When Ved Prakash Arya, managing director and chief executive officer of Milestone Capital, died recently in a freak accident, the private equity firm faced a double whammy.
Like Milestone, most of India Inc lacks any proper succession planning. As a result, many organisations find themselves in the middle of a crisis during such eventualities.
Take the case of Unitech Wireless, a mid-sized telecom firm. When its board chairman Sanjay Chandra got arrested for the 2G scam case, the company was finding it difficult to assign someone to fill his boots. Finally, the company had appointed Jayesh Desai as the chairman.
Data from executive search firm EWS shows, 70 per cent of mid-size Indian firms do not have a succession plan. In the case of small firms, about 90 per cent do not have a succession plan.
“Most of the listed and big corporates,” says Perry Madan, executive director of EWS Search, “have strong boards which ensure that the companies have their succession plans in place. In the case of large organisations, they usually identify three people for the same executive-level post as a back-up. The problem is with the medium and small firms. They usually don’t have the bandwidth to have back-up leaders.”
Moreover, in small and mid-size companies, attrition levels are very high, he adds. “So, usually, they hire on time and do not want to invest a lot on grooming talent.”
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As for succession planning, it depends much on the firm’s stage of the business, says Rituparna Chakraborty of Team Lease Services. “Usually, this is of least concern for a start-up. It’s after the company has attained a certain level of stability and critical mass that it worries about succession,” he notes. Team Lease is a people supply chain and human resource services company. “Running a company without a top level leader would have a different impact for an Rs 8-crore company, as compared to an Rs 800 crore company,” she adds.
Even family-run businesses pay less attention to succession planning. According to an internal study done by Hay Group, about 75 per cent of the midcap, family-run business have no succession plan in place. “Leadership development is a critical business requirement. When you plan to grow by two-fold, which most companies aspire for nowadays, you need to have good leaders to help you achieve that,” said Mitali Bose, managing consultant & practice leader at Hay Group.
Tata Sons or an Infosys or Aditya Birla Group has good leadership development programmes to identify key leadership. Most large firms create new positions to train their next-level leaders for the job. The country’s largest BPO firm, Genpact, had created the position of Chief Operating Officer for N V Tyagarajan so that he could succeed then CEO Pramod Bhasin efficiently.
Some firms also have emergency succession, or what is known as drop-dead succession. This is a contingency plan to deal with a situation that can force a sudden succession of the CEO. A few companies like Marico have such a plan in place.
When should the company start planning for succession? “Odd as it may sound, succession planning should begin the moment one embarks on forming a business,” says Deepak Kaistha, director, Planman Consulting. “However, very few businesses do that.”
How should the companies identify the leaders? Well, you can ask the same question that Reg Jones reportedly did while looking for his successor at GE. He asked GE’s legendary ex-chief, Jack Welch: “If you and I are killed in an airplane crash, who should be chairman?”