Succession planning crisis: Professionally managed firms in India have been caught unawares several times

So, when it comes to poor succession planning, HR practitioners love to point fingers at infrastructure major Larsen & Toubro and cigarette-to-hotels major ITC, both headed by two of the most successful business leaders in the corporate world, responsible for the rapid growth of the two companies . At L&T, A M Naik, who is over 70, was given another five-year term through a board mandate. Similarly, 66-year-old Y C Deveshwar at ITC was also given an extension . But people close to him say that this had a lot to do with the fact that the Rs 30,000-crore group was in the midst of a transformation — from being merely a cigarette maker to a diversified conglomerate with some of its new forays into FMCG taking root to bloom. Both ITC and L&T did not comment on the matter. At the global level, experts reserve this mantle for another rock star CEO, John Chambers of Cisco.

“I am not sure whether things generally work better in family businesses, although I am certainly aware of cases such as the Rahul Bajaj and the R P Goenka Groups where succession was effected while the patriarch was very much active. The systematic data that I have seen suggests that at least in other parts of Asia, succession problems may be even worse in family businesses than in non-family businesses,” says Pankaj Ghemavat, management thinker and Anselmo Rubiralta Professor of Global Strategy at IESE Business School, Barcelona.

Boards to blame

A report by management consulting firm Bain suggests that globally, it is the boards which weigh in on decisions such as selecting the CEO, planning succession and even, building the top management team (see graphic). A top CEO, who didn’t want to be identified, suggests that the findings still hold good for India Inc and it’s often the board which is responsible for not taking a clear stand on succession and instead backing continuity. Besides, sometimes largerthan-life CEOs themselves drive boards.

Although there are a couple of general assumptions that people make about family-headed businesses, industry experts believe succession appears to be a smooth affair in a family-run business because the next generation is generally acceptable as a leader. The positive factor that works for a promoter successor is that they can get work done the way they want and that too without much resistance . So when Nisa Godrej , the daughter of group chairman Adi Godrej, wanted to bring about major transformations in the HR processes within the group, there were a few who were skeptical about the same. However, eventually, the changes were endorsed by all. This may have been difficult for an outsider to accomplish.

Sonal Agrawal, managing partner, Accord Group, an executive search firm, believes most MNCs and boardrun companies usually have succession planning in place, but sudden situations can catch them unawares. On the other hand, in familyrun companies, they usually have a family member earmarked or in training to step up and keep the boat steady in cases of sudden disruptions or death.

A good option

All leaders may not agree with this but there is a sense of insecurity that a CEO may harbour on the idea of grooming a strong successor. A senior official at a consumer products company says most leaders would feel threatened to create a strong second contender to the leadership position, who could succeed him anytime. Rather , companies, he felt, should look at creating a strong second bench of managers who could take on a leadership role as and when the need arises. ICICI under K V Kamath had that kind of a bench and was one instance of savvy planning in a professional set-up . Only when there is clarity on when a leader is leaving the organization can a successor be groomed to take on that role. Else, such a situation can create uncertainty for the existing leader. Globally, celebrated CEOs such as Jack Welch, Lee Iacocca were self-assured and wanted to leave a legacy behind . They worked hard to build a next generation of leaders with the knowledge that their brand will stay only as long as the company they leave behind is successful . The legacy issue often enables such leaders, including GE’s Jeff Immelt, to plan better for succession.

State of India Inc

Globally, boards weigh in on selecting CEOs, planning successions and building top mgmt team In 2008, boards discussed CEO succession at least once a year in more than 60% of the S&P 500 cos The boards of over 80% of the S&P 500 cos had an emergency succession plan in place In contrast, Indian cos’ boards shy away from leadership issues and receive little encouragement from CEO/promoters to do more Over 75% of respondents in Bain’s survey said boards didn’t take up succession planning Indian boards hardly get involved in the professional development of top leadership