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In a country where corporate leaders and politicians enjoy extraordinary professional longevity, lack of
succession planning is a key failure of boards at many family-owned businesses in India, leaving them
highly vulnerable after the retirement or death of their leaders. According to research published on
Friday by Bain & Company, the US management consultants, more than 75 per cent of company boards
in India do not discuss chief executive succession planning at all. Such an omission is a drag on investor
appeal for many of India’s largest, fast-expanding companies. Indecision on leadership has led to family
disputes that have split or disrupted companies. The now famous example is the absence of a will by
Dhirubhai Ambani, the founder of the Reliance business empire, which led to a bitter scrap between
brothers Mukesh and Anil Ambani. Other prominent family-owned corporate houses that have been
afflicted by messy succession issues include Bajaj Auto, Birla and Ranbaxy Laboratories. Bain’s research
into 44 top Indian companies showed that only one in five board members was ever involved in
discussions about a chief executive’s succession and little effort was made at board level to groom top
leadership. By comparison, more than 60 per cent of boards at the top-ranked S&P 500 companies in
the US discuss chief executive succession at least once a year, and 80 per cent of these companies have
emergency succession plans in place. The findings come as Tata Group embarks on a global search for a
successor to Ratan Tata – chairman for almost 20 years – when he turns 75 in December 2012. Tata has
an official policy of retirement at 75. In some cases, business leaders in India never retire, and while civil
servants must retire at 60, Indian politicians can carry on. Last month, Keshub Mahindra, 86, was re-
elected as chairman of his family-owned Mahindra & Mahindra Group, a big industrial conglomerate of
which he has been chairman since 1963. India’s prime minister, Manmohan Singh, is 77 years old; his
finance minister, Pranab Mukherjee is 74. “Some family business members delay the process of
succession planning as their decisions could create conflicts and criticism among the family,” the Bain
report said. “Some leaders find it difficult to let go of the reins and want to retain their powers as a
leader. [Also,] issues like death could be uncomfortable to discuss.” Previous studies have produced
similar findings. A report by Barclays Wealth and the UK-based Economist Intelligence Unit, based on
interviews with 2,300 wealthy investors in Asia, identified succession planning as a key weakness in
Indian companies. Satya Bansal, chief executive of Barclays Wealth India, said unwillingness to
countenance death was a “cultural issue” in India that prevented open discussion of what was necessary
for the future. A survey by PwC, the professional services firm, showed almost half of the responding
companies expecting change at the top in the next five years had no succession plan in place
Build Strengths

Gallup tells us strengths are built on innate talent, learned knowledge and
practiced skills. Staggs' joined Disney with planning and financial strengths
which Disney leveraged as he moved up the financial ladder to CFO. Then, to give
him new knowledge and skills they moved him to Chairman of Parks and Resorts
where he continued to grow and excel.

Manage The Transition

This involves clarifying the role sort between CEO and COO, managing the hand
off and supporting the new CEO.

There is one right way to sort responsibilities between a CEO and COO –
whatever works best for the CEO. The dirty little secret about the C-suite is that
most executives are unbalanced. Some are relatively stronger strategically,
organizationally or operationally. Organizations don’t need balanced executives.
They need balanced teams. Thus, the COO exists to complement the CEO while in
that role whether or not he or she is going to take over from the CEO.

Because the right role split is going to depend on the CEO’s strengths and
inclinations, each situation will involve a different division of responsibilities.
Here’s a straw man starting point:

• CEO: Overall accountability for strategy, operations and the organization

including vision, values and culture.

• COO: Overall responsibility for “current” operations of design/development,

production, marketing/selling, delivery and support of products and services.

That’s not what Iger and Staggs did, and that’s fine. As Staggs told the Wall Street
Journal when he started as COO:

It’s basically a dual-report system across all the businesses. Our approach has
been somewhat fluid, making sure that separately or together we’re focusing on
businesses and projects as need be and to be the most effective we can be.

As my partner John Lawler puts it, “Each CEO and COO pair must establish their
own operating and communications rhythm.” Per my earlier
article, accountability is the pivot as the pair works through approvals,
accountabilities and responsibilities. The best working relationships seem to
involve healthy doses of informal and formal, planned and unplanned
communication.

