Succession planning


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study oriented project in succession planning in corporate and issues dealing with manpower planning

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  • Thank You Puja for your project on ''Succession Planning''. it was rally helpful for me. thank you so much.
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Succession planning

  1. 1. PROJECT ON Succession Planning In Senior Management SUBMITTED BY:- POOJA SONI MBA 1ST Year( PG II)
  2. 2. CERTIFICATE This is to certify that the project work “Succession Planning In Senior Management” is a bona fide record of work done by Pooja Soni under guidance of Ms. Avjeet Kaur in partial fulfillment of the requirements for the project. Ms. Avjeet Kaur (Project Coordinator) K. R. Mangalam
  3. 3. ACKNOWLEDGEMENTS I take immense pleasure in thanking Ms. Avjeet Kaur our beloved Project Coordinator for having permitted me to carry out this project work. Pooja Soni (MBA-2nd sem)
  4. 4. INDEX 1. Executive Summary………………………………………………1 2. Introduction……………………………………………………….2-6 a) Introduction of human resource management…………………3 b) Introdution of succession planning…………………………….4-6 3. Importance of Succession planning………………………………….7-8 4. Succession Planning Process………………………………………..9-12 5. Leadership competencies for Succession planning…………………12-13 6. Decisiveness…………………………………………………………13 7. Discretion……………………………………………………………14 8. Organization commitement…………………………………………14-16 9. Service Orientation…………………………………………………..16 10.Advantages of Succession planning………………………………….17 11.Mistakes to be avoided in succession planning……………………..18-20 12.Succession planning: India Prespective……………………………..21-32 13.Study on Muruguppa group succession planning……………………33-42 14.Study on infosys succession planning………………………………..43-49 15.Conclusion……………………………………………………………50-51 16.Bibliography…………………………………………………………..52
  5. 5. 1 EXECUTIVE SUMMARY The project explains the concept of succession planning and how it is important for the successful functioning of a business. It proceeds to highlight the business functioning trend in India which mainly is about family businesses. But seeing the recent trend of few of the big Indian businesses opting for proper professionally planned succession planning, it isn‘t long when India will pick up this practice in every aspect. Many recent examples of succession planning in the Indian businesses have been stated such as axis bank, Tatas, Infosys, ONGC, Eicher etc. With main focus on Murugappa group and Infosys succession planning. Murugappa group of companies is a great example of family business training their heirs in a professional manner to lead the business where as Infosys shows how a proper committee should be formed for looking out for a successor well in advance.
  7. 7. 3 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT Human resources are the most valuable and unique assets of an organization. The successful management of an organization's human resources is an exciting, dynamic and challenging task, especially at a time when the world has become a global village and economies are in a state of flux. The scarcity of talented resources and the growing expectations of the modern day worker have further increased the complexity of the human resource function. Even though specific human resource functions/activities are the responsibility of the human resource department, the actual management of human resources is the responsibility of all the managers in an organization. It is therefore necessary for all managers to understand and give due importance to the different human resource policies and activities in the organization. Human Resource Management outlines the importance of HRM and its different functions in an organization. It examines the various HR processes that are concerned with attracting, managing, motivating and developing employees for the benefit of the organization.
