PremiumThe pandemic has thrown into sharp relief the importance of an institutionalized process for succession planning so that the risk of leadership disruption is kept minimal at all times.
The coronavirus pandemic has touched every aspect of our lives. A less discussed but tragic outcome of it has been the long indisposition and, in some instances, the sad and untimely demise of employees. Despite these losses, and even as affected employees some take time out to grieve, businesses must continue to function and serve stakeholders. C-suite leaders, board members and managerial personnel are ever more critical for business continuity. The pandemic has brought to the fore a pressing need for risk mitigation and leadership preservation, thereby placing a spotlight on succession planning.
Even in the absence of a pandemic, succession planning is an unavoidable duty. It is essential for those stewarding (the board) and leading a company (its management) to ensure that sufficient and suitable human capital is always available to lead it.
The Indian landscape: It has been observed that Indian companies are more relaxed in comparison with their global counterparts on structured succession planning. The process is more institutionalized in the West and goes beyond the chief executive officer and other C-suite executives. In contrast, the abundance of family-owned businesses in India, coupled with societal expectations of family members to join the business, leave little room for institutionalizing the process.
However, the domestic regulatory environment is tightening around succession planning, and the broader governance ecosystem of proxy advisors, credit rating agencies, etc, has a keen eye on this matter.
Things are changing from the ‘why’ of succession planning to defining its ‘how’. For a clearer understanding of succession planning, we spoke to some distinguished practitioners who have managed multiple leadership transitions, such as Deepak Parekh, chairperson, HDFC and Siemens; Harsh Mariwala, founder and chairperson, Marico and Kaya; Shailesh Haribhakti, chairperson, Blue Star, L&T Finance and Future Lifestyle; and Narayan Seshadri, chairperson, Astra Zeneca Pharma and PI Industries. We also engaged with CEOs who managed their own succession effectively, such as Romesh Sobti, former MD and CEO, IndusInd Bank; and Sunil Duggal, former CEO , Dabur. Also, key influencers at rating agencies and proxy advisory firms, such as Ashu Suyash, MD and CEO, Crisil; and Amit Tandon, founder and director, Institutional Investor Advisory Services).
Here follow what could be taken as the ten commandments of CEO succession:
Start early: No time is too soon to begin the tough and often uncomfortable discussions needed on succession. The process to identify and groom future leaders must commence as soon as a new CEO joins.
The chairperson must lead: The board’s chairperson must encourage candid conversations with fellow members and the CEO. S/he must build confidence within the board and ensure the CEO’s commitment to the firm’s succession plans.
Staff NRC appropriately: The nomination and remuneration committee’s role is to identify and nominate potential directors and senior management personnel, and thus must be staffed appropriately. It’s ideal if this panel’s chairperson has deep knowledge of human capital.
Seek help when needed: Succession planning must be a formal, professionally-run process. External consultants must be roped in for assessing internal/external candidates. In addition to objectivity, they bring fresh thinking on requirements like sustainable leadership, diversity and inclusion, etc.
Get clarity on internal versus external succession: Companies aiming to reorganize their business should prefer external candidates, while industry leaders and those that already have a high-performance culture and need minimal changes in strategy could be best served by internal succession.
Test all successors: A company must create organizational structures to test and groom potential leaders in mini ‘profit and loss’ roles. This helps maintain a continuous focus on leadership development.
Play the field: Engagement with senior leaders of key competitors can throw light on desirable characteristics of leaders and viable options when faced with a leadership crisis.
Hold up role models: For firms looking for leaders internally, having successful leaders as role models within the organization inspires employees to remain motivated and pursue demanding leadership roles.
Make it a ‘non-event’: A strong process of institutionalization allows for the actual succession to become smoother by setting the right expectations and offering stakeholders predictability on a leadership change.
Support and empower successors: The identification of potential CEOs is only half the work done. It is essential to support and empower the identified successor as s/he settles into the new role.
Businesses cannot operate and compete effectively without relevant leadership talent. Hence, embedding a succession mindset into the DNA of an organization and making it a process rather than an event seem like no-brainers. Unfortunately, sometimes the self-preservation instinct of incumbents and lack of stewardship by boards/trustees combine to weaken the leadership of companies and put their prosperity at risk.
As Zig Ziglar put it, “You don’t build a business—you build people, and then people build the business".
Sanjay Kapoor and Pankaj Arora are senior members of Russell Reynolds Associates’ board and CEO advisory practice
Never miss a story! Stay connected and informed with Mint. Download our App Now!!