Merger & Acquisition of Banks

                                      Southern Economist,Volume 46(5) 2007

A paradigm shift is taking place in the global economic scenario. Organisations, big or small are looking for organic and inorganic growth so as to expand size and have larger share in the business pie. Technological innovations coupled with deregulation have prompted a wave of mergers in the banking industry throughout the world. The industry has realised that competition can be faced by cutting costs, improving service, launching new innovative products and by expanding size. Growing institutions are on look out to grab every opportunity for expanding market. Indian banking industry, which was hither to operating in protective regulations, has become most active players in mergers.
Expansion can either be done by exploring new markets or by merging with competitors or taking them over. Since the gestation period involved in starting a new product line and making a dent in the virgin market is long, the best option to cut short the gestation period and cost, is procuring control over similar other institution by merger or leverage buy out. Both merger and acquisition involve one or multiple institutions purchasing all or part of another organisation. Merger, amalgamation, acquisition and take over are different routes for arriving at the goal of absorption of one or multiple institutions. Consolidation is also absorption.

1)-What is Merger?

According to the Oxford Dictionary, the expression "merger" or "amalgamation" means "combining of two commercial companies into one" and "merging of two or more business concerns into one" respectively.
Merger is combination of two or more companies into a single entity where one survives and other ceases. Merger takes place when two business entities agree to go forward as a single new entity and the existing stakeholders of both the involved institutions retain a shared interest in the new entity. With the merger, all assets, liabilities and stocks of one entity stand transferred to the transferee institution. Shareholders of the amalgamating entity get shares of the amalgamated entity at a pre-agreed ratio or proportion in exchange of their existing share in the target institution.
The object behind merger is to achieve greater efficiencies of scale and productivity. Mergers are the potential for concentration of economic power and exploiting existing core competencies. Merger may involve absorption or consolidation. In absorption, one entity acquires another entity. In legal parlance, we call mergers as amalgamations in India.

Mergers can be broadly classified as:

1-a) Horizontal Merger

It is a merger of two institutions, which have common product line, or render the same services, and compete directly with each other. The merger is based on the assumption that it will provide economies of scale from the larger unit and will eliminate competition, duplication of facilities, reduction in cost, increase in market segments and exercise of better control over market.

1- b) Vertical Merger

It takes place between two institutions having different operations either as forward or backward integration i.e. where one of them is an actual or potential supplier of goods or services to the other. The main object is to ensure a source of supply, ready take off of the materials and outlet for products, gain control over product specifications, increase profitability by gaining margins of the previous supplier/distributor and improving efficiency.

1-c) Circular Merger

Companies producing different products seek amalgamation to share common distribution and research facilities and promoting market enlargement. The acquiring company benefits by economies of resource sharing and diversification.

1-d) Conglomerate Merger

It is a merger of indifferent or unrelated business output institutions. The merger entities have no common business lines. The purpose is to ensure utilisation of financial resources, enlarge debt capacity and to reduce risk by diversification. The entities opting for conglomerate merger control a range of activities in various industries requiring different skills in the specific functions. The purpose is to obtain greater stability of earnings through diversification; utilising spare resources whether capital or management; and to obtain benefit of economies of scale.

1-e) Reverse Merger

It is a method by which a private company becomes a public company, bypassing the lengthy and complex process of initial public offering (IPO). It is generally used in those cases where a company having higher net worth is merging into a company having net worth lower than it. Merger of ICICI Ltd., with ICICI Bank was the reverse merger.

2) What is Acquisition?

When one entity takes over another entity and establishes itself as a new owner, the purchase is called acquisition. In acquisition, one institution purchases bulk of stock of another organisation, creating an uneven balance of ownership in the institution. Acquisition is similar to big fish swallowing small fish. From legal point of view, the target entity ceases to exist. This can be affected by:
Agreement with the persons having majority of the stake
Purchase of shares in the open market
To make takeover offer to the general body of share holders
Purchased of new shares by private treaty
Acquisition of share capital

Acquisition can be –

2-a) Hostile

When one organisation without the consent of other organisation acquires significant portion of the stocks or equities of other concern with a view to having control over the organisation, it is termed as ‘hostile’ take over.

2-b) Friendly

When one institution makes a financial proposal to the management and Board of another institution, which is to be acquired it is termed as “friendly” take over. The objective is to take over the institution with its consent. The proposal might involve the merger of two institutions or consolidation of two institutions or creation of parent/subsidiary relationship. The Mergers and acquisitions are through the negotiations, willingness and consent of the acquiree company.

2-c) Leveraged Buyouts

This is the acquisition of a company by its management personnel. It is also known as management buyout. Management may raise capital from the market or institutions to acquire the company on the strength of its assets.

3) What is Amalgamation?

It is acquiring a controlling interest by one organisation in another organisation. It is blending of two or more existing undertakings into one undertaking. The blended company loses its identity and form springs into a separate legal identity. The shareholders of each blending company become the shareholders in the company, which is to carry on the blending undertaking.

4) What is Take over?

