The small matter of Culture

The July 2012 issue of Forbes India puts Flipkart, the Indian ecommerce giant, on its cover. Not that Flipkart – or its promoters – are alien to magazine covers but this time around there was a strong case made that things are not right with India’s leading ecommerce business (at the time of writing, the cover story is not available digitally, but a podcast with the journalist who wrote the story is here). The story criticized Flipkart’s business model, the fact that it did not build deep moats around its business and even questioned accounting practices in the firm. But what got Sachin Bansal, CEO or Flipkart’s goat was the article questioning the culture at Flipkart. The article alleged that top and senior management of the company were an exclusive club of IIT-D grads and outsiders have little or no chance of breaking through that glass ceiling (the article actually goes down granular to a particular hostel in IIT-D). Sachin Bansal chose to write back to Forbes India on the story and rightly for a CEO, took pains to clear the air on the issue of culture than other points that the article raised (well, he did write about the others but mostly spend his efforts to clear the air on culture)

The matter of culture is of deep significance to any business – more so for a startup. A startup has little leverage in terms of ability to pay to attract talent. It exclusively relies on equity options and most importantly a free flowing culture that celebrates talent and success. A CEO needs to – rather must – respond when that bastion is attacked. However if one looks around, it is not altogether alien to find closely closeted top management in many companies – ranging from the size and scale of start-ups to large multi national behemoths

One example right around the corner is Infosys, that adopted a founder-member-will-become-CEO approach that led to a power struggle leading to a very capable administrator in Mohandas Pai leaving the firm in April 2011. The Top Management was the founder member team that guarded their turf against external intrusion. It is certainly not uncommon to come across companies that have a strong affinity for a particular business school because the CEO comes from that alma mater. VCs sometime propagate the problem when they want to push their people into portfolio companies and source them from a shallow pool of their engineering or business school networks. Some Indian companies have had coteries based on other demography – like regional origin, caste and so on, especially in family run businesses

A CEO of a startup I met recently made a compelling case for agency costs creeping in when professional managers are brought in to run the business, thus introducing tactical costs as well as building up to situations of adverse selections. Such situations lead up to the outcome that the principal builds his team that minimizes agency costs. Organizations understand this phenomenon and sometimes mandate diversity as targets in groups. Having considerations of agency cost on the one hand and bringing about a culture of diversity on the other is a tough one for a CEO to balance. Personally, I really do not care so long as a kickass team is working in a kickass environment of achievement and getting to kickass outcomes. The real culture of a company, especially a startup, has got to be “success”. The CEO and the team he puts together have got to walk that talk. Where I really have trouble is where defensive coteries get formed leading to echo chambers. And if peeling a layer back on the coterie it is revealed that the echo chamber participants all share a certain common demography (other than being brilliant in their respective areas of expertise) then problems become like what Sachin Bansal is having to face

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