(a)

The CMD is the Chief Executive Officer of the Company. He is the Chairman
of the Board and the Corporate Management.
(b)
His primary role is to provide leadership to the Board and the Corporate
Management for realizing the approved strategic plan and business objectives.
(c)
20.

He presides over the Board and the Shareholders meetings.

Executive Directors (ED) / Senior Management Personnel:

(a)
The Executive Directors, as members of the Board and the Corporate
Management, contribute to the strategic management of the Companys businesses
within Board approved direction and framework. They assume overall responsibility
for strategic management of business and corporate functions including its
governance processes and top management effectiveness.
(b)
As regards Subsidiaries, Associates and Joint Venture Companies, they act as
the custodians of the Companys interests and are responsible for their governance in
accordance with the approved plans.

21.

Non-Executive Directors (NED):

(a)
The Non-Executive Directors play a critical role in enhancing balance to the
Board processes with their independent judgment on issues of strategy, performance,
resources, standards of conduct, etc., besides providing the Board with valuable
inputs.

Analysis of Current Corporate Structure.

22.
The present corporate structure as given at Exhibit 3 represents complex Functional
Structure with five divisions, namely:(a)

Engineering and Construction.

(b)

Electrical and Electronics.

(c)

Machinery & Industrial Products Segment (MIP).

(d)

IT Engineering Services.

(e)

Finance and HR coupled with Development projects & Financial Services.

23.
The Engineering and Construction Divisions accounts for nearly 85% of consolidated
sales and 92% of total order inflow, thus form the core group of L&T. Therefore, each sub
division of this division is headed by an Executive Director assisted by senior managerial
staff. The org chart of ECC is given at Exhibit 4. Within the division, each sub units has
vertical form of functional organization. The detailed organisation of LTV, one of the SBU of
ECC, is at Exhibit 5. The other four divisions are headed by Executive Director each. At the
helm of affairs, the CMD controls this wide spectrum of organizational maze.

Source: Annual Report 2009-2010

24.
The structure gives enough strength and stability to pursue the multidimensional
growth of the company, which requires:(a)

Centralised command to translate vision into reality.

(b)

Sharing of resources to achieve the economy of scope.

The surge in order inflow (Exhibit 1) and phenomenal growth that the L&T achieved
during 2000- 2010 (Exhibit 6), under stewardship of visionary CMD Mr A M Naik, bears the
testimony to the benefits of centralised command structure. The structure suited the autocratic
style and functioning of current chairman.
25.

However, the structure has following inherent disadvantages:(a)

There are too many channels between formulation and implementation of
strategy. Although, when Mr A. M. Naik took over as CEO in 1999 he visited all his
employees at 38 locations in 100 days. But, the gap in strategic planning and
implementation can only is bridged by having lesser gap in communication channel.
(b)
It promotes bureaucracy which causes dissatisfaction amongst employees.
This is evident from high attrition rate, which the CMD admitted in one of the
interviews:
.. I think we were among the best in IT. I strongly believe internal IT is at the core
of productivity, quality of delivery and customer relation-ships. Unfortunately, we lost
our IT talent in a short span of time. Quite a few of them joined Satyam and other IT
firms.10
Also the following blog from one of the employee of L&T says it all:
Rahul Nene:
Feb 24, 2010
The main problem is L&T has not been able to sustain people in the middle
management group..The major reason for this is the less salaries, when compared with
competitors. As an employee of L&T, i can safely say this is the main reason.
This, along with the slow and multilayered decision making process which is
hampering L&T's progress has brought this situation. What L&T also needs is a

change in attitude of the bosses, so that the talented young generation are groomed
and see a future in L&T and feel at home at L&T. Only then can L&T progress 11
(c)
In this form of organisation the CMD has to be powerful with exceptionally
good leadership traits. The feeling expressed during interview by CMD epitomizes
this critical requirement.
.No other company in the world is as complex as L&T... not even General
Electric, he said. No one chairman can manage such a complex operation. I was
able to do it because I have been with L&T for 46 years and have started 60% of these
businesses.1
Leadership Crisis
26.
The largest conglomerate is now facing the biggest leadership crisis of today. Mr A.
M. Naik, took over as Chief Executive Officer and Managing Director in Apr 1999. On
December 30, 2003, he was appointed as the Chairman & Managing Director 6 . As CEO, he
was to retire in Apr 2003 but got extension of five years after his appointment as CMD and
board of directors further approved another extension of three years in 2009 14. The board was
aware of the vacuum in succession plan, but the extended tenures granted to Mr Naik further
reinforced his indispensibility in organisation..
27.
The situation is further compounded by the fact that there was no concerted effort
from CMD, to identify, nurture and groom the second echelon leader to take over the reins in
2012. As Mr Naik believes that he could handle this mammoth business because of his 46
years long association with L&T, it was all the more reason to plan succession in advance
.The mentoring of successor should have commenced in early 2007.
28.
Therefore, the leadership crisis has acted as the catalyst to restructuring exercise in
L&T so that the new CEO takes over a streamlined organisation to command.
The Restructuring Plan.
29.
The restructuring process was concieved by the current CMD in early 2000. His
vision is reflected by the following excerpts from an interview;
First of all, I started restructuring in 1999, almost as soon as I took over as CEO. It was
noticed more widely in 2003 when we demerged the cement business and prepared to sell it
to Grasim. The new vision we came up with in November 1999 was the result of 7,500
people participating in an interactive process across the country. The central message was that
L&T would become a multinational and create shareholder value. We always took pride in
very high quality and difficult projects, but missed the fact that L&T shareholders deserve
more. Changing that orientation was critical and it became a part of transformation itself. We
put together our first five-year strategic plan for 2001-05 in 2000: a project for creating a
blue-chip company. We got rid of a lot of small businesses glass, ready-mix concrete and,
finally, cement. In 2004, we began the next one, for 2006-10, which will end in March next
year.
Now we are working on the 2011-15 blueprint, which should be ready by January-February
2010. That is where we have included our strategy in defence, nuclear energy, big-ticket
infrastructure projects; areas where we will be taking on global competition. We have to go
for very large projects ($1-2 billion), driven by our engineering excellence. We have to be

more international, be globally competitive. Restructuring has been a way of life; our
transformation is a journey we started in 1999.10
The outline of the plan was given by CMD on 05 Jan 2011(Exhibit 7). On 24 Jan 2011, Mr J
P Nayak, President (Operations) and Executive Director, disclosed the new proposed
structure, which the industry anlysts have termed as cross between the structures adopted by
Tata Group and Aditya Biral Group8. The restructuring plan closely resembles the
organisational structre of GE of 19925. The same sentiment is echoed by Mr J P Nayak in an
interview with Business Standard:.In effect, this is decentralization of power wherein each of the independent companies
will be run as autonomous units. These companies will be inducting external expertise on
their board and making the decision-making closer to the business, instead of the parent
company deliberating on its board meetings. .
..General Electric Co. (GE) successfully diversified its businesses by restructuring in a
similar fashion,9
30.

Salient Feature of Reorganisation

(a)
Business is divided into nine independent companies(ICs). L&T's power,
hydrocarbon, machinery & product, switchgear, heavy engineering, infrastructure,
building & factories, metals & minerals and electrical businesses will make up the
nine independent companies (ICs)7.