Let’s assume environment minister Jairam Ramesh is right when he says the IITs do precious little good research, that they add little value to the students they give degrees to—that is, since the students who get admission to the IITs are top 0.1% of the eligible population, they’re bound to be bright. Look at various ratings of Indian universities, and they seem to suggest Jairam is right. IIT-Delhi was among the top 500 universities in the world in 2003 (it was ranked between 451-500) but by 2010, it was nowhere to be seen on the Academic Ranking of World Universities (ARWU) list. IIT-Kharagpur managed to remain in the list but with a fall in the score. China has 16 universities in the top 500 (13 in engineering, 1 in medicine and 1 in social sciences) while India has just 2 (IIT-K is in the 401-500 list while the Indian Institute of Science is in the 301-400 rank). China has 6.8% of the world’s top 500 universities and accounts for 19.8% of global population—India’s figures are 0.4% and 17.1%, respectively.
Or let’s assume Jairam is wrong, as education minister Kapil Sibal has suggested. Sanjay Dhande, director of IIT Kanpur, argued in The Indian Express the other day that the IIT faculty had done a pretty good job and listed various IIT work such as the encryption scheme for the Indian navy, e-passport and real-time information on trains. Others, such as Manish Sabharwal who runs India’s largest temping firm Teamlease, have argued in FE that you can’t have research unless the overall economic environment favours R&D and that’s beginning to happen only now.
But when you see that just 13,602 students passed the IIT Joint Entrance Examination this year, you see just how much of a non-issue the whole debate over the quality of the IIT/IIM faculty is. The debate then moves on to how poor the quality of private education—the alternative to the IITs and the IIMs—is and how much of a ripoff it is. Indeed, the more learned will point to ‘externalities’ that can get captured only by publicly-funded education. Since there’s no gain to be made by doing research, they argue, private engineering or management schools will never encourage faculty to concentrate on research. And research, we know, is what made the MITs and Harvards what they are. So, let’s not waste time with this private education ripoff, just build top class government institutes—a parallel argument, by the way, is made about corporate hospitals. All of this is probably true, private hospitals like private universities probably overcharge and hugely so, but what is the alternative? If the government had the capacity, both financial and managerial, it would have built the colleges and the hospitals, and life would have been perfect for everyone. But the fact is the government hasn’t done it, so there’s no reason to suspect it will in the future.
It is obviously true that a Manipal University can’t compete with an IIT, just as it’s clear that a for-profit University of Phoenix can’t compete with a Harvard when it comes to the standard of learning, the quality of faculty, the kind of alumni. But while pouring scorn on the University of Phoenix, let’s keep in mind that, after being set up in 1636, there is just one Harvard and it has a total of 21,000 students. Phoenix was set up in 1976, has 200 campuses and nearly 5 lakh students.
In an ideal world, every Indian who wants to be an engineer should go to an IIT, but for now India’s needs are a lot more basic. They’re not even about just education, they’re about just making Indians job-ready to begin with—the under-two-year-old National Skills Development Corporation goal is to skill/upskill 500 million Indians by 2022, for instance. Or take the numbers put out by Columbia professor Arvind Panagariya the other day at the NCAER. According to Panagariya, a greying OECD will have 35 million less persons in 20-49 age group by 2025, China will have 63 million less. The gap, and more, will be made up by India which will add 139 million persons in this age group. Perfect, you’d think, there’s a gap in the world and there’s a supplier to make good the gap.
Not so fast! Just 13% or so of the 113 million persons India has in the 20-24 age group today actually go to college—for China, the comparable gross enrolment ratio is 23%. So the world needs 100 million or so well-educated persons more in 2025 (assuming, incorrectly, that the demand for more educated people doesn’t rise) but, at current GERs, India can supply only 18-20 million. That’s hardly going to help either the world or India. Certainly, India’s 8-9% GDP dream is going to be history without a lot more people getting a basic education, through distance learning at Sikkim Manipal University or Punjab Technical University if need be. Wage rates for semi-skilled and uneducated painters are already up to around R450 per day in metros like Delhi or around $3.3 per hour on a PPP basis compared to $8 in the US—without a significant increase in productivity that only education brings, you can pretty much start writing off India’s growth story.