  8. 8. 4 INTRODUCTION TO SUCCESSION PLANNING Succession Planning “Thinking About Tomorrow Today” In organizational development, succession planning is the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players — such as the chief executive officer (CEO) — within an organization as their terms expire. From the risk management aspect, provisions are made in case no suitable internal candidates are available to replace the loss of any key person. It is usual for an organization to insure the key person so that funds are available if she or he dies and these funds can be used by the business to cope with the problems before a suitable replacement is found or developed. Succession Planning involves having senior executives periodically review their top executives and those in the next-lower level to determine several backups for each senior position. This is important because it often takes years of grooming to develop effective senior managers. There is a critical shortage in companies of middle and top leaders for the next five years. Organizations will need to create pools of candidates with high leadership potential. Succession planning involves a careful balancing of the concerns and needs of a firm’s founding and senior managers, on the one hand, and its more junior investment professionals and managers, on the other hand. The founding and senior managers want to be properly rewarded for their efforts in building and growing the firm, and this may include rights to continue to participate in fund economics after these managers have begun to wind down their active involvement. These desires must be balanced against the need to provide increased economic benefits and firm governance rights to junior managers and investment professionals in order to develop the next generation of managers for the firm. Definition: Succession planning can be broadly defined as identifying future potential leaders to fill key positions. Wendy Hirsh1 defines succession planning as 'a process by which one or more successors are identified for key posts (or groups of similar key posts), and career moves
  9. 9. 5 and/or development activities are planned for these successors. Successors may be fairly ready to do the job (short-term successors) or seen as having longer-term potential (long- term successors).' According to Hirsh, succession planning sits inside a very much wider set of resourcing and development processes called 'succession management', encompassing management resourcing strategy, aggregate analysis of demand/supply (human resource planning and auditing), skills analysis, the job filling process, and management development (including graduate and high-flyer programs). Enforcing the succession plan: A careful and considered plan of action ensures the least possible disruption to the person’s responsibilities and therefore the organization’s effectiveness. Examples include such a person who is: • suddenly and unexpectedly unable or unwilling to continue their role within the organization; • accepting an approach from another organization or external opportunity which will terminate or lessen their value to the current organization; • indicating the conclusion of a contract or time-limited project; or • moving to another position and different set of responsibilities within the organization. Coverage Organizations differ in size, scope and type, so it is difficult to point to any single model of succession planning. However, it is most common for succession planning to cover only the most senior jobs in the organization, plus short-term and longer-term successors for these posts. The latter groups are in effect on a fast-track, and are developed through job moves within various parts of the business. This focus on the most senior posts - perhaps the top two or three levels of management - means that even in large organizations, only a few hundred people at any given time will be subject to the succession planning process. It also makes the process more manageable, because it is much easier to concentrate on a few hundred individuals rather than (say) several thousand. That said, however, many large organizations attempt to operate devolved models in divisions, sites or countries where the same or similar processes are applied to a wider population.
  10. 10. 6 The role of HR: Succession planning needs to be owned by line managers, and should be actively led by the chief executive who has a key role in ensuring that it is given the importance it deserves by other senior managers; ensuring that there is a healthy pipeline of potential leaders is about nothing less than the future of the organization. But it is not realistic for CEOs and those around them to have sole responsibility for this; they have neither the time nor the expertise. The HR function therefore has a critical role in supporting and facilitating the process, not least in compiling all the necessary information on potential candidates. Any career move at senior level is a process of multiple dialogues, in which a senior representative from HR will collect views from senior line managers in an iterative fashion, testing, challenging and amending them as the dialogue goes on, making sure that all possibilities are covered, and maybe putting proposals for decision to a succession development committee. HR departments are of course also heavily involved in giving career advice and information to individuals, and assessing and advising on their development needs. The HR function is also centrally concerned in the design and management of assessment processes and information support, including the development and maintenance of computerized databases.
