FT : Arun Sarin (Outgoing Vodafone CEO) Says Corporate Europe Sucks
Monday, July 28, 2008
For a man who has come back from the near-dead, Arun Sarin looks in remarkable shape. Trim and muscular (he was a mean boxer in his youth), the 53-year-old executive is wearing a broad smile as he prepares to step down from running Vodafone, the mobile phone group. Barely two years ago, few observers in the City of London or the British press had a good word to say about him. Amid declining profit margins and slowing revenue growth, the Indian-born, naturalised American chief executive was written off as arrogant, prickly and out of touch with the market; in short, a busted flush. Today, in spite of scaring investors last week with a sales warning blamed on the economic downturn, that perception has been dispelled. The resurrection of Mr Sarin is a salutary tale for corporate leaders, especially those engaged in managing change in a global company such as Vodafone, with 70,000 employees and a market capitalisation of $140bn. It is a case study in dealing with a dysfunctional board and a shareholder rebellion. But it is also a deeply personal story: one man’s struggle to rehabilitate his reputation in the face of relentless criticism. “Nobody likes the attention I got,” says Mr Sarin, stiffening visibly during an hour-long interview at the Financial Times in London, a few days before last week’s revenue warning. “But you have to be strong enough in your own beliefs that you can stand up to it. Or you change . . . ” When he took over in July 2003 as chief executive, Mr Sarin inherited what he describes, politely, as a “federation of assets”. Sir Christopher Gent, his swashbuckling predecessor, had transformed an obscure British electronics company into a global giant through a series of bold acquisitions, notably the £101bn hostile bid for Mannesmann, a German wireless operator. Mr Sarin’s task was to turn the federation into a united kingdom. Five years on, the warring clans have departed the battlefield and Mr Sarin is the bloodied victor. Vodafone, he says, is a global company with a common culture and a top management team that is unashamedly cosmopolitan, including his deputy and successor Vittorio Colao, an Italian who runs its European operations. More important, Mr Sarin, who steps down tomorrow at the annual general meeting, will leave Vodafone with a clearer strategy. The company has moved beyond the leading industrialised countries to emerging markets in Africa, Turkey and, notably, India; it has extended beyond its mobile-only model to embrace “convergence” with new products such as fixed-line broadband; above all, it has finally succeeded in aligning the interests of management, shareholders and board.
What lessons does he draw from his experience? First, there are important differences between life as a chief executive in the UK and the US (where he worked as chief operating officer of AirTouch, a San Francisco-based mobile operator snapped up by Vodafone during the acquisition spree of the 1990s). The son of an officer in the Indian army, Mr Sarin clearly feels more comfortable in the role of imperial CEO. “In the US, the chairman and chief executive is the same job. You have more direct contact with shareholders and the press is not constantly around you. There are not so many newspapers per capita and they let you be judged by results.” In the UK, life for the CEO is more complicated. On the positive side, a chairman can provide an embattled CEO with “air cover”. In Mr Sarin’s case, the arrival of Sir John Bond, former chairman of HSBC, provided the equivalent of a squadron of jet fighters. Far from signalling a power-grab at the expense of Mr Sarin, Sir John helped to quell criticism in the City and give him some much-needed breathing-space. The disadvantage of splitting the CEO and chairman’s job is “more layers and more complexity”. Though there is not a whisper of criticism of Sir John, a forceful figure by any estimation, Mr Sarin admits that a duumvirate leaves scope for friction. “The separation or division of roles means it is slightly confusing as to who is ultimately responsible . . . the fact that it is mandatory in the UK to separate these roles feels to me a bit over the top. Do we need it for every public company? I would like to see some discussion about this.” The other important transatlantic difference is the role of institutional shareholders. In the US, he says, “if they like what you are doing, they buy; and if they don’t, they sell.” Equally, activist US shareholders are usually people with large amounts of capital and big reputations, says Mr Sarin, citing with approval Carl Icahn, the investor currently targeting Yahoo, the internet services company. “Here in the UK, [activists] are not investing large amounts of money. The noise to investment ratio is much higher.” Behind Mr Sarin’s polished facade, one detects a curious mix of hauteur and defensiveness…..Looking back, he says it is hard to see where he and his board made a mistake or missed a good bet.
His strategy can be summed up in seven words: short Japan, long India, hold the US. Thus, he sold Vodafone’s struggling operation in Japan for £8.9bn, retained the lucrative 45% holding in Verizon Wireless; and last year acquired a controlling stake in Hutchison Essar, then India’s fourth largest mobile operator. Along the way, he made an unsuccessful play for AT&T Wireless – a bid that seemed inconsistent with his original pledge to focus on integrating past acquisitions rather than making new ones. When he changed tack and struck deals in emerging markets, investors were unnerved. But he remains unrepentant. First, the writedowns on the Gent-era acquisitions were necessary to clean up Vodafone’s balance sheet. Second, having missed out on AT&T, the company had to switch to emerging markets to continue its growth story. The Hutchison Essar deal was the crowning success, but Mr Sarin hints broadly that more is to come in Africa, where he has high hopes of taking control of Vodacom, the South African mobile operator in which Vodafone holds 50%…..