00:00:00
Ram Charan: There used to be people coming to our town and they will round up people of my age, 10, 12 years of age, and they will teach what they call trade arithmetic. We call Retailing at Harvard. So when I walked into Harvard, I said, " I'd done that at the age of 10. Why am I paying $50, 000?"
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Nanaz Mohtashami: Welcome to Redefiners, a podcast designed for daring leaders who are changing what it means to lead in today's increasingly complex world.
I'm Nanaz Mohtashami, a leadership adviser at Russell Reynolds Associates.
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Clarke Murphy: And I am Clarke Murphy, the former chief executive and also a leadership adviser. Nanaz and I have spent our careers exploring what works and what's next in the realm of leadership.
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Nanaz Mohtashami: In each episode, we ask our guests deep and provocative questions about how they've challenged the norms and how they've redefined their organizations and ultimately themselves as leaders.
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Clarke Murphy: Also, you can answer this one question, how are you redefining your leadership?
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Nanaz Mohtashami: Perhaps the boldest question, yet.
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Clarke Murphy: Conversations that matter. Inspiration for us all whether you're kicking off your career or crafting your legacy. Thanks for joining us. Let's dive in.
Hello, everybody, and welcome back to Redefiners. I'm incredibly excited today about our guest, who's a renowned author and adviser to many of the most successful companies, executives and boards in the world he's probably forgotten more than you and I know combined, so I'm really interested to hear what he has to say.
00:01:28
Nanaz Mohtashami: Absolutely, Clarke. I am super eager to hear our guests' wise words, I guess particularly as the world economy heads towards an impending recession, unfortunately.
But I have to say, I'm also especially intrigued because I read that Jack Welch described him as " someone who has an ability to distill meaningful from meaningless and to transfer it to others in a quiet and effective way without destroying confidence." So that's quite some praise and actually talks a lot about his EQ, as well as his IQ.
I have to say, Clarke, I'm also very curious to just hear where he gets his source of relentless energy from. This is someone that has an incredibly high work ethic. He's always traveling. He's always on the road. I wish I had a 10th of the energy that he does.
00:02:14
Clarke Murphy: I know. It's crazy. We all have full schedules, but his is on another level. We're literally catching him fresh off a plane from Bangkok into New York this morning. So before we lose him, Nanaz, who's our guest today?
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Nanaz Mohtashami: Well, without further ado, our guest is Ram Charan. He has been called a corporate sage. He's got 40 years of experience working with some of the world's biggest companies and CEOs. He's written more than 30 books, Clarke, that have sold over 4 million copies and three of those were actually Wall Street Journal bestsellers. Ram is known for his nonstop work ethic, as well as for his ability to transform complexity into simplicity.
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Clarke Murphy: Ram, welcome to Redefiners. Thank you for landing long enough to be on this podcast. We greatly appreciate it.
00:02:58
Ram Charan: Thank you, Clarke and Nanaz. I'm very honored to be here, love to share what I know.
More importantly, I love to know your questions because those questions give me food to think about the future, what is on your mind and what is on the mind of the audience. And that's what gives me the energy, learning every day, knowing how much I don't know, need to find out more. That curiosity, the surge, the digging in is what keeps me going.
00:03:31
Clarke Murphy: So I'd love to go back to the beginning of that journey and when did you say, " This is how I'm going to get the energy. This is," as you said, " get the surge." How did that start?
00:03:40
Ram Charan: I was born in a small town near Delhi and we had a low- income family and we had a shoe shop so we have never heard of the concept of weekend. We worked seven days a week. There was no so- called holiday so the work ethic comes from there. We had to make a living. We worked seven days a week. We were very customer- oriented.
I was allowed to leave the family to go to engineering college, best in India at the time. We are sharp and the school teacher will come and say, " In our town, nobody has gone into engineering. We think this kid has a chance." So my father and uncle said, " We will fund it." And that's how I get into the engineering college. I didn't have a clue. Nobody ever from the town ever gone outside.
00:04:29
Clarke Murphy: You broke new ground.
00:04:31
Ram Charan: When I was in the engineering college, the dean called me up. " If your people can afford one- way trip fare, we want you to go to Australia." I said, " I'll go. I'll do that if my people can afford it."
So there was no planning. It all evolved and out of that came the idea that I go to Harvard Business School. I got the MBA high distinction doctoral degree, taught on the faculty and then the company began to call me. And in 1977, I gave up academics, 10- year job at BU and then all that from then on, that's how that came.
00:05:05
Clarke Murphy: You've worked with some phenomenal companies and helped them become even stronger. What's it like when they don't take your advice or the execution of advice? Is that frustrating?
00:05:14
Ram Charan: You see, Clarke, I don't write reports, number one. I don't prepare PowerPoints, number two. Number three, all my advice goes into action and I mean all.
I had this morning one client, I gave him some advice about month and a half ago so I checked with him what's working? What's not working? Why is it not working? How do I modify? Teach me how to do that because I must learn and we correct it.
So I designed a new system for him, that when the job of the person in the executive suite is not fitting, we have a concept of restructuring. So I took him through about one case and I think we're going to take one person out of his misery and put him in the right job. Same job, restructured. So you learn by doing and that's what I do.
00:06:01
Nanaz Mohtashami: I want to go back to that shoe shop, if I may, in India. I come from a family of entrepreneurs on both sides. And having seen my family lose everything during the Iranian Revolution made me realize, " Do you know what? No, I want stability. Corporate America, here I come. Never going to be an entrepreneur myself." Tell us a little bit about those early influences for you.
00:06:24
Ram Charan: In business you must master what is business- savvy. It is not mastery of a strategy. It is not mastery of financial analysis, raising funds. Business- savvy is its own set of skills. It's the shoe shop I learn all those things at the age of 10.
There used to be people coming into our town and they will round up people of my age, 10, 12 years of age, and they will teach what they call trade arithmetic. We call Retailing at Harvard. So when I walked into Harvard, I said, " I'd done that at the age of 10. Why am I paying $50, 000?"
