Emergency succession planning

Succession planning is one of a board's most important oversight responsibilities. However, emergency succession events, such as the unexpected departure or sudden death of a company head - as in the case of Karl Slym, Tata Motors' MD who passed away recently - act as a 'stress test' of the succession process. Here we look at how corporations can prepare for this

Wherever there is uncertainty, there is volatility: Janmejaya Sinha

Talking about succession planning is important but the biggest factor to consider is: what is the quality and talent in the top team? Does the company have the talent within from which you can find a successor? It is only after this that one actually undertakes the official process to go ahead and narrow down the field. And third, how explicitly or implicitly should the company do this? The context of this is very important - by when do you need a replacement. If there is a need to fill an upcoming retirement than the process has to be undertaken. For contingencies (death, sudden resignation etc) the first question is most important - what is the quality of your top team?

  Every company must have a nominations committee in the Board that compensates and evaluates the CEO and the executive directors. They also find the replacement to the CEO. In their yearly evaluation of the executive directors there is already an organisational file on each ED.

When the company undertakes a search for a successor, there are pros and cons. There is a certain degree of unhealthy competition that gets created in the top team. One also needs to consider that there are different types of companies in markets - private investor-owned, state-owned, family-owned. A large majority of Indian companies are family-run and the challenge of succession is quite different there.

State-owned enterprises, government departments have very little succession planning. Every PSU bank CMD comes from outside through a selection-cum seniority rotation. Family businesses have very different dynamics and issues of fairness and equity can dirty the waters.

Often investor-owned private companies have more formal processes. When a company ventures outside for hiring people at the top level, it is usually because someone is not available and ready to take over from within. There are some companies like Hindustan Unilever which are suppliers of CEOs in the industry they operate in; there are other companies that are importers of CEOs. Every company should aspire to have the high quality talent to succeed the CEO. Having said that, there are times when this kind of a strategy may be the wrong answer - a company may not have very strong talent at the top, or where the market dynamics are changing rapidly, or even in the case of family-run businesses where the patriarchal figure may have children who are not ready to succeed him.

Whether a company hires its next CEO externally or internally depends on what is happening in the industry it operates in or what is occurring in the company. Sometimes, you may have people who are okay to take over at a certain point in the past, but who don't have the ability to take over for the next 10 years. But broadly it is important to identify the type of company you want to be an exporter or importer of CEOs.

Investors hate uncertainty, and if a company leader dies, of course they will worry and it will lead to volatility. This is true not just for Tata Motors, but look at what happened when Apple's Steve Jobs died. Investor sentiment was anxious for some time. Succession planning for emergency situations cannot be simplistic, it has to be contextual. Having succession planning in place also is no guarantee of success for the company. But it is always the quality of the top management team which makes succession less of a risk for a company.

Janmejaya Sinha
Chairman, The Boston Consulting Group, Asia Pacific

Succession planning is not just an HR process: Sumit Mitra

Succession planning for emergencies is a critical business process not just a human resources process. The more evolved Indian companies are doing it reasonably well. But a majority of companies think it is a part of HR. Some of them are doing it well - but only on paper. The actual on-ground implementation leaves a lot to be desired. Say a company identifies 'X' to be the emergency successor. Mr. X needs to be informed about it. He should also be a person who is involved in business decisions and is well equipped with how to manage tricky situations. All this depends on the knowledge management system that the company has put in place. It begins with identifying the emergency successor candidate. In my view, one such candidate is enough, unlike a planned succession where multiple candidates should be identified. Also, a planned succession may involve hiring a person from outside the organisation. That is perfectly acceptable. But for emergency succession planning, typically, a candidate should be internal.

Apart from stakeholders and the investor community, the sudden demise or exit of a top company leader affects customers and employees too. So the repercussions are both external and internal but a lot of companies don't see the internal repercussions.

The key thing in the case of emergency succession planning is communication. The identified candidate needs to be told that in case there is an emergency, he/she may need to take over. At Godrej, we identify emergency successors for all critical roles, and not just that of a CEO or a MD. The key is to ensure that it is a quick process, and the exercise is undertaken regularly. I can cite an example here. Our sales head in Indonesia had met with an accident rendering him bed-ridden for almost a year. Because we had identified someone who could hold the fort in the meantime, we tided over the issue seamlessly.

While it is difficult to do so in the case of the head of a company, a supervisor can also step in, in the interim when we speak of people lower in the hierarchy. The more senior you are, the more critical it is to have an emergency successor.

While I believe the human resources department should facilitate the process, the decision should be clearly made at the board level. It is entirely their initiative.

Sumit Mitra
Head, Group Human Resources & Corporate Services, Godrej Industries and Associate Companies

The organisation is not a machine: Nigel Nicholson

A few years ago, on a rainy night at Christmas time, the CEO of an investment bank I was working with was tragically killed in car crash along with his daughter. His successor, so unexpectedly catapulted into the leadership, was a highly technical guy.

The bank did not collapse, but this man had to learn fast how to lead the vast and complex organisation. This he did. It was a challenging process but he became his own man, aided by a supportive Board and chairman.

I watched his transformation into a supremely confident and competent leader. I tell his story in my new book, 'The 'I' of Leaderships: Strategies for seeing, being and doing (Jossey-Bass, 2013)', and how I saw him tell an astonished assembly of his most senior executives "leadership is a lousy way to run a company". What he meant by this extraordinary statement is that only the very smallest businesses can afford to depend on their leaders to get things done. Great organisations need great processes, great people and great cultures.

In the best companies, succession is not a mechanical formula for filling slots but an organic process for growing the people and the business at the same time. The best way to manage succession is a three-stream approach. At one end of the triangle - for the three streams are interconnected - are the positions that are essential to the company.

These need to be understood and measured well enough to know what demands they will make on their incumbents. They need to be continually reviewed and challenged, for as the world changes, so does the tasks a business has to master to succeed. This, in my book is what I call the importance of 'seeing'. It is the vision of the future of the business that leaders need to capture.

The 'being' part is the second stream: the human capital to fill those positions. A company needs to cultivate its people. To prepare a great meal you don't always need the very best ingredients. That helps, but you need great cooking that can turn ordinary wholesome materials into a brilliant feast. The third stream comprises the processes - the essence of the cooking. Organisations need methods that really ensure they know the capabilities of their people, through bosses who know the right questions to ask and how to ask them; bosses who can provide the right inspiration to help their people path-find through the business. One simple method is to build succession planning and performance review not around the next position but the next job but one. Then you can fast track people in a future-oriented business.

But most important of all is the culture that binds the three streams together. Don't regard the organisation as a machine but as a community, and succession will withstand shocks. Thus, from the recent sad news of the death of Tata Motors MD Karl Slym in Bangkok comes a message and a reassurance. Thanks to the strength of the Tata culture, secured by its leaders, the business will not collapse so long as it manages the three streams of succession with intelligence, foresight, excellent processes, and above all positive value.

Nigel Nicholson
Professor of Organisational Behaviour, London Business School