It is acquisition of a certain block of equity capital of a company, which enables the acquirer to exercise control over the affairs of the company. Normally merger/amalgamation and acquisition/take over are the terms used interchangeably. Takeover differs with merger in approach to business combinations i.e., the process of takeover, transaction involved, determination of exchange rate of the shares of the companies that would undergo a merger known as Swap Ratio. This is calculated by the valuation of various assets and liabilities of the merging companies.
Take over is change in a corporation's controlling interest either through a friendly acquisition or a hostile bid. Hostile takeovers aim to replace the target company's existing management and are usually attempted through a public tender offer. In an "unfriendly" takeover (Hostile), acquirer may not offer the proposal to acquire the target company’s undertaking, but may offer incentives to stockholders such as offering a price well above the current market value to gain controlling interest in it against the wishes of the management. They are also called raids or takeover raids. Other takeover methods are unsolicited merger proposals to directors, accumulation of shares in the open market, or proxy fights.

4-a) Clandestine Takeover (or) Creeping Takeover

The clause 40 of the Listing Agreement of stock exchange allows a person to buy up to 5% stake in a company without any prior permission. After 5%, they ought to inform the stock exchange.

5-Rules governing Mergers and take over

The terms merger and amalgamation have not been defined in the Companies Act, 1956, the provisions relating to merger and amalgamation are contained in sections 391 to 396A in Chapter V of Part VI of the Act. A procedure has been laid down in the Indian” Companies Act, 1956”, in terms of which a merger can be effectuated. Sanction of the Company Court (High Court) is an essential prerequisite for the effectiveness of and for effectuating a scheme of merger.
Mergers and Amalgamations are outside the purview of Securities and Exchange Board of India (SEBI). However, only takeovers and substantial acquisition of shares of a listed company fall within the regulatory purview of SEBI. These Regulations are called the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.The regulatory provisions governing merger contained in the Monopolies and Restrictive Trade Practices Act, 1969,were removed with effect from 27-9-1991, through the 1991 amendments .

6) What is Consolidation?

It is fusion of two existing entities into a new unit. In consolidation two or more entities combine to form a new entity. Both the entities lose their identity and cease to exit and a new institution takes birth. The stakeholders of both the entities become stakeholders of new entity. The idea behind consolidation is that strong unit can absorb shocks and survive in difficult times.

7) Difference between Merger and Acquisition

Basically there is no difference between merger and acquisition. The difference is only in the operational process of acquisition. In merger, one entity gets merged with other loosing its identity by way of share transactions/assets/liability transfers. In acquisition/take over, one concern acquires the controlling interest of ownership of capital. However, the acquired organisation retains its own individual identity.

8) Why Merger & Acquisition?

Merger is a way of changing and expanding the organisation. By merging with a major competitor, an organisation can dominate the market they compete in. The main purpose of merger and acquisition is to enhance market share, absorbing, eliminating or reducing competition, reducing operating cost, to fill the gap of expert and professional staff and to take advantage of tax benefits, if the institution being merged or acquired is a debt ridden or loss entity. Another object could be to acquire the technology of the competitor or of the target company. This has been observed in the IT sector, where a number of companies have taken over other IT companies offering rich products or services developed by them, or to enhance capacity and to become major player both in domestic and global market for example “Tata Steel” acquiring “Corus”, A V Birla Company –Hindalco taking over Novelis a Canadian aluminum giant.

9) Advantages of Merger & Acquisitions

9-i) Growth

One of the fundamental motives that entice merger is impulsive growth. Organisations that intend to expand need to choose between organic growth and acquisition driven growth. Since the former is very slow, steady and relatively consume more time, dynamic organisations that are ready to capitalise on opportunities prefer the latter. Merger helps in diversifying the areas of activities. It helps in achieving optimum size of business and removes certain key factors and other bottlenecks of input supplies.

9-ii) Managerial Efficiency

Some acquisitions are motivated by the belief that the acquirer’s management can better manage the target’s resources.

9-iii) Revenue enhancement

The reason can differ on a case-to-case basis. When two business entities have complementary business interests, mergers may result in consolidating their position in the market resulting into cost reduction, and revenue enhancement.

9-iv) Tax benefit

This plays a significant role in acquisition. If the distressed entity has accumulated losses and unclaimed depreciation benefits on their books, such acquisition can eliminate the acquiring institution’s liability by benefiting merger.

10) Merger/Amalgamations- Banking Regulation Act, 1949

Amalgamation of banking companies under Banking Regulation Act falls under two categories i.e. voluntary amalgamation and compulsory amalgamation.
Section 44A deals with Voluntary Amalgamation of Banking Companies. As per the provisions, a banking company may be amalgamated with another banking company by approval of shareholders of each banking company by resolution passed by the majority of two third in value of the shareholders of each of the said companies. The banks have to obtain Reserve Bank’s sanction for the approval of the scheme of Amalgamation. The Reserve Bank generally encourages amalgamation when it is satisfied that the scheme is in the interest of depositors of the amalgamating bank.
Under Section 45 (4) of the Banking Regulation Act, 1949 Reserve Bank may prepare a scheme of amalgamation of a banking institution. A compulsory amalgamation is pressed into action where the financial position of the bank has become weak and urgent measures are required to safe guard the interest of depositors’. Section 45 of the Banking Regulation Act, 1949 provides for a bank to be reconstructed or amalgamated compulsory, i.e. without the consent of its members or creditors, with any other banking institutions as defined in sub-section (15) thereof.
According to Section 45, the Reserve Bank of India can submit a scheme to the Central Government for amalgamation of banking unit with a well managed bank within a period of not more than six months moratorium granted by the Government on an application made earlier in that behalf by Reserve Bank of India.
One advantage of compulsory amalgamation over liquidation is that the depositors get immediate credit to the extent of readily realizable assets at the commencement of the amalgamation, additional payments being made as and when the remaining assets are realised.

