Shyamal Majumdar: Do you have a successor?

HUMAN FACTOR

Instead of succession planning, most Indian firms still take short-cuts like increasing the retirement age of directors.

On his 60th birthday last Sunday, N R Narayana Murthy stepped down as the executive chairman of Infosys, as per his company's retirement policy. Barely three days later, engineering giant Larsen & Toubro (L&T) decided to move a resolution seeking to increase the retirement age of its chief executive from 65 years to 70. For other directors, the age limit will be 67 from the current 65. A news report quotes Chairman and Managing Director A M Naik (who turns 65 in June) saying that the move has been forced by acute talent shortage at the senior management level.

Naik is not alone. Several Indian conglomerates have taken similar decisions to ensure that the new team gets enough breathing space before taking over. Take Tata Sons, for example. In June last year, the Tatas increased the retirement age for non-executive directors to 75 years, paving the way for Ratan Tata to head the conglomerate for another seven years. The decision reversed the revised guidelines adopted by the group in 2000 that said all non-executive directors must retire at the age of 70. The group said it now wants "to benefit from the rich experience of these directors who add great value to the strategy and direction of Tata group companies."

Both L&T and the Tata Group are known for adhering to the highest corporate governance standards, and they obviously had their own internal reasons for taking such a decision. But the head of a global consultancy organisation says good companies graduate to great companies by following the basic leadership model: organisations must move towards the CEO being dispensable.

Companies like Infosys or even the Murugappa group (where M V Subbiah resigned from directorship almost immediately after attaining the age of retirement) are still exceptions. For a majority in corporate India, inadequate succession planning has been a lingering problem for years. However, history has shown that the key reason behind the success of great companies has been their strong focus on succession and leadership planning. And this process involves more than merely finding a deputy.

In fact, a global Great Leadership survey done by HR consultancy, Hewitt showed that top companies hold people accountable for leadership development and have linked leadership competencies to determine base pay, annual incentives and long-term incentives. And 95 percent of these firms use leadership compensation with internal selection decisions.

There are examples galore. In what could be called a textbook case on solid succession planning, McDonald's Corp was able to name a battle-tested successor within just an hour of the sudden death of its 60-year-old chairman, Jim Cantalupo. The decision was possible only due to years of succession planning.

GE's succession planning could also be a textbook model. Senior managers are supposed to spend most of their resources developing the best and the brightest, and each year the company identifies 10,000 of its over 3 lakh employees as high-potential individuals "" people the organisation refers to, as its 'A' Players "" and sends them for intensive training at its headquarters. The succession planning is not for CEOs only, but for every management level.

If India's private sector companies have miles to go before achieving such a level of succession planning, the practices in Indian PSUs border on the ridiculous. Former SBI Chairman P G Kakodkar's recently released book, "My 40 years with SBI" provides details of how he joined as chairman of India's largest bank.

On a Saturday "" exactly a month after the earlier chairman retired "" Kakodkar returned from his office and was just about to take a nap when he got a call from the ministry saying he has been appointed the chairman and he should take over immediately. When he said it was already 4pm and the bank must be closed as Saturdays were half-days, he was told that the concerned people had just been informed and they were all waiting at the bank for him.

Cut to the end of his tenure in March 1997. Every time he went to Delhi, Kakodkar reminded the ministry about the appointment of the next chairman. But nothing was intimated to him even on March 30, his penultimate day in office. "On March 31, I was told the selection was done, but it was awaiting the signature of the Prime Minister. I said that it was my last day, I was leaving, and I must make an announcement about my successor, so could I say that the person next in line, M S Verma, was my successor? I was told I could do that in the bank, but I should not speak to the Press."

This silly state of affairs is perhaps inevitable in a PSU bank given the way the government works. But the CEOs of India's private sector companies would do well to ask themselves the following questions: "Can I walk away from the company and have it still function and survive?" "Have I trained people sufficiently?'" If the answers are "yes", the company is indeed in safe hands.