  11. 11. 7 IMPORTANCE OF SUCCESSION PLANNING Succession planning is an essential part of doing business, no matter how certain your future appears. It's easy to put off planning when everything seems to be going so well, right? Wrong. Now is the time to begin succession planning. Here are some reasons why it can't — and shouldn't — wait:  You can't plan for disaster. No matter how good you and your staff are at revenue projections or economic predictions, no one can truly plan for disaster. Whether it's an unforeseen illness, a natural disaster, or a CEO's decision to suddenly retire, the reasons for having a succession plan in place before it is needed are endless. So while you can't plan for disaster, you can put into place a series of contingencies that will help your company stay afloat if, in fact, catastrophe occurs.  Succession planning benefits the business now. Just as business practices have evolved over the years, succession planning has also grown and changed. It's no longer a plan that can only be accessed when leadership is going to change; a succession plan can be used before its "real" intent is necessary. It can be used to build strong leadership, help a business survive the daily changes in the marketplace, and force executives to review and examine the company's current goals.  Succession planning gives your colleagues a voice. If you're running a family business, the process of succession planning will give family members an opportunity to express their needs and concerns. Giving them that voice will also help create a sense of responsibility throughout the organization, which is critical for successful succession planning. Resist the temptation to solely carry the entire weight of creating and then sustaining a plan.  A succession plan can help sustain income and support expenses. Talking about money should be a priority. People generally don't want to work for free and things don't pay for themselves. A succession plan can provide answers as to what you — and your staff — will need for future income, as well as what kinds of expenses you may incur once you step out of the main leadership role. Ask yourself questions about your annual income and other benefits including health and dental insurance for you and your dependents, life insurance premiums paid for by the
  12. 12. 8 company, your car, professional memberships, and other business-related expenses.  Succession planning gives you a big picture. Some companies mistakenly focus solely on replacing high-level executives. A good succession plan can go further, however, and force you to examine all levels of employees. The people who do the day-to-day work are the ones keeping the business going. Neglecting to add them to the succession planning mix could have dire consequences. As you develop your plan, incorporate all layers of management and their direct reports.  Succession planning strengthens departmental relationships. When regular communication occurs between departments you are more likely to experience synergy, which breeds a culture of strength. Make sure that you link your succession planning activities with human resources. After all, HR is about people. By including HR in succession planning, you can incorporate elements like the employee- evaluation process, which can help when deciding whether to fill vacancies with internal candidates.  Succession planning keeps the mood buoyant. Change — a major component of a succession plan — is exciting and can bring a company unforeseen rewards. Still, change can be a source of tremendous stress, especially when people's livelihoods are at stake. As you put your succession plan together, consider its positive effects on the business. Planning for the future is exciting and, if done correctly, can inspire your workers to stay involved and maintain company loyalty. It's true that a plan is often put into place to avert catastrophe, but it's also a company's way of embracing the future — a business strategy that is essential for survival.
  13. 13. 9 SUCCESSION PLANNING PROCESS Succession planning recognizes that some jobs are the lifeblood of the organization and too critical to be left vacant or filled by any but the best qualified persons. Effectively done, succession planning is critical to mission success and creates an effective process for recognizing, developing, and retaining top leadership talent. Success factors There are several factors typically found in successful succession planning initiatives. For example: Senior leaders are personally involved. Senior leaders hold themselves accountable for growing leaders. Employees are committed to their own self-development. Success is based on a business case for long-term needs. Succession is linked to strategic planning and investment in the future. Workforce data and analysis inform the process. Leadership competencies are identified and used for selection and development. A pool of talent is identified and developed early for long-term needs. Development is based on challenging and varied job-based experiences. Senior leaders form a partnership with human resources. Succession planning addresses challenges such as diversity, recruitment, and retention. Effective succession planning The following information includes: • A graphic representation of a six-step process for effective succession planning • A table with descriptions of each step in this process. Step 1: Link Strategic and Workforce Planning Decisions This step involves: Identifying the long-term vision and direction Analyzing future requirements for products and services
  14. 14. 10 Using data already collected Connecting succession planning to the values of the organization Connecting succession planning to the needs and interests of senior leaders. Step 2: Analyze Gaps This step involves: Identifying core competencies and technical competency requirements Determining current supply and anticipated demand Determining talents needed for the long term Identifying “real” continuity issues Developing a business plan based on long-term talent needs, not on position replacement.