11) Narsimaham Committee on Merger

Narasimaham Committee report on financial system had recommended a broad pattern of the structure of the banking system as under-
a) 3 or 4 large banks (including the State Bank of India) which could become international in character.
b) 8 to 10 national banks with a network of branches throughout the country engaged in “Universal” banking.
c) Local banks whose operations would be generally confined to a specific region: and
d) Rural Banks (including Regional Rural Banks) whose operations would be confined to the rural areas and whose business would be confined to the rural areas and whose business would be pre dominantly engaged in financing of agriculture and allied activities.
The Narasimaham Committee on banking sector reforms suggested that “Mergers between banks and Development Finance Institutions (DFIs) and Non Banking Finance Companies (NBFCs) need to be based on synergies and should make a sound commercial sense. Committee also opined that mergers between strong banks/Financial Institutions would make greater economic and commercial sense and would be a case where the whole is greater than the sum of its parts and have a “force multiplier effect”. It also opined that mergers should not be seen as means of bailing out weak banks.
A weak bank could be nurtured into healthy units. Merger could also be a solution to a weak bank, but Committee suggested that it should only be after cleaning up their balance sheets. It also suggested that if there is no voluntary response to take over such banks, a restructuring commission for such Public Sector Banks can consider options such as restructuring, merger, amalgamation or if not closure.”
To find a solution on the lines suggested by Narasimaham Committee, the Government passed an ordinance on September 4, 1993 and took initiative to merge New Bank of India with Punjab National Bank, which turned out to be an unhappy event.

12) Necessity of Merger and Acquisition in banks

India is fast emerging as an economic power. It requires two-three banks that can be termed global. Indian banks do not enjoy a global status. It is facing the crisis of global identity. Big banks have edge over small ones. They can raise money at a cheaper rate and can offer competitive lending rates.
Their assets are more diversified, both sector-wise and geographically. Therefore, it is less risky. Their risk absorption capacity is high. They are also in a position to offer wide range of services for which fees can be charged. This reduces their dependence on the net interest income.
In the post Basel II era, banks have to enhance risk taking abilities, which can be done through mergers, acquisitions and strategic alliances. Hence, there will be more often banking consolidation.

13) Trends in Merger of Banks

In order to compete with large and well-established Public Sector banks, Private Sector banks are not only foraying into IT, but also shaking hands with peer banks to establish them in the market. To have a hold on South Indian market, which has higher rate of economic development, ICICI Bank merged 57 year old Bank of Madura on 9th December, 2000.The swap ratio was 1:2, two shares of ICICI Bank for every one share of Bank of Madura.The trend is continuing. To name a few Times Bank merged with HDFC Bank Limited, Bank of Punjab merged with Centurion Bank, Global Trust bank merged with Oriental Bank of Commerce and many more banks are keeping eagle’s eye on other banks. In the global context, in recent times whether its Citi Traveller group, RBS Natwest or the latest one, Barclays ABN Amro, the age of the mega merger is rolling on.

14) Advantages of Bank Mergers

The consolidation /merger of banks will not give instant results. However, once the incubation period is over and the bank is back on the track, the mergers of banks result into –

14-i) Financial capability

Amalgamation will enable banks to have a stronger financial and operational structure and will enable it to face global competition. It will also help banks in greater resource/deposit mobilisation and profitable utilisation of surplus funds.

14-ii) Branch network

With the merger, existence of two branches in the same locality may not be necessary. Closure of branches in the near by vicinity will reduce overheads. Merger helps in rationalisation of branch and staff. It helps in increasing network of branches and enhances geographical coverage.

14-iii) Customer base

The merger results into larger customer base, offering of different banking and financial services and products and also facilitating cross selling of products and services. However, it has to be ensured that the customers of the branches that are being merged with the nearby branches are not put to inconvenience as this may result in customers migrating to other banks.

14-iv) Cost reduction

Merger would also result into reduction in operative cost to a greater extent viz. payment of annual maintenance charges for software as well as numerous other items such as servers, computers, machinery, equipment etc. It would also help in closing down unviable branches of the bank in the same vicinity. It would also result into reduction in administrative cost by closing down controlling offices i.e. Regional and Zonal offices.

14-v) Effective staff deployment

With the merger, the bank will be in a position to pool staff having expertise in different operational areas whose services could be utilized profitably. Surplus staff can be redeployed fruitfully for business development, marketing of assets and liability products, fee-based services, recovery, and reducing Non Performing Assets.

14-vi) Technological Challenges

Merger of highly technological bank with lesser technological bank helps in quick introduction of technology in the merged bank. Merger would enhance the utility and viability of ATMs and increase the number of transactions, as there will be more availability of ATMs to customers.

15) Disadvantages

The first and foremost disadvantage of merger is that the top executives of the acquired /merged bank are shown the door of the bank or such situations are created that they that feel suffocated and are compelled to leave the bank. This is what was experienced from the mergers that took place in the recent past in the banking industry in India. People occupying pretty senior hierarchical position were fixed at a much lower grade without regard to their experience and length of service, or they were side tracked by assigning unimportant task, or were demoralised by derogatory remarks.
This gives wrong impression to the staff of the merged bank. They feel alienated and their productivity and enthusiasm gets a setback, in the process they become unproductive.

