ANJI REDDY’S star-studded board is standing him in good stead during a challenging phase

KANJI Reddy has a thing about intellectual acumen. It flows from the fact that he is still a scientist at heart, despite the visible trappings of a businessman. Any conversation with him invariably ends with a discussion on the talent pool he is painstakingly putting together for Dr. Reddy's Laboratories (DRL), the company he founded, and the scientists he keeps meeting around the world.

That explains why the DRL board is stacked with some of the brightest minds around. It includes Anupam Puri, former managing director, McKinsey India, Omkar Goswami, former chief economist, Confederation of Indian Industry and now an independent consultant, Krishna Palepu, professor, Harvard Business School, and Ravi Bhoothalingam, formerly with British American Tobacco and East India Hotels. (The board comprises 10 members, of whom seven are independent directors.)

The heavyweights aren't there just to make the DRL annual report look nice - they play an active role in the management. And there is good reason for that. DRL is trying to recast itself along the lines of a multinational - not just in terms of geographies (moving from India-centric operations to a global footprint), but also in terms of products (hunting for innovator products), talent (managing a global workforce) and capital (listing on the New York Stock Exchange). The company realises that at this critical phase, it needs advice from experts who have had prior experience of the game.
The role of the board has become even more pertinent in the last year or so. During this time, DRL has been investing heavily in its R&D efforts, the results of which wouldn't be immediately forthcoming. Many, including some from the stockmarkets, have criticised this focus. The criticisms have been levelled along the line that the R&D investments are premature, and that DRL needs to grow a bit more to be able to play the high-risk (also high-reward) innovator game. The company's stock, meanwhile, has taken a beating on the back of falling profitability.

Despite being hemmed in, DRL stuck to its course. "I have to balance the two (profits and vision). After all, I have to show profit to investors on a quarterly basis. But for a company with a vision like ours, to do so quarter on quarter is difficult," says Reddy. The problem he faced was that the Indian pharma industry had been built largely by reverse engineering successful molecules. No one had taken such a big bet on innovator products.

The board, however, sensed the opportunity in pursuing innovator products and resolutely backed the management's resolve on the strategy. "To say no to discovery would be absurd, because it is not sustainable," said Puri in a recent interview to BW. Managers within DRL feel that the board's support of what they are trying to do gives them confidence about their chosen path. According to a senior DRL executive, at board meetings, sometimes even the nitty-gritties of DRL's strategies are discussed and the board gives its go-ahead only after that.

But the board's role doesn't end with an imprimatur on strategy. It is, through different committees and teams, actively managing the framework within which the strategies are being executed. In 2003-04, the board spent 18 per cent of its time on strategic matters, 5 per cent on statutory and other approvals, 20 per cent on corporate governance and other issues, 13 per cent on financial review, 29 per cent on business proposals, and 15 per cent on operational matters.

Reddy says a lot of thought went into putting this board together. The first two outsiders on the board were Goswami and Bhoothalingam, who were handpicked by Reddy. Subsequently, DRL vice-chairman and CEO G.V. Prasad got Puri and Palepu on board. Among the independent directors, there is also an understanding about where their expertise is mostly required. Bhoothalingam, for example, concentrates mostly on human resources, Puri on strategy, and Palepu and Goswami on finance and audit.

Despite a decade's discussion on corporate governance and the role of boards, India Inc. is yet to use them actively. For some companies, boards are just a statutory requirement that needs to be fulfilled. Some others have worthies on their boards, but rarely use their expertise. In that milieu, companies such as DRL, along with a few others like Infosys and Wipro, are good examples of how good boards can add an edge to operations.