Every other senior level working relationship flows from how the CEO and COO
work together. Not only must the CEO and COO be clear on how they interact
with each other, but they need to be clear on how they interact with each others’
direct reports and former direct reports who may not welcome a new
intermediary. This is particularly important during times of transition.

As BioPac’s Alan Macy explained to me over coffee at HATCH in Panama he

accelerated the handoff to his successor Frazer Findlay because Findlay was
“chomping at the bit.” Macy had confidence in Findlay’s capabilities and fit and
was ready to back that confidence up with commitment. Eight years later,
Chairman Macy and CEO Findlay continues to do well together.

Disney did not manage this well. Commitment breeds confidence. Disney should
know this. This company has one of the best ever examples of motivating
employees. Yet, they never committed to Staggs' becoming CEO. From the very
beginning they “made it clear that his elevation to chief operating officer…was
not a coronation.” Disney’s lingering questions about Staggs led to Staggs having
lingering questions about Disney.

Learn from Disney. Plan ahead. Build strengths. Manage the transition. And have
a contingency plan ready.
Most Indian companies do not have a formal process for a smooth
transition
MUMBAI, OCTOBER 25

Back in 2002, when Ratan Tata was set to retire at 65, the Tata Sons board re-designated him as non-
executive chairman so that he could continue for another five years.

In 2005, the board increased the retirement age of non-executive directors to 75, ensuring that Tata
would be in office till 2012. And finally, when he packed his bags at Bombay House and handed
over the baton to Cyrus Mistry, it was only to return four years later in 2016.

It’s been done before

But the Tata Group is not the only one opting for the comeback of a renowned leader. Back in 1997,
Apple brought back founder Steve Jobs when the company was in trouble. He masterminded a
corporate turnaround and remained Apple’s CEO until his death in 2011.

Howard Shultz, who left Starbucks in 1986 to start his own chain of espresso bars, was back not once
but twice – in 1987, and then again in 2008. He continues to be the chief executive even now.

And closer home, Narayana Murthy was back at Infosys when things were not rosy with the IT
bellwether.

“In most cases, promoters or senior leaders of a company either build a business from scratch or have
worked in the organisation for a very long time. They have a full understanding of every nut and bolt
of the business and it is the easiest solution to look at them when there is a need to steer the
organisation in a new direction,” says Tatwamasi Dixit, a consultant and coach specialising in family
businesses.

Technically, the Tata Group has transitioned from a family-run to a professionally-run business, but
Tata Trust still holds 66 per cent of Tata Sons, the holding company.

After a rigorous search for a successor, the role had gone to another family member (Mistry is the
brother-in-law of Ratan Tata’s half brother Noel Tata) in 2012. “The succession process did not
move away from family hands. In a large family business corporation, when you do a transition from
predecessor to successor, there has to be a cohabitating period of at least three to four years, which
was missing in this case,” Dixit adds.

Slow and steady

Mistry had joined the Tata Board in 2006. He was not hands on with most group businesses as being
the group chairman is a different ballgame altogether from being a board member.

In contrast, Ratan Tata joined the group in 1962 and became its chairman only about three decades
later, in 1991. By then, he knew the group inside out.

“In such a large corporation, you cannot transition in one year. Mistry would have required four to
five years of joint hand-holding. There is clearly a lack of alignment between the group and the way
he led the business,” says Dixit.

R Suresh, Managing Director, RGF Executive Search, says it is all about business and people.
“Mistry was good in work and business, but not taking people along. He belonged to a different
industry and a different generation. The group had stalwarts and you cannot instruct them. You have
to show restraint.”

It is in such a scenario that succession planning gains utmost importance. In the West, a succession
plan is an important deliverable for a leader, Suresh points out. But in India, most companies don’t
have a formal process to ensure a smooth transition.

Clear mandate needed

Dixit points out that in any emergency, the board should have a written mandate as to who will fill
the gap as the chairman. “If they had one, they would not have proposed Mr Tata’s name for the
interim. It is a serious governance flaw,” he adds.

Whatever it is, for now, Tata Group has to live with it. As Dixit says: “I don’t believe that they will
be able to find a successor in four months’ time; they don’t have any firm contestants in place yet.
We need to wait and watch.”