16) Problems in consolidation /merger

16-i) Customer Service

Merger sometimes causes disruptions in services to customers. It may cause a permanent reduction in service to some customers, because the acquiring organization is less willing to or able to serve those customers that were acquired originally. It involves time in customer developing a sense of belonging to the bank. There is also a fear that the attitude of the staff of-absorbing bank towards the clients of merged bank may not be encouraging.

16-ii) Technological Issues

There is no uniformity in technology in banks. Different technology is being followed in different banks, which makes it difficult to integrate the system.

16-iii) Attitudinal Problems

Merger of two entities involves merger of two different work cultures, work ethics and work ethos. Cultural integration takes time. Intermediate period creates attitudinal problems towards work and management. During the gestation period of integration there is lack of clarity in job responsibility. There is absence of teamwork and shared responsibilities for getting work done. This demotivates the workforce.

16-iv) Systems and procedure

Over a period of time, each bank has developed its own systems and procedures, which have been embedded in its culture. Each bank has its own set of rules and regulations, which have been documented in the form of book of instructions. Unless rules and regulations, systems and procedures are standardised, merger will lead to confusion amongst staff and will result into chaos in operation. This will have direct impact on the efficiency of the staff and customers would feel the burnt.

16-v) Unions

Every bank has unions for protecting the interest of employees. Office bearers of unions enjoy several hierarchical posts. Even there is employees’ representation in the board of the bank. Power and supremacy enjoyed by each leader within his bank varies. Merger of two banks will trigger struggle for power amongst the leaders, which will have adverse impact on the working of the bank, as member of one union may not cooperate with the members of other union.

17) Human Side of Merger

The merger is not only a financial event. It is not of mortar and brick institutions, but it is of two cultures. Mergers result in new reporting relationship. There are cultural differences in the entities. Work ethics differ. There are difficulties of adequately blending culture and integration. The staff of merged bank finds themselves in loss. They crave for identity and recognition. There is a threat to the seniority of the staff of the merged bank. In some banks there were fast promotions and in some late. Even problems of figment of salary and grades arise. Employees fear relocation and transfer. They lose self-confidence and mistrust develops.

A bank taking over another bank has to project that the staff of amalgamated bank is welcomed. They are to be given psychological support. Those in command should help the staff of merged bank in giving them briefing about culture of the bank and should show confidence in them. The staff of merged bank should be properly treated. They should not be treated as second grade citizens in the merged institution. There should not be any preconceived notion, lest there may be far reacting consequences and the whole object of merger will suffer.

18) Planning for Merger/Take Over/Acquisition?

The first and foremost thing, which an organization has to decide, is the purpose/ objectives behind the Merger, Take Over or Acquisition. It has to visualise the problems that may occur and to chalk out the strategies well in advance to solve them .It has to be clear

Whether the object is to tap untapped market?
Whether the purpose is to eliminate or reduce competition?
Whether it wants to become financially strong?
Whether the object is to increase the size of balance sheet?
Whether the object is cultural integration?
Whether the object is to procure an existing product and leverage?
Whether the object is to avail Tax benefit?
Whether the object is to leverage on technology?
Whether the object is to cut short the time involved in growth?
Whether the purpose is to have managerial efficiency?
Whether the object is to reduce operational cost?

The solution to all these issues is merger/acquisition, amalgamation and consolidation, which are different routes in that direction. Before finally deciding about merger the organisation has also to look into;

Average age of work force of the entity to be merged.
Financial commitments of the entity?
Assets and liabilities of the institution to be merged and its quality?
Book value of assets and shares?
What is the history of business growth? Is it increasing or decreasing?
Market share of the entity to be merged and its reputation?
Quality of work force, their approach and commitment?
Laws affecting merger?
What is the organizational culture?
What are the future prospects?
What are the bottlenecks that may be faced?
What are the strength, weakness, opportunities and threats?
Whether the technological platform is same or different?
What is the cost of merger or acquisition, and will it be met?
If it is to be met by borrowings, what will be repayment schedule, interest obligation how will it be met and whether it will result into liquidity crunch?
What will be the impact on market value of shares?
What will be the immediate gain or benefit?

If the ultimate analysis indicates that merger/acquisition will be beneficial the institution should proceed in that direction.

LINKING PREVAILING LEADERSHIP TO INDIAN SCRIPTURE

Who is a Leader?

Every creature has an instinct to perform. However, this instinct is not uniform. Some persons show excellence when led and some when lead. Effective leaders are those who have stronger need to show excellence and have ability, capability, desire to guide, motivate, and channelise group energies towards a predetermined goal. They are a part of the group and not apart of the group. The metal of these persons is quite different. They have the quality to spark and ignite the latent talent in the work force and steer the organisation even in rough weather. They inspire the team in shaping the future of the organisation and concretizing its values and culture. Since they have wisdom, are full of confidence, people in the organisation look upon them for guidance. Because of their capabilities, uniqueness and ability to lead, their instructions are carried out with devotion and dedication. Effective leaders believe in action and not in announcements and pronouncements.

Leadership and Organisation

Management and leadership are supplementary and complementary to each other. Whereas, management is doing things right, leadership is doing right things. A positive co-relation exists between leadership style and success of the organization. Future of an organization depends on the knowledge, vision, skill, and experience of its leader. It depends on his ability and capability to plan, coordinate and guide. Fate of an organisation is made or marred by its leaders. The quality of leadership surfaces in rough tough, milling and grilling assignments rather than in routine mundane assignments.