If India needs to raise its game, it needs to improve education all around, not just concentrate on the IITs and the IIMs. You have to read the Annual Status of Education Report to know just how broke the schooling system is—only 53.4% children in the fifth standard in rural India can read a second standard level text; the proportion of first standard children who could recognise numbers from 1-9 declined from 69.3 % in 2009 to 65.8 % in 2010; children in the fifth standard who could do simple division problems also dropped from 38 % in 2009 to 35.9 % in 2010. And yet, instead of encouraging people to set up more schools—public, private, not-for-profit, for-profit, how does it matter?—we’re trying our best to kill private schools thanks to the onerous Right to Education Act which specifies the size of rooms in schools as well as the salaries to be paid to teachers. As a result of what we’ve done to restrict growth on one ground or the other, while the private education business is estimated at around $40bn today, the amount spent by Indian students abroad is around $6-8bn! Imagine what we’d do for education, and India, if that kind of money was spent here instead.
India’s pride in its premier centres of excellence — The Indian Institutes of Management and of Technology, the IIMs and IITs — got a rude jolt when union environment minister Jairam Ramesh declared that the IITs and IIMs are “excellent” because of the quality of the students and not the quality of faculty, research or infrastructure.
While the institutes took objection to the minister’s claim, the statement inadvertently focused attention on the fact that something is not quite right in the state of these prestigious institutes. Indian industry is often prone to complain that articulate and employable talent is a scarce commodity in the country, rare even in these institutes. While no one questions the academic skills of IIM and IIT students, the complaint is that they are bookish, have poor presentation skills, little on-ground experience and need to be trained from scratch in handling real situations.
Prof. Rubesh Kumar, chairman of admissions at IIM Kozhikode, vehemently argues, “Placements are more to do with the companies’ requirements” than the capacities of the students. Ashok Reddy, alumnus of IIM Bangalore, and managing director of recruiting firm TeamLease, disagrees with the minister’s comments about faculty, but agrees that the new IIMs have a long way to go in terms of infrastructure.
But most alumni agree that the institutes are very academic in their orientation. Siva Cotipalli, alumnus of IIM Kozhikode, who owns a start-up company in Bengaluru, says, “I feel the institutes should prepare students for real-world challenges rather than imparting mere bookish knowledge. Today’s job market demands candidates who not only have a good professional record but are streetsmart and can think on their feet.”
Abhishek Gopal, who graduated from IIM Ahmedabad in 2008 and is now working as a consultant, agrees, “Written tests are just filters. And it’s only in education institutes that academic marks are important. At the end of the day, you need to be able to face the corporate world.” Subash Ramasubramaniam, an alumnus of IIM Bangalore and now vice-president of Shri Rama Investment Advisory and Support Services, says, “About 50 to 70 per cent of the course at any IIM emphasises academics.”
While Jairam Ramesh’s comments have stirred a hornet’s nest, his candour has to be lauded since this “controversy” may lead to a debate on actual versus perceived quality—when benchmarked with the best in the world—of our educational institutions, including IITs and IIMs. Before Ramesh’s heretic statements, just about everyone in India took it for granted that these institutions are world class even if they failed (especially the IITs) to make an appearance in any credible global ranking of world’s best institutions. The myth has been propagated in recent years by a few US Presidents and several global business icons. Very unscientifically, we have chosen to believe that very high calibre alumni imply that we have very high calibre institutions when hard facts show no such correlation.
In India’s context, Darwin’s theory of natural selection is perhaps the best theory applicable to those who are able to enter the IITs, IIMs, AIIMS, national law schools and other highly respected centres of higher education. Less than 12% of all born in the country are able to go to college. Those who make it to college have already gone through a tough pre-selection process. Over 5,00,000 appeared this year for about 9,500 IIT seats, and over 2,00,000 aspired for about 2,600 IIM seats, including even for new campuses that have no worthwhile infrastructure to speak of. Only the most committed and capable in the country make it. Such individuals are likely to succeed in almost any environment and thrive in an environment encouraging perseverance and merit. So they account for a very high proportion in careers demanding very high intellect.
