Corporate governance has evolved over centuries with the introduction of new models, particularly in relation to succession issues. Organisations, whether in the past, present, or future, continue to face challenges in managing succession. Uday Kotak, Founder and Director of Kotak Mahindra Bank, addressed this issue in his lecture at Ahmedabad University, stating that true leadership lies in building institutions that endure beyond individuals. To become a true leader, one must invest in creating foundations and structures that outlast themselves.
“In corporate governance, India operates on two models: the Raja-Praja Model and the Gandhian Trustee Model,” said Kotak. He elaborated, “In India, both models are prevalent. In the Trustee Model, the owners and managers, or the shareholders and managers, act as custodians for all stakeholders, particularly in companies primarily run by shareholders. The Raja-Praja Model, however, relies solely on trust. It is based on the belief that the Raja knows best and becomes the sole decision-maker in distributing returns among himself and his subjects (the Praja).”
Despite coming from a family of cotton merchants, Uday Kotak created his own empire. This is further reflected in his preference for the Gandhian Trustee Model over the Raja-Praja Model, as he believes the former offers a greater degree of fairness towards all stakeholders, while the latter operates on a monarchical system, concentrating power in the hands of a select few.
Explaining the genesis of these models, Rahul Sarwate, Assistant Professor at Ahmedabad University's School of Arts and Sciences, who works on Gandhian thought, said, "In the Raja-Praja model, the king's power is significant not merely because he is a king, but because he is considered an embodiment of the ultimate sovereign, which is God. Therefore, the subjects view the king not merely as a secular human ruling over them but as an incarnation of divinity. Gandhi's model of trusteeship is comparable to this divinity model, wherein the relationship between people, particularly those with asymmetrical power structures, is founded on the idea of equability."
However, the question arises: why should one trust the trustees? Elaborating on this, Professor Sarwate said, "Gandhi's model asserts that trustees can be trusted only if they demonstrate certain qualities in their relationship with the world. These are Aparigraha—an insistence on the non-accumulation of wealth and Anasakti, which involves performing actions without expecting fruits for self-consumption, the two pillars on which Gandhi built his idea of trusteeship. The expectation is that the trustees strive to create wealth but only to manage it for the greater good of the larger public, as they are bound to their fellow countrymen, patriots, and community members."
Building on the relevance of Gandhian principles in the current business environment, Professor Sarwate said, "Today's leadership or corporate governance models work under the assumption that they operate within a secular plane. Thus, the Gandhian principle of divinity is ruled out. However, Gandhi has not become irrelevant as the world is constantly shifting in the post-industrial phase, and the concerns have significantly tilted toward the sustainable economy, ecology, and the wellbeing of future generations. Perhaps Gandhi could provide people with the language, vocabulary, and ethics required to engage in dialogue. There is a need to develop a broader knowledge base, drawing not just from management principles or economic concerns but also from history, economy, polity, and society, guided by the Gandhian dictate of being ethical, aiming for a qualitatively rich, deeper, and more ethical approach."
Sharing his views on the relevance of the two models in the Indian business context, Parag Patel, Senior Associate Dean and Associate Professor at Ahmedabad University's Amrut Mody School of Management, said, "Gandhi's idea inspires the trusteeship model, whereas the Raja Praja model is also prevalent because many family businesses are listed companies in India and are very strong, making India unique. That's where succession usually remains in the family. While there is a very systematic professional management team, there are family members in leadership positions, and family members' wealth is highly correlated with the business's growth because they have up to 75 per cent family stake. Therefore, the Raja-Praja model delivers a lot of shareholder value. However, it is not out of goodness but out of the sheer drive to grow individual wealth. If one has to make a choice as a citizen of the country, s/he can resonate well with the trustee. But if one has to make a choice as a shareholder looking to grow wealth, then the Raja Praja model delivers better," said Professor Patel.
Uday Kotak delivered a lecture on "Leadership for the New Era", wherein he discussed essential lessons that the leaders of the new era must learn and embody in today's complex world, along with the importance of ethics, sustainability, and the future of work, wherein he offered valuable professional insights and personal reflections on the values that shape his approach to business and leadership.
The lecture, delivered as part of the Pinnacle Voices series, a programme conducted by the School of Ultimate Leadership (SOUL), paved the way for exploring a more valid approach to succession planning and corporate governance in the complex business environment.