Quality of a leader

A good leader should have vision, commanding personality, persuasive ability, courage and intelligence. He should be an action-oriented person with instinctive urge and inborn will to achieve success. He should always be in look out for challenges. He should not fear them; rather treat challenges as an opportunity for excelling. Good leaders believe that success lies in managing crisis. To them, crisis management is efficiency and managing by crisis deficiency. They consider crisis to be precursor of learning. Greater the crisis, better the learning . They believe that, as it is the past, which has made the present, the present will make the future; hence they plan out the future of the organisation. They lay the foundation of the organisational culture.

Identification of Leader

A leader can either be a born leader, a groomed leader, a situational leader, a hierarchical leader or he can even be thrusted upon. Some times leadership by force may also be employed. At times leadership is even bargained or traded.
Leadership can be classified in to two broader categories – Main i.e. Chief Executive and Secondary i.e. his deputies occupying various positions in the organisational hierarchy. By and large in most of the public sector organisations in India, the main leader is thrusted upon an institution either by chance or by design. It is he, who selects secondary leaders generally from within the organization for managing and supervising various functions.
The selection by promotion to higher cadre is said to be either by seniority or merit or competence. However, by and large the general feeling in public sector institutions in India is that in most of the cases, promotion by selection for managing different tiers of the organisation is influenced not by what you know but whom you know. In Indian context it is the pedigree and not the degree that plays vital role. Though this is a very general statement, but is very true with most of the public sector institutions in India.

Role of Leader

The leader at the top of the ladder has key role to play, as he has to chisel to give shape and direction to the institution. Since, most of the secondary leaders are generally selected on the basis of their networking rather than on the basis of their performance, merit or competence, they hesitate in taking right and bold decisions as they remain in constant obligation of their mentors at the top, and look upon them for their nod, or take decisions that please their higher ups. Their personal interest precedes the interest of organization. To them, the vision of their mentor is their mission, and wish as command. Therefore, they generally do not listen to their conscious and evaluate between right and wrong.

Leadership Style

Leaders adopt different styles of functioning. Behavioural scientists, psychologists and management gurus have crystallized various leadership styles in to the following broader categories.

(a) Autocratic: - Leaders practicing this style decide and dictate what others have to do. They believe in Herzberg’s Theory ‘X’ that unless forced, coerced people do not perform. Such leaders keep the reign in their hands and control subordinates with iron hand. They arbitrarily display their strength and consider power and prestige important for controlling subordinates for getting desired results. They neither tolerate subordinates interference, nor listen to their suggestions. They are hard taskmasters lacking sympathy and sentiments for individuals. They often reveal projective and paranoid tendencies.

(b) Democratic: -. Such leaders are sympatic, display humanistic approach, trust people and have human values. They are open to suggestions and respect the views of others. They subscribe to Theory "Y" of Herzberg that by and large people want to perform, and are not shirkers. They believe that their task is to get the job done. They facilitate in achieving goals and act for the welfare of the group. They like to take decisions through discussions, consultation and interaction rather than by dictation. They prefer to help and guide the staff.

(c) Bureaucratic: - These leaders have clear-cut demarcation of work and responsibility. They believe that subordinates should follow dotted lines. They are egoist, ruthless and follow the rulebook. They maintain distance with the workforce. To them, others are not O.K.

(d) Task Oriented: - These leaders are interested only in work and expect high standards of performance. They are workaholics. As they themselves drive very hard, they keep track of progress of work at every stage. Subordinates under these leaders work optimal but driving them too much some times become counter productive.

(e) Laissez Faire: - These leaders are easy goers. They neither guide nor inspire people. They do not participate in determining task and leave it to people to decide. They hardly take part in giving direction and in work discussions. They are counter productive and lack commitment towards responsibility. They are either frustrated lot or inefficient.

Leadership and Public Sector Institution

The leadership styles followed in most of the public Sector Institution are quite different from the styles described in the above-mentioned paragraphs. Microscopic view indicates that the styles practiced in most of the public Sector Institutions in India are to a greater extent influenced by old Scriptures and mythologies. There has hardly been any change even with the passage of time. It gives an impression that we have genetically inherited these leadership styles, which is a mirror of our culture and values system. The impact of transgenic varieties of styles developed by infusing Indian and western styles and what is being taught in management schools which have mushroomed in every nook an corner of the country will be known in times to come.

To understand the leadership styles practiced in most of the public sector institutions, we have to deeply look into the famous epic " Mahabharat”, as most of the styles presently vogue in Public Sector Institutions are the off shoots of the styles followed by different characters of "Mahabharat".

Prominent Characters of Mahabharat

Though all the characters of Mahabharata are important, however, some of the prominent characters are “Dhritrastra”, “Gandhari”, “Bheeshma Pitamaha”, “Sanjay”, “Shakuni”, “Duryodhan”, “Pandavas” and “Lord Krishna”. Their acts, actions had major impact on the events culminated in to war. Though the styles followed by each one of them might have been relevant in the days of yore, however, the styles of some of these characters are still being practiced in one or other form in most of Indian institutions.

The Epic in nut shell

As per the epic, ‘Dhritrastra’, the king was blind. ‘Gandhari’, his wife, voluntarily blinded herself by bandaging her eyes. ‘Bheeshma Pitamaha’, the grand father was bound under the shackles of his vow and could hardly assert and raise his voice against injustice, exploitation and implementation of right things. ‘Sanjay’, was ears and eyes of ‘Dhritrastra’ who through remote viewing narrated the entire affairs of battlefield to him.