And going by the history of the Tata Group, it might be a long wait indeed.
By Amit Kapoor
Infosys is yet again in the news for all the wrong reasons.
The poster child of the Indian IT industry just cannot seem
to stabilise its ship even after a decade of consistently
losing market share under different leaders, mostly
comprising of its co-founders. In fact, Vishal Sikka was the
first non-founder Chief Executive Officer (CEO) for the
company and was the first one successful in bringing
stability to the company's market performance vis-à-vis
rivals like Tata Consultancy Services (TCS) since it had
begun deteriorating almost a decade ago.
The real story in the Infosys saga, however, does not lie in
the intricacies of the company's boardroom battles but the
larger malaise that it highlights within the Indian
corporates as a whole.
First, the succession planning of Indian corporates seems
to be a serious issue. While the concept of succession
planning exists in India, bluechip corporates have been
struggling to successfully put it into practice. Sikka's
abrupt exit puts the company in a state of disarray. The
Indian system of succession planning within corporates
differs largely from their global counterparts, which begin
to hunt for a successor quite a few months in advance.
N R Narayana Murthy (left), co-founder, Infosys and Vishal Sikka, former CEO & MD
Second, there seems to be a lack of clarity on the role that
different stakeholders play in a company. Promoters in
companies need to define their roles as executives, board
members and shareholders. Problems like the one in
Infosys arise when promoters overstep their roles and
assume different responsibilities at different points of
time. The founders at Infosys seem to be having a tough
time letting go of their control over the company and often
cross-jurisdiction is the result. After NR Narayana Murthy
stepped down as CEO in 2002, three co-founders
succeeded him -- mostly unsuccessfully in maintaining the
company's growth trajectory. Murthy's vocal interference
in the company's workings and Nandan Nilekani's return
following Sikka's exit points to an utter unwillingness of
handing over control to an 'outsider'. Founders assuming
control anytime they feel uncomfortable with operations
undermines decisive leadership and puts the stability of
the company under threat.
Third, corporate governance seems to be quite problematic
among Indian firms. The fact that the issue has arisen in a
firm that made the concept popular in India is especially
concerning. When the acquisition of Israeli solutions
provider Panaya was questioned by Murthy, a shareholder
in the company, it behoved the board to address the
concerns to the satisfaction of its shareholders.
Transparency is the key to ensuring the highest standards
of corporate governance. In the board's defence, they did
call for an independent inquiry into the matter and found
no wrongdoing. However, it fell short of releasing the
complete report of the investigation as demanded by
Murthy.
All these factors -- succession planning, clarity of roles and
corporate governance -- play a crucial role in determining
the sustainability of large firms and if they become a
ubiquitous problem, among Indian corporates, their
survival might come under threat. There is also a much
larger problem that springs out of the tendency of the old
guard to not let go of their companies - the ability to
innovate.
Infosys was slowly becoming irrelevant with back office
processing and IT support work due to large scale
automation. Rapid automation calls for a move into
emerging sectors like Artificial Intelligence (AI) and
robotics for IT firms and Infosys was losing ground here.
Sikka attempted venturing into these disruptive sectors
and the founders who were accustomed to making profits
through labour arbitrage did not feel comfortable with
such moves.
This is a typical problem with large firms. Innovation does
not come easy to them. In most industries, innovators are
usually 'outsiders' in some sense. Either it comes from a
new company whose founder has a non-traditional
background or from existing companies through senior
managers who are new and unfamiliar to the industry.
Such sets of people are usually more able to identify new
opportunities and are bolder in pursuing them as well.
This is the biggest problem with Infosys and results in
slow-paced innovation within the company, which is
hurting the company itself in the long run. An innovation
handicap will mark the company for its slow demise in an
industry as fast-paced as IT. On a larger scale, it also
damages the country's ability to innovate as a whole,
which is quite worrying for its relevance on the world
stage.
Therefore, the crisis in Infosys isn't just limited to the
company itself. The Indian corporate sector needs to take
copious notes as it unfolds and learns what not to do in
order to ensure its sustainability. Also, it must learn not to
fall into the trap of sticking to old ideas at the cost of
innovation.