While the alumni of these leading institutions have achieved recognition, the same cannot be said of the faculty at large, though there would be notable exceptions. Compare the quantum and the quality of research output of institutions like MIT, Stanford and Cambridge, and the number of books authored by the faculty there.
It is, however, true that lamenting about the quality of the faculty (and their research output) in our institutions is not good enough. For world-class institutions, world-class infrastructure and financial budgets are needed. Sadly, most of governments have focused on rewriting history, reservations and stymieing reforms. For-profit education remains officially disallowed while charlatans, including many with political affiliations, openly profiteer by providing sub-standard education. Global world-class institutions are not allowed to open campuses in India even as lakhs of Indian students spend more than R20,000 crore every year to study abroad. Monthly tuition fees in some of our state universities are kept lower than the price of a movie ticket with popcorn at a multiplex. And we, more often than not, pay our teachers less than what an entry-level management trainee gets in a mid-size private company. Unless we urgently and holistically reform our entire educational, ideological and policy framework, we will continue to have the syndrome of having some of the brightest minds and yet, little academic and research impact even on India, not to mention the rest of the world.The author is chairman, TechnopakManish Sabharwal
One of my favorite Wharton professors, Bulent Gultekin, warned us that the most dangerous things people in finance—and life—do is to confuse Beta (luck) with Alpha (skill). The ancient Greeks called this confusion of correlation (two things happening at the same time) with causation (one thing caused the other) as Hubris. As we ponder simplistic and sweeping comments about faculty at IIMs and IITs from a prominent alum, clearly Professor Bulent and the Greeks were onto something.
The comments seemed to make the point that (a) the faculty is not world class, (b) these kids were like grass which would grow at night while faculty slept, (c) research is superior to teaching. I couldn’t disagree more with all three. The first rebuttal is obvious; any company has good or bad managers just like every political party has corrupt and honest politicians. Drunk driving is not an argument against cars. Every school has good and bad teachers and so do the IIMs/IITs. Not only do faculty capabilities differ greatly within an institution but also across institutions and across time. The second point is more complex; nobody can deny that the IIM and IIT admission process is rigorous and their lack of credible competition for many years has created a reputation that sometimes does not live up to the student experience. But there are few alumni who do not acknowledge that they left these institutions not only more learned but more inspired because of the teachers they had. Plus, the recent resurgence of respect for the long-run superiority of non-cognitive skills over raw intelligence or IQ is important to consider because teachers have an important role in seeding these capabilities.
As WB Yeats said, education is not the filling of the bucket but the lighting of a fire.
The third point about research is the most complex. Nobody denies innovation and research—not more cooks in the kitchen but a different recipe—are a very important part of a vibrant intellectual environment. But it is unclear that research is superior to teaching from a student perspective—are star researchers better teachers? In fact, some cynics in top schools with star faculties call them holy spirits; they are everywhere but you never see them! More importantly, why frame the issue as either/or? Why can’t we have both? Any notion that a faculty member who has serial publications in dense peer-reviewed journals is superior to a faculty member who chooses to excel at the craft of teaching is unfair, unhelpful and uncalled for.
Finally, cutting edge and sustained research output from engineering and business schools needs a complex ecosystem that includes what’s outside the gates. India is only now becoming fertile soil. The government demonstrated powerful vision by seeding the IIMs and IITs. But we can only pray that these institutions don’t end up like other visionary state investments such as ITIs, UTI, HMT, BSNL and Indian Airlines, which were destroyed by simplistic but entertaining thinking.The author is chairman, Teamlease Services
16 MAY, 2011, 02.55AM IST, MANISH SABHARWAL
China is the workshop of the world. Its $1,952 billion in output last year allowed it to overturn the US' 115-year reign as the world's largest manufacturer. China's manufacturing is labour-intensive: it produced almost the same percentage of world manufacturing output as the US (~19%) with about nine times the number of workers.
