Source:
E-mail:dt.16.6.2011
Succession issue in Indian business
Devendra
Prasad Pandey
Faculty,
MGCG
University,
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.