Now with that knowledge and skill I meet any industry, I can take about five hours and be able to diagnose their business. It's not a strategy and we do not teach that anywhere in the world that I know. We did not teach at Harvard, Northwestern, BU, Wharton, and so on. This is a special skill. Just like in cricket, batsman is not necessarily a good bowler. So all these people who do strategy, they get trumped by the people who had no degrees because they have business- savvy.
00:07:35
Clarke Murphy: And if you reflect on coming out of that shoe shop and the world's changed, your work ethic is not everyone's work ethic. How do you find the balance of working with those who may not have been brought up working seven days a week?
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Ram Charan: I think the key point is it's true for everybody, I would say almost everybody, 95%, who love their job and they get recognition, you will find very similar work ethic. People can't wait to get out of bed. The key is the right fit.
So I am showing to the clients that we have done for a hundred years we're saying, find somebody and design the job. The one who did the most was Walter Wriston in Citibank in 1970s. He said, " Bring me the talent. I will teach them banking and I'll get them the right jobs."
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Nanaz Mohtashami: And, Ram, your skill is taking complexity and simplifying it. Digitization, AI, the use of technology obviously is a common challenge. Are there any others that you see, irrespective of geography and industry, any other kind of common challenges that you see?
00:08:45
Ram Charan: There are. Take the myth out, it is expensive. Take the myth out, we cannot change the culture. Take the myth out, it takes a long time. There are dozen companies who can get it done for you, get going for it at very low cost, but go and learn it.
Now I come to your question. Today we have six people in the world who are driving the change. It's not seven, it's not five and everybody must learn this. Who are there?
First, President Putin. Is he driving the change? President Xi. Is he driving the change? Jay Powell. Is he driving the change? Is MBS from Saudi driving the change flow and price of oil? Is Ayatollah driving the change sending drones to Russia? And is President Biden driving the change stopping chips going to China, Japan and Netherlands have agreed not to give those chips? So look into human beings to drive it and this change is going to be here for some time to come.
So when we look at these six people, there is no elections in China. President Xi is not even here. There are no elections in Russia. President Putin is going to be continuing unless something happens. MBS in Saudi, there are no elections. He's going to be here. His young crown prince. Ayatollah continues to rule and Jay Powell, for sure, will be here until '24 and President Biden will be until '24. So these are the six people driving the world economic geopolitical change.
You will see by September, this September coming up, an increased role Prime Minister Modi will take from India because he's taking the presidency of G20 very seriously. And I think there may be the intervention by the president of Turkey because he has his views.
But these eight people are driving the flow of energy, flow of coal, flow of food, flow of pricing, flow of inflation. This is how the world is today.
We must learn how to navigate through this world and that that if you think it's going to be over in one year, I think it's not a good thinking, but I begin to see it is going to last for more than three years.
And inflation will remain around 4%. You're not going to see 2%, except for a statistical blip. That's the major challenge right now.
00:11:20
Clarke Murphy: You've just wrote a book, Leading through Inflation. What advice do you give if you think that inflation's at 4%, this could last for three years, so how do you either stay strong or become stronger in a period like this?
00:11:32
Ram Charan: Yeah. So first and foremost, learn how to manage the business for cash. EPS is an estimate. Cash is cash unless there is a fraud. Your working capital of cash and inflation. You will totally rethink your capital expenditures. You create huge communications with your people and eco partners, get them aligned. You're not going to the same growth you used to have. And you say that we will get plenty of opportunities to buy talent, to buy companies as the prices decline that they have and they will decline again in the third, fourth quarter as the earnings estimates begin to come out to be low and that part will be a charge for you to do that. But at the same time, you should create a small team who will be looking at the new economy that comes out of inflation, stagflation, what are the new segments, which way to go, which one to experiment and allocate time and effort to build the new trajectory of growth, profitable growth, capital- efficient growth. Create a war room where the people spend a portion of the Monday to anticipate what's coming and why in the war room. For manufacturing companies you must have procurement, operations, sales force and finance because many of these things you can see the early warning signals.
00:12:58
Nanaz Mohtashami: You've described, Ram, quite a complex geopolitical environment that that's going to make doing business harder. You put that aside, the boardroom itself is also filled with some of, yes, the best minds, but also the biggest personalities and sometimes it can be a tricky terrain to manage. Can you tell us some of your war stories or some of the kind of toughest challenges that you faced in the boardroom and what advice you've shared?
00:13:28
Ram Charan: So first, I want you to know the leaders, they are professionals in the sense that we are leaders, we're going to figure out the root causes, we are going to develop options, we are going to experiment and we're going to figure out a better way than before. So these people know how to do, they don't commiserate, they don't talk about how hard it is. They say our job is a new goal, we're going to beat it. So that part is very clear.
Now the key point here is that in January of '22, number of people saw it coming because in July of '21, one month we have the inflation, 9. 4%. Somebody saw it, somebody realized it, dug into it and say we're going to do preemptive pricing. So a number of companies in January 2022 increased prices and they took the risk. Will the demand go down? The demand did not go down and, therefore, their cash is saved, they can use for development of business. They manage it, they got supply chain availability. So these are some of the examples happening.
Now many of the companies hired too many people in '21, '22 and now they begin to see that there was a hubris of expansion because the cost of money was close to zero. Nobody or many of them did not see the inflation coming and so now there is a havoc in these companies in terms of how to do the balance.
The key point to remember, balance sheet management is an imperative. Many of the CEOs do not actually invest time and skill in managing the balance sheet. It's particularly true for financial institutions because the financial institutions is balance sheet, P& L comes later.
So these are the kinds of things people have to follow and they have to be extraordinary in communications because the only way you have collaboration between two human beings is trust and free flow of communications between them. Many of the leaders are not great communicators so they got to polish it and create trust through let the information flow.