China's manufacturing success - seeded by foreign investment, superb infrastructure, a rational labour law regime, an infinite supply of migrating cheap farm labour and an undervalued currency - created the fastest poverty-reduction programme in recorded history. But two ingredients of China's manufacturing superpower status are shifting. A census last month suggests that people in working age may have peaked and the 1.4 fertility rate is below the required replacement of 2.1.
Since 2000, the people above 60 are up 30% and children below 14 down 30%. Plus, China may be at a Lewesian turning point when the seemingly infinite supply of cheap labour migrating off farms ends. All 31 provinces in China are expected to raise minimum wages in 2011. This inflection point - let us call it the Foxconn turning point after the 40% wage rise to China employers given by the world's largest manufacturing employer last year - may be so important that economists believe that we may have to redefine the global inflation outlook for the next decade.
A 40% rise in wages for migrant workers last year will continue at 20-30% over the next three years as Chinese leaders support these increases to pump up domestic demand. There is also anecdotal evidence that rural workers are not returning from vacations to their employers in export zones because there are now jobs at home.
On recent investor conference calls, Coach, a high-end leather goods brand, and Li and Fung, a large trading firm, said they were initiating programmes to move production out of China to places like India. Besides wages, the other medium-term challenge to China's manufacturing lies in its currency.
China has kept it low by investing its liquidity outside its currency. But China buys US treasury bills for the lack of credible and liquid alternatives. German officials predicting that Greece will default not only puts questions around European bonds but surfaces the question of whether the euro in its current form will be around a decade from now.
Japanese debt is now 200% of GDP and the demographic outlook - not to mention political arthritis and unresolved World War-II scar tissue - means the Japanese bond market is not an option. But exploding US government debt and political traffic jam on fiscal reform means that at some point, China will hold its nose and decide that the best place to invest is Chinese bonds. This will inevitably drive up its currency and makes exports expensive.
Indian manufacturing must seize this opportunity. India accounted for only 1.8% of global manufacturing value added (MVA) last year versus China at 23.3%. Our per-capita productivity was a disappointing $107 versus China at $842. Budget 2011 plans a new manufacturing policy that aims to raise the share of manufacturing in GDP from 16% today to 25% in 10 years. Creating global manufacturing competitiveness is complex but two bottlenecks for Indian manufacturing are infrastructure and labour laws.
Nobody disagrees that Indian manufacturing cannot be globally competitive without reliable infrastructure in power, ports and roads. But trade unions' suggestion that labour laws don't matter for employment and particularly manufacturing employment is a lie. Only 12% of our labour force works in manufacturing because of a hostile labour law ecosystem that believes job preservation is a form of job creation.
Our current labour law regime has huge costs; exploding unorganised employment, lower organised manufacturing, encouraging buying machines rather than hiring people, corruption, blue-collar exploitation and higher organised sector skill intensity. Basically, labour laws have ensured that 100% of net job creation in the last 20 years has been in the low-productivity and sub-scale unorganised sector. But labour laws matter: in 1947, the Taft-Harley Act allowed US states to pass right-towork laws that forbid the formation of closed shops, ie, companies where unions and firms agreed that all workers must be union members.
Many southern US states passed these right-to-work laws and the US manufacturing has drifted south from its older industrial regions such as Cleveland , Pittsburgh , Detroit and New York . A researcher estimates that manufacturing grew 23% faster for five decades on the antiunion side of the divide. Anew political party in Andhra Pradesh named itself after three mega constituencies: Yuvatha (Youth), Shramika (Worker) and Rythu (Farmer). But labour law reform could be the defining political issue of the next 20 years because in the last 20 years, politicians got away without making trade-offs between generations, geographies and livelihoods.