  15. 15. 11 Step 3: Identify Talent Pools This step involves: Using pools of candidates vs. development of positions Identifying talent with critical competencies from multiple levels—early in careers and often Assessing competency and skill levels of current workforce, using assessment instrument(s) Using 360° feedback for development purposes Analyzing external sources of talent. Step 4: Develop Succession Strategies This step involves: • Identifying recruitment strategies: - Recruitment and relocation bonuses - Special programs • Identifying retention strategies: - Retention bonuses - Quality of work life programs • Identifying development/learning strategies: - Planned job assignments - Formal development - Coaching and mentoring - Assessment and feedback - Action learning projects - Communities of practice - Shadowing. Step 5: Implement Succession Strategies This step involves: Implementing recruitment strategies (e.g., recruitment and relocation bonuses) Implementing retention strategies (e.g., retention bonuses, quality of work life programs) Implementing development/learning strategies (e.g., planned job assignments, formal development, Communities of Practice) Communication planning
  16. 16. 12 Determining and applying measures of success Linking succession planning to HR processes – Performance management – Compensation – Recognition – Recruitment and retention – Workforce planning Implementing strategies for maintaining senior level commitment. Step 6: Monitor and Evaluate This step involves: Tracking selections from talent pools Listening to leader feedback on success of internal talent and internal hires Analyzing satisfaction surveys from customers, employees, and stakeholders Assessing response to changing requirements and needs. LEADERSHIP COMPETENCIES FOR SUCCESSION PLANNING COMMUNICATION [VERBAL & WRITTEN] Communication with others in an open, timely and sensitive manner effectively Typical Behaviors:  Demonstrates effective communication: listens generously, seeks to understand, provides feedback and communicates in a positive manner, and ensures others understand messages  Establishes trust and credibility in working relationships through open, honest, consistent and frequent dialogue.  Organizes, interprets and disseminates all information to internal and external audiences including complex work and advice clearly, concisely and plainly.  Consults with everyone affected, listens to all views and considers them fairly.
  17. 17. 13 DECISIVENESS Is proactive and demonstrates the ability to make informed, balanced decisions in a timely manner and stand behind them. Typical Behaviors:  Understands fully the effect and consequences of each decision and stands accountable for decisions.  Deals with performance issues in a timely, fair and constructive manner  Demonstrates commitment to performance management in actions and words  Takes decisive action/is proactive in moving initiatives forward or solving problems. DISCRETION Demonstrates good judgment Typical Behaviors:  Shows consistency balanced with fairness  Ensures decisions are consistent with the directional focus of the University  Uses conflict resolution skills effectively  Considers all sides of an issue and balances all interests, including future impacts LEADERSHIP OF THE DEPARTMENT/UNIT Sets and communicates direction to further the Strategic University Plan, supports the department or unit and provides appropriate opportunities for individual development. Typical Behaviors:  Establishes scope for decisions by individuals and balances this with need to make independent decisions.  Administers and supports staff development in a proactive, equitable and consistent manner.  Provides recognition to support teamwork and individual contribution  Communicates on behalf of the department/unit when required
  18. 18. 14  Ensures the development and application of performance measures and targets to assess results  Provides opportunities and promotes an environment that encourages continuous development  Supports [coaches/mentors] others to take responsibility for achieving the highest possible levels of performance  Builds effective communication links with other departments and effectively facilitates resolution of issues/needs, which cross-departmental lines.  Pushes decision making down to the appropriate level and provides necessary guidance and support to other decision makers. ORGANIZATIONAL COMMITMENT Demonstrates identification with, support and commitment to the organization Typical behaviors:  Puts aside personal preconceptions and self-interests and concentrates on the common goal and the betterment of the University.  Demonstrates pride in working for Athabasca University  Supports the University [e.g. Its plans, policies, programs] in a positive constructive manner.  Promotes and acts with integrity in dealing with students and employees. TEAM PLAYER Works in all types of committees and groups, supports the committee or group and contributes to its effectiveness. Typical behaviors:  Respects and anticipates the needs, feelings, and opinions of others  Encourages discussion of issues and concerns  Creates a sense of community; facilitates communication within the group  Recognizes the value of teamwork
  19. 19. 15 VISION Views current events and future possibilities from multiple perspectives, develops future oriented scenarios and communicates these effectively to others in the organization. Typical behaviors:  Suggests and embraces new methods and ideas that enhance the achievement of Athabasca University’s vision.  Clearly understands and communicates the AU vision as it applies to the department or unit.  Keeps in mind the organization context and direction, looks beyond the immediate environment for opportunities for improvements and enhancements.  Continually scans current and future environment and identifies themes and emerging issues. ANALYTICAL/SYSTEMIC THINKING Takes a logical approach to planning and problem solving and establishes priorities. Analyzing issues and problems systematically and thoroughly and focusing on critical details while maintaining a broad perspective. Typical behaviors:  Grasps complexities and critical details quickly and accurately  Develops well-defined, step-by-step approaches to analyze and solve complex problems.  Identifies relevant alternative and evaluates the potential consequences of each before taking action  Makes an effort to solve common problems by drawing from previous experience or similar circumstances.  Assembles and integrates information from a variety of sources to present what is relevant to a given issue or situation.