00:15:55
Clarke Murphy: We'll be right back with Ram Charan. But first, we're joined by Alvin Chiang, an associate in our Singapore office. Alvin shares global and regional governance trends in 2023 and beyond.
00:16:06
Alvin Chiang: Is your organization ready for the evolving global corporate governance landscape? Our new report on global corporate governance trends for 2023 can help you prep for the coming changes this year and beyond. It comes down to three major takeaways.
First, skepticism about board quality. Stakeholders are more savvy and empowered. This means increased scrutiny on your board and its performance.
Second, expect CEOs to be in the crosshairs. As stakeholders analyze boards more closely, anticipate them paying closer attention to their organization's CEO.
Third, we have the maturation of ESG programs and disclosures. Stakeholders are demanding accountability for ESG efforts. As your organization's ESG programs mature, your posture and reporting structure need to match the expected level of accountability.
To learn more about trends in corporate governance and how to adjust to an ever- changing business landscape, visit russellreynolds. com/ insights.
00:17:07
Clarke Murphy: Now back to our conversation with Ram.
We want to talk a little bit about board composition, board effectiveness and how do you find the right balance of a CEO and the board to make sure that they're managing expectations. And what's your advice to the CEO, as well as board members about where we find the most effective relationship in driving success?
00:17:32
Ram Charan: So Clarke, measuring board effectiveness, it is the easiest measure ever of any group. Board decisions are literally no more than a dozen in its life and the outcome of those decisions has a time lag. And the most important decision a board makes to hire a new CEO, to fire a CEO, to coach a CEO to make him or her effective. If the CEO is not the right fit, the rest doesn't count.
There are other decisions, to approve or not to approve merger acquisitions, approve or not approve the balance sheet. So the effectiveness is knowing when to make those decisions, making the right decisions. If they are wrong, correct it. The rest is lot of discussion, lot of procedures, lot of advice.
So now I come to your question. Most boards don't really know the business in- depth. They can't. Six board meetings a year, four board meetings. So the idea here is the CEO has to take the initiative to have the board members understand the business. Many of the board members will love to do that and not just PowerPoint one- hour discussion with mumbo- jumbo accounting that don't really get it. Some do, most cannot do that.
So here is the first item. They should have a 12- month agenda. CEO and chairman of committees should design what is the 12- month agenda, how it will be done, what time allocation, what preparation. I have seen that Jack Krol, former CEO of DuPont, meticulously in his boards will talk to each director and prior to every quarter meeting will do this with the CEO, together they develop a 12- month agenda. Jack Krol always involve the CEO and two or three directors, like the nominating committee or the compensation committee or both. The succession, do we have the right CEO, right team? Do we have the right balance sheet? Do we not? Are there issues of performance delivery?
Now they can give wisdom. When you have a active shareholder coming, they can give wisdom when a government issue is coming in. They can give wisdom an issue coming from the public. Those are very helpful. CEO needs to be humble to seek that advice and the boardroom is packed with time constraints. A lot of advice comes informally. So I see that where a CEO really leveraging the board skills, board's contacts and the board's wisdom, but not the whole board. It is individual directors with their individual expertise and contacts and experiences, leverage them.
And the board does the best job when one or two board members figure out what the company has a blind spot where, what kind, and working with the CEO in a collaborative method to show them that this is what the company needs to do or the risk is increasing right now, so there are board members and we are bringing new board members to the board, who understand cumulative risk over time because we evaluate risk one item at time, but they compound together. So that's very helpful for the companies to know because if the risk becomes very high, then the company could have existential issue going forward.
So Clarke, these are some of the things, but measuring effectiveness is not that every year we do the self- evaluation. If you do, then you got to ask the question, what decision did the board really make and what decision they should have made, they should not have.
I was for one very illustrious company for 12 years in a row. I go to the board. My last question used to be, " So please tell me what is a critical decision board made that will create value or prevent a value loss?" And every one of them has to think for at least a minute and sometimes they say, " Well, there's a work in progress. No decision was made."
00:21:57
Nanaz Mohtashami: In the US, oftentimes the CEO is the chair as well. That's not necessarily the case in other countries. It's not allowed. So do you find that in that situation, identifying the blind spots, being aware of the risks is easier when you have a CEO and chair as one or it doesn't make a difference? What's your experience?
00:22:19
Ram Charan: No, you've got to have a lead director. In every case, you have a lead director. Is he strong enough? Is she strong enough?
You have the famous example of Warren Buffet and Coca- Cola. At 10 o'clock in the morning one day, the CEO of Coca- Cola announced to buy Quaker Oats. Warren Buffett went into the meeting after that and he persuaded the board this is not a good idea. In the afternoon, that was annulled. He was able to show that that was not a good idea.
So individual directors can do that, but you need to know the business, the customers, the competitive dynamics and the external factors that will cause good things or not- so- good things. And you got to spend the time coming to the company and learning it and asking for information.
00:23:05
Clarke Murphy: So Ram, you don't have any concerns about CEOs who are also chairs?
00:23:09
Ram Charan: The only thing I would insist on, do you have a lead director? Is he really independent? Because that's his job. He can call a board meeting without the two of them. That's what a lead director when the chips are down, he can do that. But there's no need if you have transparency.
00:23:26
Nanaz Mohtashami: Ram, you have written a book with Bill Conaty that touches on the emphasis on EQ and LQ, learning quotient, and not just IQ, which absolutely is what we see that some of the best leaders actually over index on the EQ and LQ. What were some of your findings from that book and how do you advise leaders in kind of developing those qualities which are quite hard to define?
00:23:51
Ram Charan: I call the word observable and verifiable. If you have observable and verifiable, that's a hard fact.
Give you an example. You have not met Steve Jobs? It's okay. He comes with 2007 iPhone, it's launched, it's a fact. Now you look into it and you say, " What is his talent that produced this?" And you're going to say, " Does he have a talent to know what the consumer will want? Has he done many times before?" If it is the case, it's observable and verifiable. You always go first find somebody's talent. Don't go negatives. If the talent does not fit the job, both will suffer.
