Most biz leaders working on succession plans
Feb 24 2014 , Kolkata
As many as 50 per cent of Indian business leaders believe their successors will come from within the organisation, showed recent research by Grant Thornton. It said 26 per cent of the business leaders who participated in the survey were looking outside their businesses, mainly at rival organisations or different industries for potential future leaders while 23 per cent hadn’t yet thought where their successors would come from.
Market regulator Sebi last week proposed to make it mandatory for listed firms to have structured succession plans in place. Over the years, a few Indian business houses have showed alacrity and discipline in putting succession plans in place.
Rahul Bajaj, the patriarch of Bajaj Auto, ensured a seamless change of guard at his company and today talks proudly about it. “The separation of responsibilities is working beautifully without any hitch,” the 76-year-old chairman of India’s second largest two-wheeler maker told Financial Chronicle.
“The succession plan for my two sons, Rajiv and Sanjiv, was carried out when I demerged Bajaj Auto into three companies in 2007. The demerger was done to unlock shareholders’ value, but its most important and welcome byproduct was the division of work between the two,” he fondly recalls.
Rajiv was given the responsibility of Bajaj Auto, of which he is today the MD. Sanjiv was entrusted with the responsibility of the financial services companies, including two insurance joint ventures, consumer finance company Bajaj Finance and the two holding companies, Bajaj Finserv and Bajaj Holdings & Investment. Sanjiv is the MD of both.
Suresh Neotia, co-founder and chairman emeritus of Ambuja Cements, believes it is important to have a succession plan in place. He cites the examples of Infosys and the company he founded to emphasise the point. Infosys, the IT bellwether, had to bring back N R Narayana Murthy from retirement to lead the company after it had lost direction following his exit.
“This happened because they did not have a proper succession plan. At Ambuja Cements, we had to move out because there wasn’t a proper succession plan. It is important to identify a successor, groom him properly, let him go through actual operations and processes, so that when the chairman or CEO retires or otherwise, the show goes on and the legacy continues,” Neotia says.
The Rs 22,500 crore Murugappa Group, which has interest across 28 businesses, firmly believes in succession planning so that the successor understands the company’s culture to ensure smooth transition. “It is extremely important,” says A Vellayan, chairman of Murugappa Group. “The successor needs proper grooming in the culture of the organisation. If he is an outsider, it can lead to a mismatch. Understanding the culture of a company is important for decision making, cohesiveness and in pushing things forward. All these can happen only when there is a clear understanding of the culture. The person chosen to succeed should understand the DNA of the organisation,” he says.
Vellavan advocates succession planning based on merit. “For this to happen, we ideally have to have independent directors playing a larger role in this process. A successor can be from within or outside. Independent directors can take an unbiased view, without worrying about relationships and other factors. Despite the best of planning, sometimes a successor may not be available from within when the need arises. The responsibility is to choose the right man for the job.”
According to Grant Thornton, the survey shows that firms go for skill assessments by their own staff to pick successors. “In about 48 per cent of cases, business houses are either using or have used the services of a ‘business coach’ to develop leadership skills in potential successors,” the business consultancy firm said. This is in line with the trends in the BRIC and APAC (41 per cent each) nations and higher than the global average of 35 per cent.
In Kolkata, Birla clan patriarch B K Birla has put in place and subsequently finetuned a succession plan for his group with daughter Manjushree Khaitan tipped to take over as vice-chairman and grandson Kumar Mangalam Birla as chairman after him. He has also distributed responsibilities of other group firms to other family members.
So did R P Goenka, who put in place a structured succession plan dividing the business empire amicably between his two sons, Sanjiv and Harsh, before his death. Vinamra Shastri, partner for business advisory services at Grant Thornton, says, “It is heartening to see a large number of Indian business leaders thinking about the issue of succession, which is critical to long-term growth and sustainability of every business.”
If 50 per cent of business leaders believe that successors would come from within the organisation, it becomes vital for them to spend significant time in coaching those future leaders, he reckons. Shastri feels the Sebi proposal is part of the market regulator’s efforts to protect the interests of investors in the event of untimely death, departure or poor performance of a leader; all of which usually hurt investor interests.
Asked if the successor should come from outside or within a business family, Neotia says, “In India, family bonding is strong. Without a strong family structure, India would have been disintegrated by now. I am not saying it’s good or bad, but anyone would like to have someone from the family as successor.”