But five labour market megatrends - the demographic dividend (one million people joining the labour force every month), the increasing unviability of agriculture (56% of our people produce 18% of our GDP), the high incidence of poverty among the self-employed (50% of the labour force), the stagnation of organised employment (8% of the labour force) and the low share of manufacturing employment (12% of the labour force) - will bring rewards to politicians who realise that our labour laws hurt our youth and farmers most.
Recent agitations by Jats in Haryana, Gujjars in Rajasthan and students in Dehradun are largely about the scarcity of organised sector government jobs. India needs a massive creation of private low-skill manufacturing jobs because the government can't hire everybody. In his book Imagining India, Nandan Nilekani wrote that the horizontal identities of Indians were starting to overpower their vertical identities. This trend, combined with China's problems of success, creates a unique opportunity for bold politicians to make the difficult choice of big but unorganised youth and farmers over the small but well-organised trade union labour aristocracy.
(The author is chairman of Teamlease Services)
The South ATC partners Meet 2011 was held on May 5th and May 6th 2011 . It saw whole hearted participation from all the Directors of all the seven ATCs : Vellore, Mangalore, Puttur, Vizag, Gulbarga , Mangalore and Hassan .
The session started with Mr Manish Sabhrawal Chairman IIJT and Team lease talking about IIJT & Team lease vision, expectations and value of being in partnership.
Mr Davuluri Academic Head spoke about IIJT Products, the work in progress on different products. Sharanu, Head IT spoke about IT infrastructure and support and plans ahead.
All the Business Partners gave an individual presentation on their Plans for their quarter.
Major Vandana Sharma, Head Partner Organization shared the Plans for supporting the partners, future plans for partner Organization network , quality, audit and compliance, engagement initiatives and also shared the organizational structure.
Shajan Samuel Divisional Head south shared the marketing Plans with the ATC , and highlighted on three variables i) Team ii) adhering to process iii) Building strong connect with the customer on the ground .
Mr Ashok Reddy, Managing Director IIJT and Team Lease spent time taking questions and answering them ,one of the interesting remarks came from Gulbarga franchisee who enquired about linking employment to training to which Mr Ashok said that there are two ways we can do that ,one is we can generate demand from local market were the centre is placed for students who don’t want to migrate and for students who are mobile ,team lease will leverage on its clients.
Cited the example were one of the clients wanted to conduct interview at our Vizag Centre, which in turn would help create buzz .
The day’s proceedings ended with a cock tail dinner , we discovered many interesting facts and exciting information about our Partners ,some of them were great singers ,some of them are district level cricket players .A game of Antakshari continued to keep the spirits and the zip high ,they were 2 team ,finally we had to end at 1 : 1 ,a perfect score win-win situation .
A highly invigorating session on “ Entrepreneurship Excellence “ was conducted by Mr Vikas Saxena .
Post lunch the ATC team was take for the Bangalore Studio Visit , followed by sessions by Moses from Central Sales team to aquaint partners on sales support.
Suman, VP CCS presented the support function and data on South partners on usage of support function.
It was followed by presentations by Sharad from Marketing team, Savita Singh, Head Placements and Sumit from placements and Omsantosh on TNEF.
Overall, it was two days very well spent on knowledge sharing and learning. Highly appreciated by partners and the leadership team.
IIJT hope to bring in many such engagement initiatives across the country to become the best in business and to work towards their motto of “Building Skills , Building India”.
Cover Story: Talent Experts - TeamLease
Staffing companies can support in hiring job-ready candidates - Rituparna Chakraborty, Co-Founder and VP, TeamLease Services Private Limited.
Q. What are the key challenges facing companies in the BFSI, pharmaceutical, telecom and FMCG sector in building front-sales teams?
• Attrition – particularly in BFSI, telecom and FMCG, the turnover is very high.
• Low productivity.
• Need for higher fixed salary vis-à-vis variable pay to attract talent.
These sectors have very high demand for manpower but they are grappling with the above challenges whose root cause stems from the fact that as a country we are unable to provide employable youth. In majority cases, hiring is a gamble, more because of lack of option, than a choice by employers. Attrition, low productivity and spiraling wage bills are outcomes of our inability to make available a pipeline of appropriately skilled personnel across the length and breadth of the country.