So that's what I do with the CEOs when we talk about the executives and all that. And then he becomes convinced that, yes, I can crosscheck anybody's talent through so many sources because everybody will tell me the positives of anybody. It is common sense. Common sense is very uncommon, but many people have to learn how to observe human behavior. It's there. If three people say, " I saw it," " I saw it," " I saw it," it's clear.
I just had one this morning to have an executive job change when became clearer that this is what his talent is, it isn't the wrong job.
00:25:09
Clarke Murphy: I love this, the common sense is very uncommon. I agree with you. If we pull in that string a little bit and say for those earlier in their careers, what's your advice to those earlier in their careers in a rapidly changing world and what stumbling blocks might they avoid?
00:25:26
Ram Charan: Yeah. Number one, become aware of what you're good at, what you love to do. It's not a rocket science. You look at any field of sports, entertainment, these are the people call them lucky. They get to the right job, they go through hell, eventually they find it. They can't wait to get out of bed. They polish it, work it, go for it. You can look it in football, you can look it in cricket, you can look at in entertainment, you can look in music. Same in any human endeavor. People say, " How lucky I am I have this job." Find it, do it. I'm very lucky I'm allowed to do what I love to do. I did not do academic research at Harvard. That's not me.
00:26:13
Clarke Murphy: And what do you think are the biggest stumbling blocks, problems that someone earlier in their career needs to look out for?
00:26:19
Ram Charan: The stumbling block partly is their own, their own mindset. Not insisting onto himself to find out, " What is my, as the athletes say, my athletic talent, what is it?" Then try it. Then look for jobs. People do go inside a company, say, " I want to move from here to there." Why? Which way? But you got to be determined because it's your life, not somebody else's life. And even go through some hardship, that would be the case, but then you shine.
00:26:51
Nanaz Mohtashami: What would you say is your athletic talent?
00:26:54
Ram Charan: Business acumen. I can diagnose any business in about a day and be able to show to the board and the CEO, " That's where your problem is." Second, I can very quickly within two days figure out why are you failing in terms of the people and their job fit and the decisions they are making. That's why they let me come in and I have to show them and they know I can do that.
00:27:16
Nanaz Mohtashami: So we like to end each episode of the podcast with a set of rapid- fire questions. Are you ready?
00:27:24
Ram Charan: Yes.
00:27:25
Clarke Murphy: What never fails to make you laugh?
00:27:28
Ram Charan: Ah, well, there are lots of Indian jokes.
00:27:33
Nanaz Mohtashami: What's your favorite city in the world?
00:27:35
Ram Charan: They're all the same for me because I arrive usually 11:00 PM midnight, I'm ready to go at 7: 00 AM. Very seldom I go around. I probably end up in San Jose, Costa Rica or somewhere in New Zealand, a small population and so on.
00:27:51
Nanaz Mohtashami: And then the last question, Ram, if you couldn't do what you're doing today, what would you do instead?
00:27:58
Ram Charan: I think I'm evolving every day. See, I never set a goal. I never said, " I must do this goal, see this person, get that company, make so much money." For me is, " This is what's on my plate, do the best, help the customer, customer win." No lack of what I want to do. I learned, try to learn every day.
00:28:20
Clarke Murphy: Ram, we cannot thank you enough for being with us today. Having landed from Bangkok into New York and then heading to Wharton and then to California.
You know, our first question was about work ethic and you certainly have shown in this quick discussion about your work ethic started as a young child in the shoe shop in India. But your point about if you love the job and you get recognition, it will be the right fit and you'll love the work and it all takes care of itself. For you, it's about finding the talent and having the right role. And as in cricket, not every batsman's a good bowler so make sure the talent and the role fit correctly. And you had a fascinating point, Putin, Xi, Powell, MBS, the Ayatollah, President Biden are driving change right now and that change is here to stay. We have to understand how to navigate this world of change because whether it's inflation, politics, we will navigate uncertainty for several years to come.
So how do we navigate it? Manage for cash, not for margins, but cash. Communicate to all the stakeholders what's going on. Rethink your capital expenditure. Perhaps buy as prices decline, but manage your cash and watch the world. Perhaps even create a war room with people who have a different mindset to anticipate what's coming, to bring together people in the war room to see early warning signals of a changing world.
And what's most effective is to know when to make change and when to move quickly. As you talk about moving quickly, a board should think about a 12- month agenda. What are we trying to get done in the next 12 months? Identify the blind spots with management and a board's role is to understand cumulative risk over time. And whether it's a chair or lead director, you need strong, independent thought to make sure we're managing risk and seeing opportunities.
And I chuckle at the end, when Nanaz and I when we heard you say that common sense is very uncommon. And keep it simple. Observe the talent. Be aware of what you're good at. Be in the right role. Put people in the right roles, and you'll avoid the stumbling blocks of your life to be a success.
Wow, it's a lot packed into one rom. Ram, we thank you so much for all you've given us in these gems today. All the best and safe travels.
00:30:34
Nanaz Mohtashami: Thank you so much, Ram, for joining us on Redefiners.
00:30:39
Ram Charan: Thank you. Bye-bye.
00:30:39
Nanaz Mohtashami: Thanks for joining us in this episode of Redefiners. For more dynamic insights from leaders from across industries and around the world, listen to Redefiners wherever you get your podcasts.
00:30:49
Clarke Murphy: And to learn more or get in contact with us, visit our website at russellreynolds. com. Find us on LinkedIn and follow us on Twitter at @ RRAonLeadership. See you next time.
Do you have a question on leadership, career development, joining a board or other topics you'd like to ask one of our consultants? Well, now is your chance. Send us your question. Email us at redefiners@ russellreynolds.com for an opportunity to have your question answered on the podcast by one of our experts. See you next time on Redefiners.
