Passing on the baton: Succession planning

WHAT IS SUCCESSION PLANNING?

It is the process of scouting, identifying and then grooming potential candidates to fill up critical positions in a company in the near future. But human resource experts say the concept of planned transition of executives to leadership roles, as in the case of Cyrus Mistry who was recently chosen successor of Tata Group chairman Ratan Tata, could be applied at all levels of management.

WHY IS IT IMPORTANT FOR A COMPANY TO HAVE A SUCCESSION PLAN?

A succession plan ensures seamless transfer of management, besides preparing the employees and the investors about how the company aims to run its business once the chairman or chief executive demits office.

DO INDIAN BUSINESSES HAVE SUCCESSION PLANS?

Traditional Indian companies are mostly family-run where the eldest son is usually tipped to assume the mantle on his father’s death. This remained the case in most large corporate houses, such as the Birlas, which started as small entrepreneurial ventures four or five generations ago.

But in recent years, traditional business houses have also tilted in favour of succession planning in keeping with the changing times and to fulfill the aspirations of other members of the family. Large corporate houses such as the Godrej group, Mahindra & Mahindra, Dabur and the Murugappa Group have succession plans in place.

Public sector companies though fair poorly when it comes to a succession roadmap, a fact highlighted by the number of top posts lying vacant at several staterun companies and banks

HOW IS A SUCCESSOR CHOSEN?

Companies adopt different approaches for selection of the candidates. While familyrun businesses usually prefer someone from within the family to take over the reins, multinational companies adopt a more broadbased approach where internal as well as external candidates are considered for the key job.

WHAT ARE THE CHALLENGES IN SUCCESSION PLANNING?

Succession planning could become complex or fail in its purpose if there is a lack of consensus or shortage of talent. Generation gap between the outgoing and incoming chiefs is another challenge that could result in differences in vision, values and approach.