Attrition is also related to the fact that sales teams are widespread and mostly functioning out of the office. In order to meet and address their employment queries, grievances and issues, organizations need to build an administrative network to improve their level of involvement, productivity, and sense of belonging, which becomes a cost ineffective additional burden that organizations may either not have the bandwidth for, or not want to invest in. Absence of such a framework to support these teams leads to dissatisfaction and makes them vulnerable to look outside.
Q. How do staffing companies support these needs?
At TeamLease, we have identified the need early and hence concluded that a better way to provide value to our customers would be to provide them a choice of employable youth anywhere in the country. Besides offering our support in hiring temps, we also give them access to job-ready candidates who have gone through entry-gate assessments, outcome and skill specific training along with certifications. This enables organizations to have the right person for the right job with better fitment and hence ensuring higher probability of longevity and higher productivity at an affordable cost.
We have invested in a combination of centralized and decentralized support system for the associates deployed on our rolls to help them stay in close touch with us for their day-to-day employment needs.
Our centralized support comprises of an 8X8 call center which handles queries in 11 languages that address all inbound calls and emails that are tracked to closure through our CRM platform. We also conduct outbound calls to associates from the time they are confirmed to the time they join (pre-joining confirmation calls), join (induction calls), day-to-day interaction (through feedback calls) till their exit (exit interviews, PF release updates etc). We ensure that we keep them posted through emails and SMS for every transaction that is carried out with them.
We also provide 24X7 access to their own ‘Personalized Web Portal’ http://associate.teamlease.com which provides every relevant and updated information such as pay slips, reimbursement details, PF nomination details etc.
We ensure that, at the time of joining, each associate is given an attractive and informative joining kit which carries all necessary guidelines of their employment, communication charter, bank form, compliance forms (PF Nomination, ESIC) and the associate handbook. Post joining, they are taken through an induction call which helps them understand the relevance of each document shared with them and what needs to be done with each.
An associate interface point is provided at our offices across the country to handle day-to-day queries in associate joining formalities. It is an extended arm of centralized operations at our or client locations.
Q. What are the challenges in engagement, motivation and alignment of temporary employees employed by a third party? How does this model work?
In addition to the model, we also carry out regular health check calls with each of our associate and speak to them at least once every month to understand their issues or concerns. This helps in building the much needed connect with the associate and gives them a sense of being cared for.
Together with our clients (where our associates are deployed) we organize open house forums where we get to meet these associates, discuss their achievements, update them about what is new with us as well as with our clients.
We also work closely with our clients to avoid any kind of discrimination at the workplace which can demotivate the associates. We also work jointly to reward performers through certifications and vouchers, and also nominate our associates for various skills up gradation programs.
Autocratic countries often appear to have a clean and stable political system. A government is clearly in charge. Businessmen like to deal with such a government, because you can go into a room with a powerful person and walk out holding a deal. You can do business with them.
Democracies, in contrast, are messy. The essence of a democracy is the dispersion of power. When power is dispersed between many individuals and institutions, decision making is slow and messy.
Differences are visible in public. A businessman finds it difficult to deal with such a government: He can't walk into a room and do a deal. Instead, deals (such as an airport contract or a mining concession) go through a contentious procurement process in the public domain. In the third world, the procurement and regulatory procesess are often riven with corruption, which makes a benevolent dictator look good.
While an autocracy may appear to be calm and stable, it actually suffers from two dimensions of instability. The regime suffers from the silent reproach of a million tear-stained eyes: You never know when an upheaval will come about. And autocracies suffer from problems of succession. When the strongman dies or gets killed, you never know what's going to happen next. When power and decision making is centralised, succession becomes difficult.
When the caudillo comes towards the end of his life, this triggers off instability because people around him are solving dynamic programming problems. I suspect this was part of the story of how Mubarak's world fell apart.