Ram Charan: There used to be people coming to our town and they will round up people of my age, 10, 12 years of age, and they will teach what they call trade arithmetic. We call Retailing at Harvard. So when I walked into Harvard, I said, " I'd done that at the age of 10. Why am I paying $50, 000?"
00:00:21
Nanaz Mohtashami: Welcome to Redefiners, a podcast designed for daring leaders who are changing what it means to lead in today's increasingly complex world.
I'm Nanaz Mohtashami, a leadership adviser at Russell Reynolds Associates.
00:00:33
Clarke Murphy: And I am Clarke Murphy, the former chief executive and also a leadership adviser. Nanaz and I have spent our careers exploring what works and what's next in the realm of leadership.
00:00:42
Nanaz Mohtashami: In each episode, we ask our guests deep and provocative questions about how they've challenged the norms and how they've redefined their organizations and ultimately themselves as leaders.
00:00:53
Clarke Murphy: Also, you can answer this one question, how are you redefining your leadership?
00:00:58
Nanaz Mohtashami: Perhaps the boldest question, yet.
00:01:01
Clarke Murphy: Conversations that matter. Inspiration for us all whether you're kicking off your career or crafting your legacy. Thanks for joining us. Let's dive in.
Hello, everybody, and welcome back to Redefiners. I'm incredibly excited today about our guest, who's a renowned author and adviser to many of the most successful companies, executives and boards in the world he's probably forgotten more than you and I know combined, so I'm really interested to hear what he has to say.
00:01:28
Nanaz Mohtashami: Absolutely, Clarke. I am super eager to hear our guests' wise words, I guess particularly as the world economy heads towards an impending recession, unfortunately.
But I have to say, I'm also especially intrigued because I read that Jack Welch described him as " someone who has an ability to distill meaningful from meaningless and to transfer it to others in a quiet and effective way without destroying confidence." So that's quite some praise and actually talks a lot about his EQ, as well as his IQ.
I have to say, Clarke, I'm also very curious to just hear where he gets his source of relentless energy from. This is someone that has an incredibly high work ethic. He's always traveling. He's always on the road. I wish I had a 10th of the energy that he does.
00:02:14
Clarke Murphy: I know. It's crazy. We all have full schedules, but his is on another level. We're literally catching him fresh off a plane from Bangkok into New York this morning. So before we lose him, Nanaz, who's our guest today?
00:02:25
Nanaz Mohtashami: Well, without further ado, our guest is Ram Charan. He has been called a corporate sage. He's got 40 years of experience working with some of the world's biggest companies and CEOs. He's written more than 30 books, Clarke, that have sold over 4 million copies and three of those were actually Wall Street Journal bestsellers. Ram is known for his nonstop work ethic, as well as for his ability to transform complexity into simplicity.
00:02:52
Clarke Murphy: Ram, welcome to Redefiners. Thank you for landing long enough to be on this podcast. We greatly appreciate it.
00:02:58
Ram Charan: Thank you, Clarke and Nanaz. I'm very honored to be here, love to share what I know.
More importantly, I love to know your questions because those questions give me food to think about the future, what is on your mind and what is on the mind of the audience. And that's what gives me the energy, learning every day, knowing how much I don't know, need to find out more. That curiosity, the surge, the digging in is what keeps me going.
00:03:31
Clarke Murphy: So I'd love to go back to the beginning of that journey and when did you say, " This is how I'm going to get the energy. This is," as you said, " get the surge." How did that start?
00:03:40
Ram Charan: I was born in a small town near Delhi and we had a low- income family and we had a shoe shop so we have never heard of the concept of weekend. We worked seven days a week. There was no so- called holiday so the work ethic comes from there. We had to make a living. We worked seven days a week. We were very customer- oriented.
I was allowed to leave the family to go to engineering college, best in India at the time. We are sharp and the school teacher will come and say, " In our town, nobody has gone into engineering. We think this kid has a chance." So my father and uncle said, " We will fund it." And that's how I get into the engineering college. I didn't have a clue. Nobody ever from the town ever gone outside.
00:04:29
Clarke Murphy: You broke new ground.
00:04:31
Ram Charan: When I was in the engineering college, the dean called me up. " If your people can afford one- way trip fare, we want you to go to Australia." I said, " I'll go. I'll do that if my people can afford it."
So there was no planning. It all evolved and out of that came the idea that I go to Harvard Business School. I got the MBA high distinction doctoral degree, taught on the faculty and then the company began to call me. And in 1977, I gave up academics, 10- year job at BU and then all that from then on, that's how that came.
00:05:05
Clarke Murphy: You've worked with some phenomenal companies and helped them become even stronger. What's it like when they don't take your advice or the execution of advice? Is that frustrating?
00:05:14
Ram Charan: You see, Clarke, I don't write reports, number one. I don't prepare PowerPoints, number two. Number three, all my advice goes into action and I mean all.
I had this morning one client, I gave him some advice about month and a half ago so I checked with him what's working? What's not working? Why is it not working? How do I modify? Teach me how to do that because I must learn and we correct it.
So I designed a new system for him, that when the job of the person in the executive suite is not fitting, we have a concept of restructuring. So I took him through about one case and I think we're going to take one person out of his misery and put him in the right job. Same job, restructured. So you learn by doing and that's what I do.
00:06:01
Nanaz Mohtashami: I want to go back to that shoe shop, if I may, in India. I come from a family of entrepreneurs on both sides. And having seen my family lose everything during the Iranian Revolution made me realize, " Do you know what? No, I want stability. Corporate America, here I come. Never going to be an entrepreneur myself." Tell us a little bit about those early influences for you.
00:06:24
Ram Charan: In business you must master what is business- savvy. It is not mastery of a strategy. It is not mastery of financial analysis, raising funds. Business- savvy is its own set of skills. It's the shoe shop I learn all those things at the age of 10.
There used to be people coming into our town and they will round up people of my age, 10, 12 years of age, and they will teach what they call trade arithmetic. We call Retailing at Harvard. So when I walked into Harvard, I said, " I'd done that at the age of 10. Why am I paying $50, 000?"