‘Shakuni’, brother in law of ‘Dhritrastra’ was revengeful people and was the mastermind behind all the ills and wrong doings. ‘Duryodhan’, son of ‘Dhritrastra’ and ‘Gandhari’, was arrogant, egoist, self centered and suffered from mental hysteria. He was a terror.

‘Lord Krishna’, was a guide, philosopher, a great psychologist and motivator. He logically convinced ‘Pandavas’, nephews of ‘Dhritrastra’ and goaded them for action and performance. He advised them to evaluate the pros and cons of non-performance and insisted that the performance should be done excellently in a planned and professional manner. He advised them that non-performance is not a branch of performance.
The central theme of the epic is fighting for injustice with high moral and ethical values, keeping calm and quite in any vicissitudes and not to subscribe to deceit.

Personality analysis of Characters of Mahabharata and their style of functioning:

1- Dhritrastra- The King

Dhritrastra was not only physically blind, but was also mentally blind. He had shut down both his mental and analytical faculties in the love of his son,and were not willing to listen against him. He turned blind eyes to the wrongdoings of his son and had lost the capabilities of differentiating between right and wrong.

Due to his infinite attachment to his children, he became deaf to the words of warning uttered by the good .The other aspect of his personality was that he was against criticism and not open to suggestions. He was not willing to understand the reality and change his perception and mental vision. He formed opinion on the basis of hearsay and on the feed back of those in his inner circle. Before taking decision or arriving at any conclusion, he neither bothered nor desired to verify the factual position. Since he was averse to obtaining independent views, he could not know the truth. This attitude and approach indicates his mental blindness. Though he was well aware of the wrongs being done in his regime, he did not consider it objectionable so long he or those close to him were not affected. Thus he permitted wrong to prevail over the right, and lived in darkness and delusion.

“Dhritrastra” type of Leadership style

Keeping the above-mentioned characteristics of ‘Dhritrastra’ at the back of our mind, if we analyse the practices followed in most of the public sector institutions in India, it would be observed that by and large, bosses (the leaders) at the top behave like Dhritrastra who are surrounded by courtiers. Courtiers’ deep crust is hard to penetrate. They project and pass on incorrect information in such manner to the bosses that they believe it to be correct. They avoid listening to cross-section of people in the organisation, for understanding ground realities. Thus it gives an impression that those at the helm of affairs are behaving like Dhritrastra. Since they have not only shut their physical eyes, but have also switched off their mental faculties, they remain unaware of ground realities and their perception becomes opaque and foggy.

To obviate problems, troubles and inconvenience, bosses keep distance with the field functionaries and play in the hands of lumpen and direction less elements. However, they fail to realise that their close mindset creates vacuum between them and the field functionaries. Sycophants fill in this vacuum, which results into drooping morale of the workforce.

Confidants of bosses run the organisation by proxy, and he, by remote control. In fact these confidants, instead of helping him in smooth running of the organisation spread the contagious virus of dissatisfaction, discontentment that increases the number of disgruntled persons in geometrical progression. Though well aware, that their action will breed dissatisfaction, these confidants of bosses corrupt the files of dedicated workers in a well-planned manner and sabotage their chances of career progression.

In Public Sector Institutions, people who command power do not listen to any body’s advice. They live in their own little world. Others must say “ yes -yes” to them. That is their nature. They form opinion on the basis of utterances of courtiers. Even though they are conscious to palpable injustices, they do not take corrective measures unless they themselves are directly affected.

Leaders following this style of functioning basically behave like " Dhritrastra”. They are self-centered and are least concerned about others. Their approach and attitude is evasive. They become offensive when posed with problems or approached for solution. In such situations, they adopt insulting attitude and try to find out fault with the person concerned. They pass on sarcastic and offensive remarks. They conceal their vices under their large dignity and position. They love false praise and become deaf and blind to reality and pay attention to those who praise them. Power and position swells their head. They hate genuine criticism. Ruthlessness and threats are their influencing power. Such leaders are opportunists, egoist and have no sentiments even for those on whose shoulders they had climbed. Their preconceived notions hardly change. This style of functioning is very similar to that was followed by "Dhritrastra".

2- “Gandhari” –The Queen

The next important character of ‘Mahabharat’ is Gandhari.Though not physically blind; she deliberately blinded herself by bandaging her eyes not to enjoy those things, which her husband could not. She became blindfolded not only out of respect for her husband, but to have empathy and to experience the turbulence, which a physically handicapped person under goes both physically and psychologically. She shared the darkness through out her life, so as to provide both psychological and moral support to her husband.

‘Gandhari' cautioned her husband about the rowdyism, wrong behaviour and approach of their son“Duryodhan”, so that before it was too late, corrective measures could be taken for behaviour modification. She had foresight and conviction that affection is not a blind duty. Love and affection did not deter her to condemn the attitude and approach of her son. However, despite all the authority and power at her command, she did not to take corrective measures to mend her son and ignored his wrong doings. She did not assert, but displayed her helplessness.

Since, ‘Dhritrastra’ was not serious towards the behaviour of his son and had adopted casual approach, he did not pay any heed to the concerns of his wife. As she never wanted to give an impression down the line that there was discord between husband and wife, she preferred to compromise with the situation and to obviate slanderous messages percolating down, vitiating the atmosphere in the monarchy. She had high level of tolerance. Her approach and attitude reflected her mental architecture.

