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Succession planning

It was only ~10 months back that the Tata-Mistry tussle broke out in the open, grabbing huge media attention and causing significant heartburn to investors in the wake of the uncertainty over the groups’ future, post Mistry’s ouster. Investors once again had to brace themselves, last week, for a similar development in yet another large corporation (Infosys). Vishal Sikka, MD & CEO – Infosys, surprisingly announced his resignation on 18th of August exposing his soured relationship with one of the ex-founders, NRN! Both the cases ended up with discord between the founders and the ‘outsiders’ (chosen by the founders themselves), within a relatively short span of time.

Amongst other things that comes to the fore, this once again highlights succession planning issues that India Inc continues to face, no matter how large the corporation. Both the recent cases (Tata & Infosys) reveal similar issues – interference from the ex-founders and blames of corporate governance issues with the present top management.

Traditionally, most Indian businesses are family run with deep cultural values attached to the businesses set up by the promoters. Succession, in such family run businesses are, more often than not, handed over to the next generation of the family itself. Most promoters find it very difficult to trust a non-family member to run ‘their’ company while keeping their cultural values intact. Most Indian promoters have demonstrated their reluctance to hand over their baton to ‘outsiders’ even in the absence of suitable internal successors. Outsiders are inducted (mostly) in 2 scenarios (a) in the absence of any suitable internal candidates and/or (b) when a radical change is needed and lateral thinking is called for with the belief that the induction of fresh blood and new perspectives will bring in the necessary change. Key biases like control & management is something which, in my opinion, Indian promoters should learn to unbundle and professionally deal with. While the promoters may continue to control the company, if they so desire, they need not necessarily be the manager. How else can Indian companies transform themselves into organisations, far outliving the promoter family which had initially set up the company?

As per one of the reports by management consulting firm Bain, globally, it is the boards which weigh in on decisions such as selecting the CEO, planning succession and even, building the top management team. In the Indian context, irrespective of how independent the board optically appears, many a times the boards are driven by the promoter-family itself. It appears as if the interest of the board is to safeguard the interests of the promoter family, rather than risking doing what ‘may’ be in the best interest of the company. This poses a challenge to even some non-promoter-driven companies (without naming any), being run by larger-than-life CEOs, in which the board does not get to wrest sufficient control. The outgoing CEO/chairman may either end up choosing a successor based on his/her liking (the actual need being different) or choose someone under whom they may be able to preserve their legacy.

In the recent past, two large non-promoter-driven companies have witnessed/announced a change at the top, by handing over the reins to ‘insiders’. ITC recently split the post of the Chairman between non-executive chairman and CEO. After staying at the helm of affairs for more than 2 decades, ITC’s executive chairman, Y. C. Deveshwar, ended his term in February this year while appointing Sanjay Puri as the new CEO. Sanjay, having been with ITC for more than 3 decades, is expected to drive the diversified conglomerate further, under the mentorship of Mr. Deveshwar who would continue as the non-executive chairman for at least three more years. L&T, the $16 billion engineering behemoth, also will witness a change in guard from October 1 2017 with an ‘insider’ S. N. Subrahmanyan (SNS), Dy MD and President, taking over as the chairman from Mr. A. M. Naik. Having been with L&T for over three decades, SNS has been apparently mentored by Mr. Naik over the last 12 years for handling such a responsibility. It will be interesting to watch how these transitions play out.

Over the next couple of years, we may witness several first-generation entrepreneurs retiring. This necessitates the induction of ‘right’ successors at the top. What makes this transition challenging is the pace of disruption that businesses are witnessing, globally. With the advent of new-age competition threating to disrupt the status quo, several businesses are forced to re-invent themselves. While this creates opportunities for those who quickly adopt such innovations, it can be challenging to those who are slow to react. Clinging on to practises that have worked well historically need not guarantee future success as well. The right candidate, whether internally or from outside, should be cognizant of the changing dynamics and should be able to build new capabilities to cater to the fast-changing business environment. Promoters need a nimble-footed approach to adapt to such changes and more importantly, accept cultural challenges that come along with it, IF they intend remaining relevant.

 

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