Now with that knowledge and skill I meet any industry, I can take about five hours and be able to diagnose their business. It's not a strategy and we do not teach that anywhere in the world that I know. We did not teach at Harvard, Northwestern, BU, Wharton, and so on. This is a special skill. Just like in cricket, batsman is not necessarily a good bowler. So all these people who do strategy, they get trumped by the people who had no degrees because they have business- savvy.
00:07:35
Clarke Murphy: And if you reflect on coming out of that shoe shop and the world's changed, your work ethic is not everyone's work ethic. How do you find the balance of working with those who may not have been brought up working seven days a week?
00:07:49
Ram Charan: I think the key point is it's true for everybody, I would say almost everybody, 95%, who love their job and they get recognition, you will find very similar work ethic. People can't wait to get out of bed. The key is the right fit.
So I am showing to the clients that we have done for a hundred years we're saying, find somebody and design the job. The one who did the most was Walter Wriston in Citibank in 1970s. He said, " Bring me the talent. I will teach them banking and I'll get them the right jobs."
00:08:29
Nanaz Mohtashami: And, Ram, your skill is taking complexity and simplifying it. Digitization, AI, the use of technology obviously is a common challenge. Are there any others that you see, irrespective of geography and industry, any other kind of common challenges that you see?
00:08:45
Ram Charan: There are. Take the myth out, it is expensive. Take the myth out, we cannot change the culture. Take the myth out, it takes a long time. There are dozen companies who can get it done for you, get going for it at very low cost, but go and learn it.
Now I come to your question. Today we have six people in the world who are driving the change. It's not seven, it's not five and everybody must learn this. Who are there?
First, President Putin. Is he driving the change? President Xi. Is he driving the change? Jay Powell. Is he driving the change? Is MBS from Saudi driving the change flow and price of oil? Is Ayatollah driving the change sending drones to Russia? And is President Biden driving the change stopping chips going to China, Japan and Netherlands have agreed not to give those chips? So look into human beings to drive it and this change is going to be here for some time to come.
So when we look at these six people, there is no elections in China. President Xi is not even here. There are no elections in Russia. President Putin is going to be continuing unless something happens. MBS in Saudi, there are no elections. He's going to be here. His young crown prince. Ayatollah continues to rule and Jay Powell, for sure, will be here until '24 and President Biden will be until '24. So these are the six people driving the world economic geopolitical change.
You will see by September, this September coming up, an increased role Prime Minister Modi will take from India because he's taking the presidency of G20 very seriously. And I think there may be the intervention by the president of Turkey because he has his views.
But these eight people are driving the flow of energy, flow of coal, flow of food, flow of pricing, flow of inflation. This is how the world is today.
We must learn how to navigate through this world and that that if you think it's going to be over in one year, I think it's not a good thinking, but I begin to see it is going to last for more than three years.
And inflation will remain around 4%. You're not going to see 2%, except for a statistical blip. That's the major challenge right now.
00:11:20
Clarke Murphy: You've just wrote a book, Leading through Inflation. What advice do you give if you think that inflation's at 4%, this could last for three years, so how do you either stay strong or become stronger in a period like this?
00:11:32
Ram Charan: Yeah. So first and foremost, learn how to manage the business for cash. EPS is an estimate. Cash is cash unless there is a fraud. Your working capital of cash and inflation. You will totally rethink your capital expenditures. You create huge communications with your people and eco partners, get them aligned. You're not going to the same growth you used to have. And you say that we will get plenty of opportunities to buy talent, to buy companies as the prices decline that they have and they will decline again in the third, fourth quarter as the earnings estimates begin to come out to be low and that part will be a charge for you to do that. But at the same time, you should create a small team who will be looking at the new economy that comes out of inflation, stagflation, what are the new segments, which way to go, which one to experiment and allocate time and effort to build the new trajectory of growth, profitable growth, capital- efficient growth. Create a war room where the people spend a portion of the Monday to anticipate what's coming and why in the war room. For manufacturing companies you must have procurement, operations, sales force and finance because many of these things you can see the early warning signals.
00:12:58
Nanaz Mohtashami: You've described, Ram, quite a complex geopolitical environment that that's going to make doing business harder. You put that aside, the boardroom itself is also filled with some of, yes, the best minds, but also the biggest personalities and sometimes it can be a tricky terrain to manage. Can you tell us some of your war stories or some of the kind of toughest challenges that you faced in the boardroom and what advice you've shared?
00:13:28
Ram Charan: So first, I want you to know the leaders, they are professionals in the sense that we are leaders, we're going to figure out the root causes, we are going to develop options, we are going to experiment and we're going to figure out a better way than before. So these people know how to do, they don't commiserate, they don't talk about how hard it is. They say our job is a new goal, we're going to beat it. So that part is very clear.
Now the key point here is that in January of '22, number of people saw it coming because in July of '21, one month we have the inflation, 9. 4%. Somebody saw it, somebody realized it, dug into it and say we're going to do preemptive pricing. So a number of companies in January 2022 increased prices and they took the risk. Will the demand go down? The demand did not go down and, therefore, their cash is saved, they can use for development of business. They manage it, they got supply chain availability. So these are some of the examples happening.
Now many of the companies hired too many people in '21, '22 and now they begin to see that there was a hubris of expansion because the cost of money was close to zero. Nobody or many of them did not see the inflation coming and so now there is a havoc in these companies in terms of how to do the balance.
The key point to remember, balance sheet management is an imperative. Many of the CEOs do not actually invest time and skill in managing the balance sheet. It's particularly true for financial institutions because the financial institutions is balance sheet, P& L comes later.
So these are the kinds of things people have to follow and they have to be extraordinary in communications because the only way you have collaboration between two human beings is trust and free flow of communications between them. Many of the leaders are not great communicators so they got to polish it and create trust through let the information flow.