  20. 20. 16 ACCURACY AND THOROUGHNESS Makes sure that work is done correctly, completely and with high quality in a timely manner. Typical behaviors:  Verifies assumptions and information by checking with credible sources, experts or first hand experience.  Carefully reviews own work for accuracy and completeness  Carefully reviews other people’s work for accuracy and thoroughness.  Identifies and addresses all details that are needed to ensure smooth functioning  Follows up to make sure that tasks have been completed and others have met commitments. SERVICE ORIENTATION Anticipates and responds to the needs of internal and external customers. Develops and maintains strong relationships with internal and external customers. Typical behaviors:  Responds promptly to customer needs or requests of others  Expends significant time and effort to meet important commitments made to internal or external customers  Offers unsolicited help to those in need.  Takes advantage of opportunities to present examples and scenarios illustrating importance of client service  Presents examples and/or suggestions on how to improve services to customers  Presents arguments and/or suggestions that convince clients that their interests are being well served.
  21. 21. 17 CONFIDENCE Demonstrates a genuine belief in the likelihood of personal success and communicates a positive self-esteem to others. Typical behaviors  Creates a feeling of confidence in the department or units ability to provide timely and quality service.  Shows strong assertiveness skills when dealing with customers and peers.  Demonstrates a genuine belief in the likelihood of personal success. PERSERVERANCE Continues steadfastly toward results/objectives until the desired result is achieved or is no longer reasonably attainable. Typical behaviors:  Leads by example, ensuring actions are implemented and goals are achieved  Focuses on outcome, allows flexibility on how the outcome is achieved.
  22. 22. 18 ADVANTAGES OF SUCCESSION PLANNING Succession planning is an essential part of doing business, no matter how certain your future appears. It's not easy to put off planning when everything seems to be going so well. Here are some reasons why it can't — and shouldn't — wait:  You can't plan for disaster.  Succession planning benefits the business now.  Succession planning gives your colleagues a voice.  A succession plan can help sustain income and support expenses.  Succession planning gives you a big picture.  Succession planning strengthens departmental relationships.  Succession planning keeps the mood buoyant. Besides the obvious benefit of not leaving your company in the lurch of proper Succession Planning will help your company in other ways, too. Here’s a rundown of the benefits. Remember, not all benefits will apply, depending on your specific situation. Succession Planning can:  Reduce taxes, in some situations with family-owned businesses. For example, if a company gets new ownership after an owner's death, lack of planning can result in steep estate taxes. Other tax issues, such as transferring ownership to a child, might apply.  Ensure continuity. Customers, clients, vendors, and employees all want and need to know that a business will continue to function as they know it, even when there’s a leadership change. Choosing and grooming a successor who fits your mold will help this happen.  Provide training plan for possible successors. If you identify who you might choose as a successor early, you’ll know that that person needs more training and one-on- one time with your current leader to gain as much knowledge for the position while it’s still possible.  Help you plan for the future direction of the company.
