Look before you leap is mantra for CEOs switching jobs

MUMBAI: A chief executive officer of a metal company, part of a large conglomerate, spent two weeks with a lawyer to study the fine print before signing his contract with the employer. This is actually becoming a trend as CEO contracts in India become complex documents involving areas such as ESOPs, exit clauses and non-compete agreements.

"It is better to have clarity about your role... Employers should have a frank talk with CEOs or CXOs they hire about exit clauses or a non-compete clause,” said A Mahendran, promoter of Global Consumer Products.

Mahendran should know. He started his own entrepreneurial venture recently in the FMCG space to launch food and beverages brands, personal care products and household insecticides through Global Consumer Products. Before that he was with Godrej Consumer Products (GCPL), the maker of popular household insecticide brands Good Knight and Hit, for 15 years.

Adi Godrej, chairman of Godrej group, called the launch of household insecticides by Mahendran’s new firm a legal and ethical breach. Mahendran responded to Godrej saying he had not signed any non-compete clause with the group and had branched out on his own after a cooling period of three years.

The case highlights why CEOs are taking legal opinion before signing their contracts as compensation gets linked to global benchmarks and performance expectations get tighter in a competitive market place.

Another CEO at a consumer products company said despite management differences with his promoter, a well-executed contract helped him get his dues. "CEO contract has got far more complex and detailed and nothing is left for anyone's random interpretation, word of mouth or trust. There are far more clauses and CEOs are making sure they get their pound of flesh and not be avictim of whimsical behaviours or market dynamics,” says Navneet Singh, MD of Korn Ferry.

One such new clause being introduced in CEO contracts is the arbitration clause, where a retired judge handles a dispute between a CEO and an employer without being dragged into a full blown legal tussle.

"Increasingly contracts are getting loaded in favour of CEOs in a market where talent is scarce, so that they are not subject of fickleness and whims of promoters," said the head of a leading executive search firm on the condition of anonymity.

"There are global ambitions and global benchmarking in play. Several Indian companies are now multinationals and the payout involved is huge. So contracts display complex requirements from both sides," said S Raghunandan, former CEO and now president of Jyothy Laboratories.

RGF Search’s R Suresh said the contracts include an employment contract, a ESOPs agreement and many a times an exit contract. "The deliverables are well documents and triggers for separation have to be chalked out in detail. It cannot be whimsical and the stakes and obligations from both sides are high. Unlike earlier, the CEO is in the driver’s seat."

"Most importantly it is the share participation or ESOP thing that is making it more complex," said Abhijit Joshi, founding partner, Veritas Legal, Advocates and Solicitors. "The promoter will want the CEO to take more by virtue of ESOP and the CEO will want more guarantees. There are a lot of CEOs who are reaching out to us to look at their contracts."