“Gandhari” type Leadership style

When number two in the organisational hierarchy blindly follows the footprints of number one, he imitates ‘Gandhari’. Once the second in command in an organisation feels that the things will move only as per the dictates of number one, that he has either no say in the matters, or his suggestions would be brushed aside and ignored, he adopts escapist attitude and does not exert. He neither takes initiative nor responsibility. The law of inertia governs him. He takes refuge in his own shell, binds himself in self-created shackles so as to avoid conflicts and controversies. Though he tries to avoid personality clash with number one in the hierarchy, his outer expressions and behaviour pattern do not match with his internal feelings

Since such leaders are themselves not assertive, they want others to behave like " Jelly Fish”. They avoid taking decisions and if forced, delay in taking decisions. Even for taking petty decisions, they look at the top. They always look for protective umbrella. Leaders like ‘Gandhari’ know how to project even without having an ounce of substance in them. They are unpredictable. They take committed, dedicated and intelligent subordinates for performance so that their own inefficiency is not exposed, and they can easily pass on blame on others. Once they are in power, in the same institution, they vomit venom and take revenge form those who had not given importance in their bad period.

3- “Sanjay ” –The remote viewer

The third character in the epic is Sanjay. He had the periscopic view of the events. He not only understood ins and outs of the life’s game, but could also visualise it. He was a remote viewer and narrator of the events of the war. He knew the amount of trust and confidence ‘Dhritrastra’ had in him. His proximity made the bondage stronger and gave him enough power to convince and tilt the views to the desired level, which he avoided. He was well aware of the weakness of the king and his mental frame. Therefore, he tactfully narrated the bitter part of the war. He spoke the truth, which was palatable and pleasing, and modulated his voice and tone to avoid king’s anxity, which was increasing with the narration, and was becoming impatient to hear the success and valour of his army. He censored the information and revealed what ought to have been. He knew that selectivity plays important role in listening. People prefer to listen to melodious and pleasing tunes, and pick up only those signals. Non-palatable transmissions are always blocked.

Following “Sanjay ” style

Leaders / Executives who are non-approachable, non-assessable rely on second hand information provided by their confidants, even when the 1st hand information is available. They develop strong biases on the basis of utterances of confidents. Due to some obvious reasons, bosses do not come out of the cocoon and continue to listen to the nursery rhymes recited by people around them and see the organisation from their coloured glasses. They suffer from ‘Gee-Hajoori’ or ‘yes-Boss’ syndrome. The adverse effect created by confidants’ affects performers. They become victim of misrepresentation, misinformation and wrong projections.

Though ‘Sanjay’ of Mahabharata was honest and fair, but modern sanjays are not. Sanjay type people are transplanted in the system for internal surveillance and for gathering and passing on such information to the authorities, which may give them commanding, position. They act as concealed antenna and radar for the boss.
The closeness to the bosses is not necessarily linked to on the job performance. In most of the cases, closeness is due to off the job qualities. They wield power due to the proximity with those in power and authority and exploit people. They act as opinion maker.

4- “Duryodhan” –The spoilt brat

The fourth character of the epic is ’Duryodhan’, the son of ‘Dhritrastra’. Being a spoiled child, he was full of anger, merciless, ruthless, intolerable and unpredictable. He was self-centered, sarcastic, obstinate, restless and over anxious. He could go to any extent for fulfillment of his ego-based desires. He was threat to others. He always criticized others and lacked farsightedness. He considered others to be useless. He always desired that his demands, whether legitimate or illegitimate be fulfilled. Those coming in his way were his biggest enemies. He always desired to have upper hand by hook or crook. He was always in look out for the weaknesses of others and exploited them. He was driven by instinct and not by logic or reason .He nurtured crime.

“Duryodhan”type Leadership style

A leader following footprints of ‘Duryodhan’ subscribe to the philosophy of organisational terrorism and govern through organised threshes. Threats, bullying are their mode of operations. They practice non-physical psychological violence and mental assault for getting the job done. Their behaviour is offensive, vindictive, malicious and humiliating. They gang up targeted employees and subject them to psychological harassment by negative remarks or criticism and isolate them from social contacts. They undermine an individual or group of employees through various activities and make life miserable and difficult for those who have potential to perform with excellence. They assign unimportant and useless tasks to capable and efficient workers and kill their zeal. They search demerits in merits and discard logic. They are selfish and may have lower capabilities. They keep highly qualified, experienced and straightforward workers at a bay and discourage and demoralise them. Threats of inconvenient posting, placement, transfer, denial of promotion, non-recognition and non-appreciation of good work, constant nagging, and humiliation are their traits. They deprive legitimate rights to deserving candidates and bestow favoritism to undeserving candidates close to them. They create uncongenial environment in the organisation. Power makes them blind. They fail to realise that power does not remain indefinitely. That in the beginning man acquires power due to his ability and later looses ability due to power. Their policies change as per their whims.

5- “Shakuni” –The troubleshooter

The fifth character of the epic is ‘Shakuni’, brother of ‘Gandhari’. He was an advisor and consultant to ‘Duryodhan’. He had sharp brain, however, he channelised his energies and talents towards destructive purposes. He knew how to create differences and problems for others. He was a villain and enjoyed at the cost of others. He was an expert in creating anti feeling and background against others. He was well aware, that ‘Duryodhan’ was the weakness of both ‘Dhritrastra’ and ‘Gandhari’ to whom they could never dare to displease or oppose and could not turn down even his unjustified, irrelevant and illegitimate demands. ‘Shakuni’ inflated ‘Duryodhan’s’ desire for power and vomited venom against Pandavas. He created mistrust, chaos and bad blood. He instigated Duryodhan to eliminate Pandavas, the real owner of the kingdom, by hook or crook.

