Succession issue in Indian business
Chitrakoot, MP, India
Infosys Chairman and Chief Mentor N R Narayana Murthy will retire in August 2011 when he turns 65 after heading it for three decade since 1981. Murthy established Infosys in 1981 with an initial capital of USD 250 along with six others, Nandan Nilekani, Kris Gopalakrishnan, SD Shibulal, K Dinesh, N S Raghavan and A Arora. The company is currently being led by CEO Kris Gopalakrishnan. With revenues of Rs 6,198 crore at the end of June 30, 2010, Infosys has over 113,000 employees in over 50 offices worldwide.
The Infosys board appointed K.V. Kamath, Chairman of India's largest private sector bank, ICICI, to be its next non-executive chairman. Shortly, Infosys will announce a new chief operating officer, to be picked by the new succession planning system being put in place. Infosys' nominations committee, which has ICICI Bank non-executive chairman K V Kamath, Cornell University professor Lehman and HDFC Standard Life Insurance CEO Deepak M Satwalekar as members, has recommended for this succession. K V Kamath, the Non-Executive Chairman of ICICI Bank has already been a member of the Infosys board since 2009.
For some years now, analysts have felt that Infosys had lost its sales zing after co-chairman and the marketing face of Infosys, Nandan Nilekani, quit the company to join the government's UID programme. Though Kamath was instrumental in turning ICICI from a staid development bank to a retail powerhouse, his role in Infosys will not have much to do with operations and business. Infosys recently announced a strategy 'Infosys 3.0', where its businesses will be re-grouped under four verticals. Each will have their own CEO and virtual balance sheets that will determine its performance. This will help the board to institute a system to spot high performers with management capability early and single them out for higher responsibilities. As things stand, Kamath will devote a month in a year to Infosys, including about half a dozen board meetings. Though Kamath may not have much advice to give on how to win bigger contracts, he has his own perspective of the software industry. Two companies he was closely associated with-ICICI Infotech which was later renamed 3i Infotech and ICICI Onesource which was renamed Firstsource solutions-did not make the big cut. Though Firstsource is counted among the large BPO firms in India, it has not made any money for investors.
Succession in Tata Sons
In an interview to a Tata Group internal publication, R K Krishnakumar, a Tata Sons’ Director and a member of the search panel, said “the committee has come to the conclusion that we cannot find a replacement for Mr Tata. We may have to change and rearrange the model in terms of what we are looking for. We are now considering people — from within the group and outside, including expatriates — who can fill the role we have in mind. There are challenges but we will soon come to a conclusion.”
The other members of search committee are Tata Sons’ vice-chairman N A Soonawala, senior group director Cyrus Mistry, group adviser and lawyer Shirin Bharucha, and British businessman Lord Bhattacharya. The company said the five-member committee would consider candidates inside and outside the conglomerate to succeed Tata, who is required by company rules to retire when he turns 75 years old at the end of 2012. The company had also said it would consider persons based abroad, with global experience.
In 2002, when Ratan Tata was to retire at 65, the board promptly re-designated him non-executive chairman, which empowered him to continue for another five years. Three years later, the board ratcheted up the retirement age of the group’s non-executive directors to 75, again to retain Ratan Tata. Observers agree that filling Tata's shoes is not going to be an easy task. In the early days after he took over from J.R.D. Tata in 1991, he was widely criticized for daring to take on the satraps, as the independent-minded CEOs of the larger group companies were then described. There were battles fought in boardrooms and the business press, but eventually the old guard retired. More recently, there was criticism that the acquisition of automobile manufacturer Jaguar Land Rover (JLR) and steelmaker Corus would deluge the group in debt. In results declared in August 2010, however, both Tata Motors (including JLR) and Tata Steel (with Corus) have returned to profits. The Tatas are also now the country's most valuable group with a market capitalization of US$80 billion.
The frontrunner in the Tata race appears to be Noel Tata, Ratan Tata's half brother who was recently promoted to overseeing the group's international operations. Some 65% of the conglomerate's revenue comes from outside India, so this is a significant responsibility. Additionally, Noel Tata is the son-in-law of Pallonji Mistry, who owns 18.4% in Tata Sons, which makes him the single largest individual shareholder. Charitable trusts promoted by Tatas have 64 percent of shareholding of Tata Sons.
The way to succession
There are three common strategies to search a potential candidate for succession (Bijarpurkar 2011). The board decides the successor in general. The committee process is also taking place as is evident in the case of Tata group and Infosys. L&T, on the other had is seeking the assistance of McKinsey& Co. and Bain for a leadership building exercise. This is a part of larger mandate given to the consultants to help L&T’s growth plans. L&T chairman AM Naik is slated to retire by September next year.
The legendary Jack Welch at General Electric identified his talent pipeline by meeting with potential successors individually and asking them: if we were on a plane and it crashed, who do you think should lead the company? Not only did this have a sobering influence on prima donnas and help deflate egos, it also made them nominate other individuals from their peer group as potential leaders. It was an effective way to gauge what individuals felt about the company’s senior leadership and also establish a balance between the organisation and the individual. India Inc still has a long way to go, it seems.
There are examples of the Aurangzeb syndrome like the ‘coup’ in Apollo Tyres, where founder Raunaq Singh was deposed by son Onkar Kanwar as head of the firm, or Ranbaxy Labs, where the father (Bhai Mohan Singh) had a boardroom battle with elder son Parvinder over strategic direction, which resulted in Parvinder winning. Oddly enough, in both cases, the boards of directors in the two companies sided with the sons (Srikanth Srinivas).
Many families recognise
that management and ownership should be separated. They are inducting
professionals into key management and operational positions while, as owners,
they stay on the boards of the companies. This transitioning is in various
stages of progress in several companies, mostly those in which the current
younger generation sees the value of doing this.
Burman’s are the fourth and fifth generations in the business of Dabur. The transition from family managed to professionally managed operation began in 2000 when family members decided to go in for professional management. Promoters limited their activities to new strategic inputs at the board level, and funding decisions. The board of Dabur has four family members, down from nine earlier. It does not stop them from going out and setting up new independent businesses.
In his autobiography, the first Indian chairman of HUL, Prakash Tandon, wrote about how he started to think about his successor within a year of his assuming chairmanship in 1961. A subsequent chairman, T. Thomas, also described how he went about the difficult choice between two outstanding candidates, Susim Datta and Ashok Ganguly. The process centred on identifying a list of candidates, placing them in specially chosen and challenging roles, and then observing the outcomes. The parent Unilever also had a well established system. For decades, Unilever produced internal CEOs and chairmen. In the 2000s, when the non-executive chairman and CEO were both Unilever lifers, the Board felt the need for change. First, they brought in a Swedish outsider, Michael Treschow, as non-executive chairman and followed with another outsider as CEO, Paul Polman from P&G/Nestle. The process was driven by the board with a great deal of sensitivity and confidentiality (Manikutty 2011).
The healthy withdrawal depends on the effective succession. Succession issues are becoming a matter of serious concern among corporate executives, promoters, shareholders and governments. A sound succession policy can handle this issue more effectively.