How the government mismanaged Rajan's exit

While Swamy kept his public diatribe going for quite some time, the PM, whom nobody can accuse of being economical with words, chose to remain silent -- leaving the door open for conspiracy theories, notes Shyamal Majumdar.

In his interview to Times Now on Monday, Prime Minister Narendra Modi strongly defended Raghuram Rajan and spoke fondly of his 'good experience and appreciation' of working with the outgoing Reserve Bank of India Governor.

Modi did what all strong leaders should do — shield their top talent from politicking and absurd criticism.

It’s just that Modi spoke nine days too late, as Rajan decided not to opt for a second term on June 18.

The delay was surprising as Modi knew the uncertainty that was looming ever since Rajya Sabha member Subramanian Swamy released the letter in which he had referred to the RBI governor as 'mentally not fully Indian' and accused him of 'wilfully wrecking the economy'.

While Swamy kept his public diatribe going for quite some time, the PM, whom nobody can accuse of being economical with words, chose to remain silent -- leaving the door open for conspiracy theories.

Imagine a company where the chief executive officer is publicly attacked on a daily basis by some insiders and all that the powerful promoter does is to maintain a studious silence.

The message that goes out to the CEO and the rest of the ecosystem in such cases is loud and clear: the promoter wants you out. Period.

Even if Modi had wanted Rajan out (that’s the government’s prerogative), the government could have done it with some finesse and tact.

What was required was a one-to-one conversation discussing mutual concerns, perceptions and the way forward.

Here again, the top leadership of the government faltered.

When the exit of a critical and senior person is involved, the basic procedure to be followed is to hold extensive discussions between the two sides to at least plan a graceful exit.

The announcement of such exits should be synchronised so that there is no scope for confusion in the outer world.

Also, instead of letting it come as a huge surprise to the outside world, the government could have requested Rajan not to make his decision public till an impressive replacement had been identified and then announce it together with the exit.

That the government didn’t do so signals both complacency and incompetence.

The fact is this is a basic management lesson -- something both sides seem to have chosen to ignore for easons best known to them.

As a result, Rajan allowed himself to be a football in this political game and the referee ignored the foul play.

All this would have been possible had there been mutual trust.

In this case, that was obviously missing, as is evident from the government’s repeated moves to cut down the RBI governor’s stature over the past two years. The most recent example of this was the government making him a member of a panel that would shortlist a deputy governor.

The panel would not be headed by the RBI governor, but by the cabinet secretary.

That’s not the way one retains the best talent -- that is an independent, technocratic central bank governor.

To be fair, Rajan also could have handled things differently.

For example, he did fan a fire, which he need not have, by making uncomfortable comments about the government of the day.

Also, it can be argued that he became larger than the institution because of these comments.

Why not talk about your concerns directly with the PM or the finance minister instead of going public with issues you are uncomfortable with?

Plus, he could have timed his exit better -- there was no point announcing it barely a week before the Brexit referendum.

Now that the initial damage has been done, the government would do well to take a leaf out of some management books on CEO succession and negotiate an appropriate ending with the governor by celebrating his contribution to the organisation.

By defending Rajan in public and praising him, Modi has taken the right step forward.

The next step is to end the uncertainty by selecting Rajan’s successor as soon as possible.

The successor would then get enough time with Rajan so that there is a seamless transition.

Companies can never become great if they or the individuals who run them manage exits badly. Talented people avoid such companies like the plague.

The same thing can be said about the Modi-Rajan saga.

Photograph: Kind courtesy, Press Information Bureau