“Shakuni ” type Leadership style

Bosses following footprints of ‘Shakuni’ are experts in instigating, humiliating, demoralising and exploiting subordinates. They create artificial chaos and panic in the organisation. They blackmail and project weaknesses of even those who trust them and share secrets and confidential matters. They know how to demoralise opponents and de-motivate and kill them psychologically. Since, they are close to power and position they exercise unauthorised control over others. In this style the leader plays one against others and enjoys at their cost. They nourish and nurture crime. They fail to realise that organisation suffers with the demoralised staff.

6- “Lord Krishna”- The Architect and his style

The Sixth and most important character of epic ‘Mahabharata’ is ‘Lord Krishna’. He was mentor and well wisher of ‘Pandavas’. He had both mighty and dynamic personality.
He sided with justice, fairness and propagated peace. He led ‘Pandavas’ in the war for their rights and continued to guide them at each stage with expert knowledge. He made them aware of their duties and responsibilities and advised that tolerating injustice is cowardice. Sentiments should not come in the way of performing duties as it influences ability to take right judgement.

He was an expert in the art of inspiration, persuasion and motivation. He knew the art of accessing productive potential and invoking dormant productivity.

He had excellent analytical power and foresight. He knew the art of putting forth truth logically from different angles so that misconception, misinterpretation and shrouded vision become crystal clear. He was an experienced and practical person who knew that convincing is an art of motivation.

He knew how to reinforce confidence and inspire energies and rejuvenate talent, abilities and capabilities. He knew how to use emotional intelligence and gave constant positive strokes for achieving the desired results. He was an efficient and effective organiser, a strategic planner having clear goals in mind with commitment to achieve them. He was firm, but open to suggestions. He believed in two-way communication. His communications were precise, clear and without any ambiguity. He knew when to blow hot and cold and kept equilibrium in different vicissitudes. He knew how to tackle individuals both emotionally and psychologically and extracting excellence even in the midst of difficult situation.
He removed doubts from the minds of ‘Pandavas’. Clearly advised them their role, duties, responsibilities and constraints so as to enable them to prepare well in advance for facing unknown challenges. He constantly showed confidence in the team, guided them and gave both moral and psychological support. He believed that once the challenges are known, commitment inspired, the task would be achieved. He believed that every one has potential, which has to be surfaced. He subscribed to the philosophy that when there is dedication, devotion, commitment and zeal to achieve goal, reward becomes secondary and meaning less. In that event people only crave for recognition and self-actualisation. Reward is not prelude to performance.

He firmly believed that success does not come from deceit, that inactivity is not a part of activity. Non-performance is not the branch of performance. Inertia has no place in the society. Performance is sine qua non for survival. He considered every individual to be potential performer and knew the art of harnessing dormant potentials. He believed that once internal consciousness is evoked, people change, and even a non-performer becomes performer. By and large, people want to perform but lack of skill, confidence and non-conducive environment plays negative role. He considered every person as potential performer and did not discard any one out rightly. This was the reason that ‘Pandavas’ won the battle with handful persons as against a big battalion of ‘Kauravs’.

What Leaders should do?

A leader (boss) should know that work place is not a godown of human and mechanical things. Organisation is a living organism and has to be sensitive. It has to pulsate. We cannot see beneath the mind of workforce but can understand from their approach the inner turbulence. We see a bubble bursting on the surface of water but do not see it coming from the fathom of the lake.

A leader has to understand that the performance is much influenced by his approach. He has to control his emotions, modify his attitude and create congenial and transparent atmosphere in the institution. He has to understand that the power vested in him is for inspiring positive attitude, energy and not for exploitation. Arrogance and pride has to be shed away. He should have firm determination to face challenges with calm posture and balanced mind. He should not loose his nerves and should not jump to conclusion. He should have both far sight and foresight. He should be fair and friendly to all but familiar to none. He should know that

“Work can be full of joy provided there is love in heart…………………….While working, you are not only working but also expressing your personality at work”.
(Universal Message of the Bhagvad Gita- {Volume –I, page 432} by Swami Ranganathandaji, President of Ramakrishna Math & Ramakrishna Mission)

Leadership in India

We lack good leaders in India. Instead of having leadership, we have ladder-ship in organisations. Bosses do not know how to solve intellectual impatience of workers and how to invigorate them, revive their drooping enthusiasm, morale and confidence. By and large, they are selfish, self-centered and not above social malice. They are guided by pair of opposites and do not know how to make the workforce release him or herself from all mental preoccupation and make them live in joy through work. Workers therefore, loose faith in the wisdom of leaders.
In Indian organisations there is existence of cult of bossism and cabin ship. Those occupying cabins consider them to be powerful but they fail to understand that they are untouchables; hence they have been kept in quarantine. The culture of facilitator ship is absent. This is the reason for prevailing mistrust and absence of self-propelling zeal for performance.

Though India has given good leaders like ‘Lord Krishna’ and ‘Lord Rama’ to the world, however, there is hardly any leader who has a little strain of their leadership traits, qualities, who can work with determination and with the quality and capability to infuse zeal even in the dead woods?