Lesson from Mistry, Sikka exits: India Inc fumbles in succession

Experts blame hurried processes with lack of clarity about the kind of leader one wants to have

The Tata-Mistry boardroom battle and NR Narayana Murthy’s prolonged tiff with the Infosys board have had one common outcome. An insider has been named at the helm of affairs, albeit on an interim basis.  N Chandrasekaran, one of the youngest CEOs in the Tata group, was selected to become the next chairman of Tata Sons in January this year. At Infosys, chief operating officer UB Pravin Rao, who has been with the group since 1986, was appointed the interim CEO and managing director, replacing outgoing incumbent Vishal Sikka. Perhaps herein lies the answer to dismal succession planning track record of corporate India, especially when promoter-driven companies transition to professional-led ones.

 
There is a sense of déjà vu for India Inc in how the Murthy-Sikka saga unfolded over the last few months. Back in 2005, Wipro, another marquee IT company, went through a similar phase when high-profile vice-chairman and CEO Vivek Paul quit after a six-year stint. Paul had publicly spoken about differences of opinion with the promoter group led by Azim Premji, though he did not elaborate on them. In the Tata-Mistry saga, the equation between Ratan Tata and Cyrus Mistry, whose family has a substantial stake in the Tata group, soured over a period of time.
 
“Succession management (rather than planning) has always been a challenge for companies in India. We do not start planning in advance because most often the person to step down is the same person who should start the process,” says Kavil Ramachandran, professor and executive director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business. Very often it becomes a hurried process with lack of clarity about the kind of leader one wants to have as the successor, he adds.

 

Shriram Subramanian, founder and managing director, InGovern Research Services, too, agrees that corporate India does not devote enough time to succession planning. “Succession, both planned and unplanned, is not given much attention by the boards of most Indian companies. Only when the executive goes, does the board think of conducting a search for the role,” he says.
 
Experts say most promoters are driven by their passion and possessiveness about their business. “They tend to believe that nobody else has their level of passion and commitment to their organisation. They are also worried about the downside risks of anything going wrong,” says Ramachandran.

 
As a result, they find it difficult to completely trust a non-family professional, especially those with whom they are not very familiar with.
 
Subramanian is of the view that as Indian companies undergo the transition from promoter-led to widely held professional-led companies, this issue of “letting go” will take more prominence. “We will see much more strife between promoters and professional in the years to come,” he says.
 
The way forward, feels Arun Duggal, an experienced independent director and board chairman, is to have an internal candidate succeed an outgoing CEO or chairman. “Five years in advance of the top-level succession requirement, the board should identify a few high-potential internal candidates and develop them. If internal choices are limited, the board should induct one or two external executives and let them work in senior level positions in the company for five years so that they also become internal candidates. This will enable the board to choose from a broader pool at the time of succession,” says Duggal.

 
Many corporate governance experts feel that most boards discount the role of the nomination and remuneration committee (NRC)  in planning for succession and its management after a new person takes charge. "It is not well understood that the NRC has a primary role to plan for a smooth and seamless succession," says Subramanian.
 
Boards also have to factor in that promoters may not always agree with actions taken by a professional board. They need to anticipate the conflict situation and prepare to resolve the differences at the earliest, say experts.
 
“A key lesson for professionals in the boardroom is that they need to address the interests of all stakeholders, including the promoter group,” says an independent director in a financial company.

 
Experts point out that dealing with ego issues and loss of trust is something CEOs have had to learn even in global companies. A recent high-profile example was that of Nikesh Arora’s abrupt exit as president of Softbank, the Japanese technology and telecom group, in June 2016, following differences of opinion with group promoter Masayoshi Son. Arora, poached from Google, was lined up to succeed Son.