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M S Banga on life as a fund manager

July 02, 2010 17:37 IST

A lover of art and sushi, M S "Vindi" Banga is a power brand himself. At 55 and after 33 years with one organisation - Unilever - Banga has hung up his Unilever boots and moved on to private equity firm Clayton Dubilier & Rice (CD&R) as an operating partner.

In a freewheeling chat from London with Arijit Barman, Banga shares his thoughts on the company he's just left and on life ahead as a fund manager. Excerpts:

Have you ever thought of coming back and settling down in India?

Yes, of course. I am an Indian at heart and have strong links with India. It's a privilege for me to be renominated to the Prime Minister's Council on Trade and Industry. I am part of the sub-group on agriculture and food security.

These are important challenges if India is to sustain its 8.5-9 per cent GDP growth. As population and income levels rise, the quality of diet also gets better. On the education front, I am involved with the Indian School of Business, Hyderabad as well as the Indian Institute of Management, Ahmedabad.

You felt this was the best time to leave Unilever, as the company is in very good shape. But many would say this is actually one of the toughest times for the company?

Look, Unilever has had competition ever since its inception. In 2004, Unilever had stalled and issued a profit warning. Since then we have seen a major transformation. A global innovation machine was set up which combined scale with local content and that hit a sweet spot.

The One Unilever programme simplified different operations, thus creating one company instead of many. The leadership structure was also simplified - Unilever now has only 80-90 senior managers instead of 240. So, that means the speed of implementation is faster.

Hindustan Unilever (HUL), too, has faced competition in the past and emerged stronger. A little competition is always good. They will deal with it.

I was personally involved in this successful transformation at Unilever for five years along with my colleagues. And it coincided with me turning 55... so, I thought if I had to explore anything else, a new challenge, then this was the time for me to try to do that.

But people would say that it's actually only in the last two years that the changes in Unilever have been radical. An outsider at the top, no guidances Â… what according to you were the big calls taken in the last few years?

The changes in Unilever have been happening since 2005. One of the big calls that has been taken is to have a global innovation machine and to resource it strongly. So, a full board director like me was in charge of that and I had 8,000 people across functions all over the world.

Secondly, to have a One Unilever organisation. And finally, to run many functions globally, like the supply chain. These, I would say, were very big calls that were taken in 2005 and these have underpinned the success of Unilever in the last few years. As a business, it's well placed for the future.

The footprint of Unilever is a big strength. Fifty-five per cent of the business today is from outside North America and Europe - from emerging markets which are growing at a better pace.

But in business, "the job" is never done. So it's an ongoing exercise.

Unilever has a new CEO who has come from outside. He's a very good CEO and is driving the changes harder and further. The company is a global talent machine. Only 7-8 per cent of the senior management group is from outside.

So what do you feel about these comparisons made between the new leadership in Unilever under Paul Polman and the earlier ones?

Transformation, especially in large organisations, does not happen overnight. It took two-three years to put HUL back on track in 2001, and then it performed very well after that for five-six years.

Similarly, it has taken several years of cumulative effort and energy to put Unilever back on track. My philosophy has been to build capabilities for growth, innovation and productivity so that success can be sustainable.

Polman is building on all the changes made; he's introducing new ones and raising the bar in many areas.

And this philosophy gels quite well with that of CD&R as well?

Yes it does. It's truly unusual. It did not diversify from its core focus and it did not overleverage at a time money was abundant and cheap. It does not believe in financial engineering for results.

On the contrary, it believes in truly transforming a business from within to make it more sustainable. So it focuses on growth, innovation, productivity and cost reduction. As much as 90 per cent of its value creation has been from business improvement.

CD&R is in the business of corporate renewal and I identify with that philosophy. That's what I have been trained to do and that's what I enjoy. The focus of the firm in the past has been on identifying non-core assets or ones which have been troubled for some reason and have been underperforming, and then transforming them.

Traditionally, the fund's focus has been on the US and Europe. Now, with you on board, are we going to see the attention turning to emerging markets?

For sure. The firm wants to participate in fast growth of the BRIC (Brazil, Russia, India And China) countries and I have no doubt that we shall collectively find ways to do so.

The fund has the who's who of the corporate world as its managing or operative partners. Does this make the top too centralised?

You have to bear in mind that the role of an operating partner is like that of a chairman. You oversee. Each of these companies has its own management, operating board and a CEO. You work with them in strategy and in ensuring execution. It's about working alongside the management. It's very similar to what many of us have been doing for so many years.

Limited partners have sky-high expectations from the crack team. Do great CEOs necessarily make good fund managers?

The answer is yes. There are two parts of how the PE business works. There is a financial part where you raise money and manage the financial side of things. And there are financial partners to do that. The operating partners' job is primarily to see that the portfolio companies actually improve their performance.

And do you follow the same global investment thesis for India?

It's too early for me to comment on what we shall do in India.

The business models are the same the world over but the specificity of what you do is different. India is a vast country; it has a lot of disparity in income levels. So, you need to recognise these differences and use them as your strengthÂ…and make offerings accordingly. It's the same story in Brazil or China.

Arijit Barman
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