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Lack of Succession Planning

Omkar Goswami


India’s scriptures have much to say about the inevitability of death and re-birth. They also say that a great guru is one who, knowing the ephemeral nature of life, will spend much of his time in identifying and grooming the disciple who is fit to wear his mantle. Despite such rich literature on exit and succession, very little of it reflects in boardroom decisions regarding the choice and grooming of the next CEO.


A major task of any corporate board is to ensure that the senior management bench has both width and depth. In fact, most experts argue that it is the most important job of any board. A critical role of senior management is to create a milieu where successors are systematically chosen and trained for higher responsibilities; where the bench has enough high calibre people to take on the burden of leadership; and where exits are absorbed without the slightest flutter in corporate performance. And the job of a well functioning board is to constantly evaluate and oversee these processes. In my lexicon, choosing the right CEO, COO and CFO are the three most important jobs of any board.


Unfortunately, this task rarely finds primacy in Indian boardroom deliberations. Most board committees examining compensation and HR issues spend huge amounts of time on salary structures, the extent of variable pay, attrition statistics, employee stock options, the key performance indicators of senior management — but little, if any, in asking uncomfortable questions about the bench and succession.


In part, the reason for such reticence is cultural. We Indians consider it culturally inappropriate to talk of succession so long as the CEO is more or less delivering the goods and isn’t a year away from retirement. When, in a couple of boards that I serve, someone asked the CEO a blunt question, “So what happens if a truck mows you down tomorrow as you are taking your morning walk?” it was met with horror. Why should one speak of such terrible events? What’s wrong with the way things are happening? Why do you think we will not have enough successors to take on the tasks?


Another reason is plain lack of concern for the future — where the fiduciaries of a company fail to realise that the fate of any corporate entity depends upon its quality of its future leadership. In most boards, the non-executive directors rarely meet management other than the CEO, COO, CFO and the company secretary. There are hardly any retreats with the members of a company’s management committee. Consequently, many non-executive board members have little or no ability to put a face or a name to performance. Thus, they are in no position to evaluate bench strength.


The third reason has much to do with the persona of the CEO. A strong chief executive prepares meticulously for board meetings; and, having done so, frequently dazzles the non-executive directors with his brilliance and grasp of corporate details. He is also a clever person who knows what makes each non-executive director tick, and how to leverage them to secure assent. Also, many strong CEOs prefer to have relatively weak seconds-in-command. Now factor in the lack of time for most board meetings and the  hands-off attitude of most non-exec directors, and you can see why uncomfortable succession issues rarely come to the fore.


Finally, there are the promoter-manager companies. I have often heard directors say, “Why be concerned about succession? After all, Son No.1 will be the next managing director, Nephew No.1 will be the COO, and Son No.2 will take over finance.” Rare is a board member who can say, “I don’t think Son No.1 is up to the task.” Rarer still the promoter-manager who will seriously listen to, and act upon, such counsel.


In the process, many so-called independent, non-executive directors are failing in their key fiduciary responsibility. A company may do just as well after succession. But that’s often because of serendipity. Not deliberate design.


Published: Business World, May 2006


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