Larsen & Toubro sets five new companies
In a major restructuring exercise, Larsen & Toubro (L&T), the country’s largest engineering conglomerate, is setting up at least five new companies.
Chairman A M Naik told Business Standard the “verticalisation” effort is aimed at ensuring better corporate governance as well as attracting talent to the 70-year-old company.
Each of these companies will have a CEO, a board, and finance and human resource management teams. L&T has also launched a global hunt for CEOs.
These CEOs will be a part of the group corporate management committee but would not get a berth on the L&T board. “We hope that some of the CEOs will eventually get into the main company’s board,” he said.
The companies will operate in L&T’s new business areas of power projects, boilers, turbines, water and shipbuilding. An exercise is on to identify other areas. The new structure will also open up opportunities for L&T insiders to move up the ladder.
“The L&T board has no vacancies now. But the corporatisation of the new businesses will suddenly increase the number of directors we require,” Naik said. L&T has been facing a high attrition rate, forcing the company to go in for extensions to existing employees.
On the rationale for setting up new companies, Naik said L&T has a complex structure having 62 different areas of operation. The move to create operating companies within the overall L&T umbrella is aimed at simplifying the structure.
“No one chairman or CEO can manage the complexities as existing businesses are growing fast and there is a need to get into new ones,” he said, adding that the existing businesses will continue under the main company.
Talking on the new structure, Naik said, “We have just created L&T Power Projects, which is a platform for completing the building blocks. However, it’s not easy to get a person who could create a mini-Bhel out of the power business unless he is given the rank of a CEO.”
The power company, which is a wholly-owned subsidiary, will have two subsidiaries for boilers and turbines. In addition to the power business, L&T will set up L&T Shipbuilding within two weeks. The shipbuilding company will announce the location of its yard in August.
Naik said L&T is also looking at appointing a CEO for L&T Infotech for which a global hunt is on. While the CEOs for shipbuilding and infotech will be outsiders, the head of the turbine business will be an insider. L&T has recently appointed a CEO for its water business.
For L&T Power Projects, it will recruit a chief operating officer (COO) who will work under the existing CEO.
He said the engineering company might spin off some of the “unrelated businesses” if the double dividend tax was scrapped. For that the Companies Act would have to be amended.
“If the laws changed, L&T might spin off some of the businesses. However, L&T’s holding in the spun-off entities would not fall below 60 per cent,” he said.
He further added that L&T would not implement a holding company structure for all its businesses.
Such a structure will loosen ownership and “we may again be subject to corporate raids,” he added, citing examples of previous attempts to take over the company.
Chairman A M Naik told Business Standard the “verticalisation” effort is aimed at ensuring better corporate governance as well as attracting talent to the 70-year-old company.
Each of these companies will have a CEO, a board, and finance and human resource management teams. L&T has also launched a global hunt for CEOs.
These CEOs will be a part of the group corporate management committee but would not get a berth on the L&T board. “We hope that some of the CEOs will eventually get into the main company’s board,” he said.
The companies will operate in L&T’s new business areas of power projects, boilers, turbines, water and shipbuilding. An exercise is on to identify other areas. The new structure will also open up opportunities for L&T insiders to move up the ladder.
“The L&T board has no vacancies now. But the corporatisation of the new businesses will suddenly increase the number of directors we require,” Naik said. L&T has been facing a high attrition rate, forcing the company to go in for extensions to existing employees.
On the rationale for setting up new companies, Naik said L&T has a complex structure having 62 different areas of operation. The move to create operating companies within the overall L&T umbrella is aimed at simplifying the structure.
“No one chairman or CEO can manage the complexities as existing businesses are growing fast and there is a need to get into new ones,” he said, adding that the existing businesses will continue under the main company.
Talking on the new structure, Naik said, “We have just created L&T Power Projects, which is a platform for completing the building blocks. However, it’s not easy to get a person who could create a mini-Bhel out of the power business unless he is given the rank of a CEO.”
The power company, which is a wholly-owned subsidiary, will have two subsidiaries for boilers and turbines. In addition to the power business, L&T will set up L&T Shipbuilding within two weeks. The shipbuilding company will announce the location of its yard in August.
Naik said L&T is also looking at appointing a CEO for L&T Infotech for which a global hunt is on. While the CEOs for shipbuilding and infotech will be outsiders, the head of the turbine business will be an insider. L&T has recently appointed a CEO for its water business.
For L&T Power Projects, it will recruit a chief operating officer (COO) who will work under the existing CEO.
He said the engineering company might spin off some of the “unrelated businesses” if the double dividend tax was scrapped. For that the Companies Act would have to be amended.
“If the laws changed, L&T might spin off some of the businesses. However, L&T’s holding in the spun-off entities would not fall below 60 per cent,” he said.
He further added that L&T would not implement a holding company structure for all its businesses.
Such a structure will loosen ownership and “we may again be subject to corporate raids,” he added, citing examples of previous attempts to take over the company.