moves into other financial services. Remarkably, turnover in the executive suite is about as low as HDFC’s default rate. Senior executives do not leave. Still, Parekh acknowledges that his successor, Keki M. Mistry, may need to alter some of the HDFC’s practices as an accommodation to the restlessness of younger employees and the relentlessness of growth.
Parekh discusses leadership in his conversation with The Boston Consulting Group’s Janmejaya Sinha, a senior partner and managing director, and Vikram Bhalla, a partner and managing director. Excerpts from their conversation follow.
You have managed to keep your team and culture in place at HDFC during the recent economic crisis. Do you feel that there’s been any fundamental change in the basic tenets of leadership?
I think the basics have been reinforced. The crisis woke everyone up. We always have had a policy not to go for market share. If you go for market share, you get in trouble. We always were cautious and conservative. When we started, we had a 100 percent share of the market. So we have seen our market share drop from 100 percent to 33 percent of new business.
Even though our market share has come down over the years, it has not bothered us. We pay attention to return on equity. We are representatives of our shareholders. There are not many companies in India that are owned entirely by public shareholders. Most large companies have a foreign partner, are part of a multinational, or are owned by a large private investor.
We are a different business. It’s a lending business—with only limited or no security. When we started, there were no foreclosure laws. Now there is a law, but it is not very effective.
We had to be innovative about making collections and managing risk. We went to companies and asked them to deduct monthly payments from paychecks. In the first ten years, about 50 percent of monthly payments were coming through salary deductions. We also accepted postdated checks. We accepted personal guarantees from people who knew the borrower. We had to do things that brought down the risk of lending. Imagination was more important for us than strategy.
What would you say are the key attributes of a leader?
There are many qualities of a leader. One is vision, and, in a lending organization, another is conservatism. You also cannot sit in an ivory tower. You have to be accessible. Walk the office. Make people feel at home. Perhaps you need a little bit of competence, too!
Another thing is service. We recognize that we are in a service industry and need to give good service. We developed our reputation by providing service, even when we were the only player in town. We did not have to give good service—people would have still come to us—but we did.
Why did you think about service in those years?
We had seen it work abroad, and it was inculcated in some of the senior people who worked here in the early days. That was very important in shaping our culture.
You recently retired as chief executive. How important is succession planning for a leader?
You must have a good succession plan. I know many leaders who are one-man bands, and they make all the decisions themselves. Although I retired on January 1, for the last two or three years, I have not been looking at day-to-day, nitty-gritty details. We have competent people who have been doing that.
Did you give your successor, Keki M. Mistry, any special advice when he became chief executive?
I told him that cautiousness and conservatism pay off in the long run. We have all grown up with that philosophy. Most of the senior leaders at HDFC have been here 25 years, so we all have the same beliefs.
Why did your team stay with you?
I think most people stay because of the way we treat them. It’s not that we are paying the highest salaries. Fortunately, our employees have generated capital gains because we gave them stock options.
People have stayed, I guess, because the environment is very important to them. There’s no cutthroat competition or backstabbing. It is not easy to create a culture like that. Not all institutions in India have such a culture.
You have a very public profile in India, serving on several government commissions. When did you recognize the need to be a public citizen? Do you think it’s important for a leader to understand the external environment?
I think a leader’s expertise and reputation grow if he is involved in public activities. Unfortunately, many people are fully tied up in their own businesses, in their own cocoons. At HDFC, we needed to be involved. We were building a business in a new sector.
You rarely hire senior managers from the outside. Why is that?
The logic has been that we recruit 50 to 60 MBAs every year and promote from within. If we bring people from outside, it will demotivate our current staff. We want to give people within the organization a chance.
You promote people more slowly than at some other companies and pay them a little less. But they do not leave. How do you do that?
We always say that we hire ordinary people and make them do extraordinary things. That's been our policy. We don’t necessarily hire the candidate who wants to be chairman in ten years. That slot is not open. Honestly, we don’t go to the A-list colleges. We would rather go to a B-list MBA school and get the top students from there.
As India continues to grow and as your business continues to grow, can you sustain your hiring practices?
Probably not. The world is changing rapidly. Younger people have different expectations. So we may need to make changes—increase starting salaries, hire laterally, or use some combination of these strategies.
We traditionally have been a one-product company, but now we are involved in banking, mutual funds, and insurance. I think the present management will have to re-evaluate our policies. They are probably more broad-minded than I was in terms of recruiting.
How do you see the younger generation as different from the earlier?
I don’t see them as very different except for their expectations. They are impatient, and they do not want to wait to be promoted. People have become more ambitious.
Culture is something that cannot be bought or sold. It has to be inculcated over a period of time. We have a culture that we should try and keep, but it is becoming more difficult to do that.
What was the biggest risk you took?
Leaving Chase Manhattan Bank and joining HDFC at half the salary was a big risk when I did it.
You have taken some big risks in businesses that you have entered, such as insurance and mutual funds. How have you made those decisions?
We have a good board, and we discussed our strategy with them and then went into it with full steam. You have to put your heart and soul in it. Otherwise it doesn’t work.
Any final thoughts on leadership?
The leader is a role model. If you misbehave, others will misbehave. If you cheat, others will cheat. If you are using foul language, others will use foul language. So I think moderation at the top is important. This even applies to your temper. You have to control your temper. You need to show your displeasure if someone does not do a good job but not use bad words.
How do you define success?
Success is what you leave, not what you have achieved. You have to leave the organization better and stronger than when you began.