00:15:55
Clarke Murphy: We'll be right back with Ram Charan. But first, we're joined by Alvin Chiang, an associate in our Singapore office. Alvin shares global and regional governance trends in 2023 and beyond.
00:16:06
Alvin Chiang: Is your organization ready for the evolving global corporate governance landscape? Our new report on global corporate governance trends for 2023 can help you prep for the coming changes this year and beyond. It comes down to three major takeaways.
First, skepticism about board quality. Stakeholders are more savvy and empowered. This means increased scrutiny on your board and its performance.
Second, expect CEOs to be in the crosshairs. As stakeholders analyze boards more closely, anticipate them paying closer attention to their organization's CEO.
Third, we have the maturation of ESG programs and disclosures. Stakeholders are demanding accountability for ESG efforts. As your organization's ESG programs mature, your posture and reporting structure need to match the expected level of accountability.
To learn more about trends in corporate governance and how to adjust to an ever- changing business landscape, visit russellreynolds. com/ insights.
00:17:07
Clarke Murphy: Now back to our conversation with Ram.
We want to talk a little bit about board composition, board effectiveness and how do you find the right balance of a CEO and the board to make sure that they're managing expectations. And what's your advice to the CEO, as well as board members about where we find the most effective relationship in driving success?
00:17:32
Ram Charan: So Clarke, measuring board effectiveness, it is the easiest measure ever of any group. Board decisions are literally no more than a dozen in its life and the outcome of those decisions has a time lag. And the most important decision a board makes to hire a new CEO, to fire a CEO, to coach a CEO to make him or her effective. If the CEO is not the right fit, the rest doesn't count.
There are other decisions, to approve or not to approve merger acquisitions, approve or not approve the balance sheet. So the effectiveness is knowing when to make those decisions, making the right decisions. If they are wrong, correct it. The rest is lot of discussion, lot of procedures, lot of advice.
So now I come to your question. Most boards don't really know the business in- depth. They can't. Six board meetings a year, four board meetings. So the idea here is the CEO has to take the initiative to have the board members understand the business. Many of the board members will love to do that and not just PowerPoint one- hour discussion with mumbo- jumbo accounting that don't really get it. Some do, most cannot do that.
So here is the first item. They should have a 12- month agenda. CEO and chairman of committees should design what is the 12- month agenda, how it will be done, what time allocation, what preparation. I have seen that Jack Krol, former CEO of DuPont, meticulously in his boards will talk to each director and prior to every quarter meeting will do this with the CEO, together they develop a 12- month agenda. Jack Krol always involve the CEO and two or three directors, like the nominating committee or the compensation committee or both. The succession, do we have the right CEO, right team? Do we have the right balance sheet? Do we not? Are there issues of performance delivery?
Now they can give wisdom. When you have a active shareholder coming, they can give wisdom when a government issue is coming in. They can give wisdom an issue coming from the public. Those are very helpful. CEO needs to be humble to seek that advice and the boardroom is packed with time constraints. A lot of advice comes informally. So I see that where a CEO really leveraging the board skills, board's contacts and the board's wisdom, but not the whole board. It is individual directors with their individual expertise and contacts and experiences, leverage them.
And the board does the best job when one or two board members figure out what the company has a blind spot where, what kind, and working with the CEO in a collaborative method to show them that this is what the company needs to do or the risk is increasing right now, so there are board members and we are bringing new board members to the board, who understand cumulative risk over time because we evaluate risk one item at time, but they compound together. So that's very helpful for the companies to know because if the risk becomes very high, then the company could have existential issue going forward.
So Clarke, these are some of the things, but measuring effectiveness is not that every year we do the self- evaluation. If you do, then you got to ask the question, what decision did the board really make and what decision they should have made, they should not have.
I was for one very illustrious company for 12 years in a row. I go to the board. My last question used to be, " So please tell me what is a critical decision board made that will create value or prevent a value loss?" And every one of them has to think for at least a minute and sometimes they say, " Well, there's a work in progress. No decision was made."
00:21:57
Nanaz Mohtashami: In the US, oftentimes the CEO is the chair as well. That's not necessarily the case in other countries. It's not allowed. So do you find that in that situation, identifying the blind spots, being aware of the risks is easier when you have a CEO and chair as one or it doesn't make a difference? What's your experience?
00:22:19
Ram Charan: No, you've got to have a lead director. In every case, you have a lead director. Is he strong enough? Is she strong enough?
You have the famous example of Warren Buffet and Coca- Cola. At 10 o'clock in the morning one day, the CEO of Coca- Cola announced to buy Quaker Oats. Warren Buffett went into the meeting after that and he persuaded the board this is not a good idea. In the afternoon, that was annulled. He was able to show that that was not a good idea.
So individual directors can do that, but you need to know the business, the customers, the competitive dynamics and the external factors that will cause good things or not- so- good things. And you got to spend the time coming to the company and learning it and asking for information.
00:23:05
Clarke Murphy: So Ram, you don't have any concerns about CEOs who are also chairs?
00:23:09
Ram Charan: The only thing I would insist on, do you have a lead director? Is he really independent? Because that's his job. He can call a board meeting without the two of them. That's what a lead director when the chips are down, he can do that. But there's no need if you have transparency.
00:23:26
Nanaz Mohtashami: Ram, you have written a book with Bill Conaty that touches on the emphasis on EQ and LQ, learning quotient, and not just IQ, which absolutely is what we see that some of the best leaders actually over index on the EQ and LQ. What were some of your findings from that book and how do you advise leaders in kind of developing those qualities which are quite hard to define?
00:23:51
Ram Charan: I call the word observable and verifiable. If you have observable and verifiable, that's a hard fact.
Give you an example. You have not met Steve Jobs? It's okay. He comes with 2007 iPhone, it's launched, it's a fact. Now you look into it and you say, " What is his talent that produced this?" And you're going to say, " Does he have a talent to know what the consumer will want? Has he done many times before?" If it is the case, it's observable and verifiable. You always go first find somebody's talent. Don't go negatives. If the talent does not fit the job, both will suffer.