A business with a strong CEO is like an autocracy
Many firms have centralisation of thinking, power and decision making in the hands of one person or one family. This often looks nice for a while. There is clarity about who is in charge; the CEO is generally well incentivised; the CEO generally works hard and many such firms are highly successful.
But such firms face difficulties of succession. Precisely because so much power and decision making was concentrated in one person, it is difficult to replace him or her.
As with good countries, good companies evolve from concentrated power to dispersion of power. A good country is one in which power is highly dispersed, where thinking and problem solving is taking place in millions of places by empowered individuals who are not waiting for instructions. In similar fashion, a good company is one in which the CEO does not dominate the landscape: the board of directors (above) and the management team (below) play a much stronger role when compared with conditions of dictatorship. As with a country, if one person is doing all the thinking, the firm is capable of little. In a good firm, the energy and imagination of dozens or hundreds or thousands of people is harnessed.
For small problems, one thinker is often adequate. As an example, to run a coffee shop, one mom and pop suffices. But to run a large, complex, modern knowledge-intensive firm, we need to harness the energy and imagination of hundreds or thousands of people. When such a firm is limited to the capabilities of one person, no matter how good he or she is, that yields stagnation.
In an autocratic company, there are serious problems of succession. A dominant CEO is hard to replace even if one were recruiting from the open market. Matters are often made worse by limiting CEO search to a family. In contrast, when power is dispersed, succession is inherently safer. Even if there is a lot of sound and fury in succession, there is less that can go wrong.
It takes a long time for a country to learn how to live within the complex checks and balances of democracy. In similar fashion, it is not easy to be a sophisticated modern firm, where the CEO is not a demigod. It is a difficult transition to make, to go from an autocratic environment to a democratic environment.
I believe that political analysts, globally, make the mistake of overstating the stability of a dictatorship and underestimating the stability of a democracy. In similar fashion, I feel that many people underestimate the succession problem of a family business and overstate it in a professionally managed company.
On the other hand, agency problems
This case against family run companies is very strong, for large organisations where it is essential to have many people thinking. However, the key problem that the professionally managed company faces is that of agency conflicts. With a family company, the incentives of the CEO are clear. With a professionally run company, it is not easy to ensure that the management team works for the interests of the shareholders.
On one hand, power needs to be dispersed because otherwise we can't have hundreds of people who are empowered and thinking. But when power is dispersed in such fashion, there is the heightened danger of theft.
The management of a professionally run company is therefore all about the tension between the efficiencies (economies of scale + large number of people who are thinking) on one hand versus theft on the other. Once again, it isn't so different from the agency problems that democracy is riven with.
When a dictator is succeeded by his son, it looks like a smooth and easy transition, but it is actually a situation that is fraught with risk.
Succession at Infosys has been contentious and in the public domain. As with an Indian general election, it looks messy. But the problems here are overstated. Infosys is doing something relatively new in India: they are a professionally-managed dispersed shareholding company with disperson of power. While such succession looks messy, there is greater stability under the hood.
Governance problems of Indian firms
India is remarkable in having high quality firms. But at present, very few firms have the checks and balances of dispersed shareholding, a genuinely powerful board of directors, a professional management team, and the absence of dominant founders or family. There are a few such examples -- L&T, Infosys, ITC, Axis Bank, ICICI -- but as of yet, it is rare.
Many of the successful giant firms of the present Indian landscape are a bit like China: They look great today but they run the risk of a USSR event as they face the transitions of the future. The Indian corporate sector has a lot of work in store, in refashioning the giants of today, using the governance DNA of firms like L&T, Infosys, ITC, Axis Bank and ICICI. Those transitions will not be easy. As Lant Pritchett says: I recently did a study examining the growth consequences of sudden large democratisation (a shift in the POLITY index of more than 6 points). Of the 22 cases that experienced rapid democratisation with above average growth: (a) all but one had a growth deceleration, (b) the average deceleration was 3.5 ppa, and (c) the predicted deceleration was increasing with growth—roughly, post-democratisation countries reverted to world average growth. Transitions out of dictatorship are not easy.