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Tuesday, Apr 13, 2004

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IIMs, IDFC: Power and autonomy contrasted

G. Ramachandran

The IIMs and Infrastructure Development Finance Corporation provide two cases for understanding the significance of power and autonomy and their exercise by leaders. While the Government has asserted its commitment to preserving the private-sector characteristics of IDFC, it has not been forced to preserve and promote the autonomy of the IIMs, says G. Ramachandran.

BUSINESS school cases seldom present leadership's tryst with the timely and effective exercise of power and autonomy. Power and autonomy are invaluable assets in organisations. But they are wasting assets. The mere possession of these assets is insufficient to realise their benefits. Timely exercise is a prerequisite for deriving the intended benefits of empowerment and autonomy.

The Indian Institutes of Management (IIMs) and the Infrastructure Development Finance Corporation (IDFC) provide two cases for understanding the significance of power and autonomy and their exercise by leaders.

Power refers to the capacity of leaders to exert influence over those that look up to them for directions, goals and decisions. But the capacity to exert influence does not become influence. Influence has to be demonstrably exerted. Autonomy pertains to the leader's capacity for independent action. However, the capacity for action is not the same as action. Independent action has to be demonstrated by the leader and, therefore, by the organisation.

Autonomy and power produce their intended benefits only when they are exercised. The granting of either is merely the first step. The more important second step is their usage. Without the autonomous exercise of power when necessary, the benefits of autonomy will remain unrealised. Without the powerful exercise of autonomy when necessary, the benefits of empowerment will remain unrealised.

The top management of IDFC, led from the front by the company's managing director and chief executive officer, Mr Nasser Munjee, resigned from office when the company's private sector characteristics were under threat.

Mr Munjee and his colleagues tendered their letters of resignation so as to disassociate themselves from the organisation's likely future as a public sector unit. Mr Munjee's resignation has been accepted. However, his powerful exercise of autonomy has had the desired effect. The Government of India has asserted its commitment to preserve the private-sector characteristics of IDFC.

By contrast, the executive leaders of the IIMs have either submitted to the Government's directive on lower fees or have raised their voice against the likely loss of their autonomy. Some have unqualifiedly accepted to implement the fee cut.

Some that have reluctantly accepted the fee cut have asked for assurances that their autonomy would be preserved. Others have yet to accept the fee cut. But there have been no letters of resignation. As a result, the Government has not been forced to assert its commitment to preserve and promote the autonomy of the IIMs.

Use it or lose it

Power and autonomy have an action orientation. They have to be exercised when necessary to justify their possession. The exercise of autonomy by the executive leadership of IDFC has reinforced IDFC's autonomy. By contrast, the IIMs may have compromised their autonomy because they wanted to retain it without using it and because they have asked for more autonomy.

The power of autonomy lies in its dynamic usage. Its full potential can be realised only when an organisation's leaders exercise them. IDFC's leaders exercised their autonomy most powerfully when IDFC's autonomy was threatened. Thereby, they have protected IDFC's autonomy.

The executive leaders of the IIMs have chosen to regard autonomy as a static and theoretical possession. Therefore, the present and future executive leaders of the IIMs may have pushed their own autonomy into uncertainty.

Their faculty may have to teach the theory of autonomy while Mr Munjee would share his experience in the timely and successful exercise of autonomy. More significantly, future leaders of IDFC would be forever motivated to consistently work towards keeping IDFC's real resources autonomous.

Real resources

The Government established IDFC by acting as its dominant shareholder, but private equity investors with significant experience in infrastructure financing have invested in IDFC.

Their inclusion was made possible by the granting of operational autonomy to IDFC.

IDFC's balance-sheet size and the magnitude of financial resources that can be lent are necessary but not sufficient determinants of its enterprise value. IDFC's leaders and employees are its principal resources.

Their judgment of macroeconomic variables, the profitability of infrastructure projects, the amount, timing and uncertainty of future cash flows, and the riskiness of collateral values is the principal determinants of IDFC's enterprise value.

If IDFC's leaders and managers cannot diligently and autonomously respond to the macroeconomic circumstances and the profitability and riskiness of infrastructure projects, the magnitude of its financial resources may be adversely affected. Losses and dead assets would undermine IDFC's vitality.

By offering to resign, IDFC's leaders have highlighted the primacy of their intellectual capabilities, diligence and autonomy. If these are truly valuable, it may not be difficult for them to find new employment. They can establish a new infrastructure development company with investors that seek human resources that are adept at judging macroeconomic variables and assessing the profitability and riskiness of infrastructure projects.

The Government, as the sole source of capital funds, established the IIMs. They have no private investors. But the IIMs and IDFC have important similarities. Human resource is the principal asset of the IIMs too. Their balance-sheets and campuses are not the principal determinants of their enterprise values.

Their enterprise values depend on the ability of their faculty to diligently and autonomously make an impact on their students and businesses.

The magnitude of the impact made by the executive leaders and the faculty of the IIMs would be the same if they began operations in campuses set up by India Inc.

Several information technology (IT) companies and IT-enabled services companies have campuses that could put to use the faculty's intellectual capabilities. Nevertheless, by choosing to accept the fee cut or to argue for their autonomy, the executive leaders of the IIMs have chosen to highlight the primacy of Government-furnished campuses in a world that is tilting rapidly towards intellectual capabilities.

Emotional intelligence

Cases in leadership frequently present leadership as all inspiration, decisive action and rich rewards. They bring to focus the importance of emotions to inspiration. Many authors argue that emotions are at the heart of effective leadership.

For example, Dr Daniel Goleman, a psychologist and an author of the international bestseller Emotional Intelligence, forever changed the concept of `being smart'. He put emotional intelligence (EI) — how we handle our relationships and ourselves — ahead of intelligence quotient.

Dr Goleman and his co-authors provide evidence that links organisational success or failure to primal leadership. They say that a leader's emotions are contagious and that these emotions must resonate enthusiasm if an organisation is to thrive. Their breakthrough concept has changed the primal task of leaders from driving earnings or strategy to driving emotions in the right direction. They show that resonant leaders excel by leveraging EI competencies such as empathy and self-awareness.

Leading requires taking risks that could jeopardise careers. Itrequires putting the leader on the line, the disturbing of status quo and the surfacing of conflict between theory and practice. Nevertheless, the executive leadership of the IIMs have resisted all these and played it safe. They have suppressed their EI while the leaders of IDFC have let their EI rise in a powerful flourish.

An infrastructure development company's leaders have showcased the importance of intellectual capabilities. They have demonstrated the value of human resources in the complex world of infrastructure financing and development. The executive leadership of institutions defined principally by intellectual capabilities may have implicitly acknowledged the superiority of infrastructure. Thereby, they may have exposed the IIMs to competition from other business schools that can provide better infrastructure. The contrasts between IDFC and the IIMs are bewildering.

(The author is a financial analyst. Feedback may be sent to

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