So that's what I do with the CEOs when we talk about the executives and all that. And then he becomes convinced that, yes, I can crosscheck anybody's talent through so many sources because everybody will tell me the positives of anybody. It is common sense. Common sense is very uncommon, but many people have to learn how to observe human behavior. It's there. If three people say, " I saw it," " I saw it," " I saw it," it's clear.
I just had one this morning to have an executive job change when became clearer that this is what his talent is, it isn't the wrong job.
00:25:09
Clarke Murphy: I love this, the common sense is very uncommon. I agree with you. If we pull in that string a little bit and say for those earlier in their careers, what's your advice to those earlier in their careers in a rapidly changing world and what stumbling blocks might they avoid?
00:25:26
Ram Charan: Yeah. Number one, become aware of what you're good at, what you love to do. It's not a rocket science. You look at any field of sports, entertainment, these are the people call them lucky. They get to the right job, they go through hell, eventually they find it. They can't wait to get out of bed. They polish it, work it, go for it. You can look it in football, you can look it in cricket, you can look at in entertainment, you can look in music. Same in any human endeavor. People say, " How lucky I am I have this job." Find it, do it. I'm very lucky I'm allowed to do what I love to do. I did not do academic research at Harvard. That's not me.
00:26:13
Clarke Murphy: And what do you think are the biggest stumbling blocks, problems that someone earlier in their career needs to look out for?
00:26:19
Ram Charan: The stumbling block partly is their own, their own mindset. Not insisting onto himself to find out, " What is my, as the athletes say, my athletic talent, what is it?" Then try it. Then look for jobs. People do go inside a company, say, " I want to move from here to there." Why? Which way? But you got to be determined because it's your life, not somebody else's life. And even go through some hardship, that would be the case, but then you shine.
00:26:51
Nanaz Mohtashami: What would you say is your athletic talent?
00:26:54
Ram Charan: Business acumen. I can diagnose any business in about a day and be able to show to the board and the CEO, " That's where your problem is." Second, I can very quickly within two days figure out why are you failing in terms of the people and their job fit and the decisions they are making. That's why they let me come in and I have to show them and they know I can do that.
00:27:16
Nanaz Mohtashami: So we like to end each episode of the podcast with a set of rapid- fire questions. Are you ready?
00:27:24
Ram Charan: Yes.
00:27:25
Clarke Murphy: What never fails to make you laugh?
00:27:28
Ram Charan: Ah, well, there are lots of Indian jokes.
00:27:33
Nanaz Mohtashami: What's your favorite city in the world?
00:27:35
Ram Charan: They're all the same for me because I arrive usually 11:00 PM midnight, I'm ready to go at 7: 00 AM. Very seldom I go around. I probably end up in San Jose, Costa Rica or somewhere in New Zealand, a small population and so on.
00:27:51
Nanaz Mohtashami: And then the last question, Ram, if you couldn't do what you're doing today, what would you do instead?
00:27:58
Ram Charan: I think I'm evolving every day. See, I never set a goal. I never said, " I must do this goal, see this person, get that company, make so much money." For me is, " This is what's on my plate, do the best, help the customer, customer win." No lack of what I want to do. I learned, try to learn every day.
00:28:20
Clarke Murphy: Ram, we cannot thank you enough for being with us today. Having landed from Bangkok into New York and then heading to Wharton and then to California.
You know, our first question was about work ethic and you certainly have shown in this quick discussion about your work ethic started as a young child in the shoe shop in India. But your point about if you love the job and you get recognition, it will be the right fit and you'll love the work and it all takes care of itself. For you, it's about finding the talent and having the right role. And as in cricket, not every batsman's a good bowler so make sure the talent and the role fit correctly. And you had a fascinating point, Putin, Xi, Powell, MBS, the Ayatollah, President Biden are driving change right now and that change is here to stay. We have to understand how to navigate this world of change because whether it's inflation, politics, we will navigate uncertainty for several years to come.
So how do we navigate it? Manage for cash, not for margins, but cash. Communicate to all the stakeholders what's going on. Rethink your capital expenditure. Perhaps buy as prices decline, but manage your cash and watch the world. Perhaps even create a war room with people who have a different mindset to anticipate what's coming, to bring together people in the war room to see early warning signals of a changing world.
And what's most effective is to know when to make change and when to move quickly. As you talk about moving quickly, a board should think about a 12- month agenda. What are we trying to get done in the next 12 months? Identify the blind spots with management and a board's role is to understand cumulative risk over time. And whether it's a chair or lead director, you need strong, independent thought to make sure we're managing risk and seeing opportunities.
And I chuckle at the end, when Nanaz and I when we heard you say that common sense is very uncommon. And keep it simple. Observe the talent. Be aware of what you're good at. Be in the right role. Put people in the right roles, and you'll avoid the stumbling blocks of your life to be a success.
Wow, it's a lot packed into one rom. Ram, we thank you so much for all you've given us in these gems today. All the best and safe travels.
00:30:34
Nanaz Mohtashami: Thank you so much, Ram, for joining us on Redefiners.
00:30:39
Ram Charan: Thank you. Bye-bye.
00:30:39
Nanaz Mohtashami: Thanks for joining us in this episode of Redefiners. For more dynamic insights from leaders from across industries and around the world, listen to Redefiners wherever you get your podcasts.
00:30:49
Clarke Murphy: And to learn more or get in contact with us, visit our website at russellreynolds. com. Find us on LinkedIn and follow us on Twitter at @ RRAonLeadership. See you next time.
Do you have a question on leadership, career development, joining a board or other topics you'd like to ask one of our consultants? Well, now is your chance. Send us your question. Email us at redefiners@ russellreynolds.com for an opportunity to have your question answered on the podcast by one of our experts. See you next time on Redefiners.