  23. 23. 19 MISTAKES TO BE AVOIDED IN SUCCESSION PLANNING Many mistakes are commonly made in establishing succession planning programs. They are worth enumerating. It is also worthwhile to describe some ways to avoid these common mistakes.  Assuming that Success at One Level Will Guarantee Success at Higher Levels. An individual’s success at one level is no guarantee of success at higher levels of responsibility. The reason is simple: the competencies required for success at each level are different. Hence, it is important to separate thinking about how well someone does his or her current job and how well he or she might do a job at a higher responsibility level.  Assuming that Bosses Are Always the Best Judges of Who Is Promotable. A second mistake is to assume that, for purposes of succession planning, bosses are always the best judges of who is promotable. That is not always true. Bosses are self-interested players in the succession game. They have a stake in what happens to people. Indeed, some bosses do not want to see their best people promoted for fear of an inability to replace them. Some bosses grade people by their own standards - with the result that some individuals who are quite unlike the boss are not considered for promotion. While the support of a boss is useful in developing individuals, more objective assessments, such as multi-rater assessment are excellent in aiding the manager’s assessment.  Assuming that Promotions Are Rewards. Some employees have an entitlement mentality in which they feel that long service with an organization should always be rewarded with promotions. But business decisions must be based on who will do the best job, not who is “owed” a promotion because of greatest seniority. Workers must continually be reminded that doing jobs at each level requires different competencies, and the best way for them to compete is to prepare for future challenges rather than expect promotions for past performance at a different level of responsibility.  Trying to Do Too Much Too Fast. The strong results-orientation of many organizations today emphasizes quick results. Senior leaders expect to see all the components of a comprehensive succession system in place immediately. That is not always realistic. It is advisable to think of implementing systematic succession in
  24. 24. 20 a phased way - either from the top down or else starting in specific divisions or locations with greatest need.  Giving No Thought to What to Call It. A fifth mistake is to devote no time to considering what to call the succession program. As any marketer knows, product names do matter. It is not necessary to call a spade a spade. Many organizations choose alternative names–such as “leadership development program,” “human capital management program,” or even “talent program.”  Assuming that Everyone Wants a Promotion. A sixth mistake is to assume that everyone wants a promotion. That is not always true today. In many downsized organizations, workers have seen what pressures their bosses have to deal with. Some say “leave me out of that.” Hence, it is unwise to assume that everyone wants a promotion–or even to assume that money will convince everyone. It will not. Check first. Find out what people want to do. For that reason, many organizations launch both a top-down succession planning program and a bottom-up career planning program to galvanize development  Lack of understanding how it works and how it benefits the organization.  Lack of a formal written plan for the person or position(s).  Lack of availability of human and financial resources; lack of budgetary commitment.  Superficial approach; lack of real understanding of the procedures, processes and requirements of each area the individual is exposed to during the process.  The requirements of the Managers/Executives are not fulfilled in providing dedicated instructions, guidance regarding skills, knowledge and abilities needed for the candidates to be successful.  Failure to identify key employees who may have concerns with your succession plan.  Failure to plan for disability.  A rigid, inflexible plan NOT tailored to the needs and abilities of the personnel involved.  Too long a wait for real movement/promotion, disillusionment, may result in some people leaving due to apparent inertia in the system.  Selection of unqualified or unmotivated people for inclusion in the Succession Plan. Quality of the individuals selected is paramount to the success of the process.  Complex program, requiring considerable paper work, follow-up, reporting
  25. 25. 21 SUCCESSION PLANNING: THE INDIAN PERSPECTIVE Companies in India have approached succession planning in different ways and experience has shown that few have built strategies that encompass the three critical facets of the exercise: board succession, CEO succession and building a leadership pipeline. Three categories of company exist in India: first, the widely held and professionally managed companies; second, the family-promoted/family-controlled companies, but with significant holding by minority shareholders; third, government companies where there is a significant minority holding. Owing to the differences in structure and functioning of these companies, succession planning strategies could differ, though the issues tend to remain the same. The roundtable discussion detailed here addressed each of the above facets; it contains numerous insights as well as questions regarding the state of succession planning in India. Succession planning is a challenge across the globe – but particularly so in India. Indian leaders, while highly adaptable and strongly entrepreneurial, generally perform poorly in terms of teamwork and succession planning. In fact, the KFI/Economist survey ranked Indian leaders among the lowest performers on this count. This is evident in the fact that today, fewer than 20% of Indian businesses work to develop future leadership, or to engage actively in succession planning. Strong Indian leadership has been emerging across multinational companies (both Indian and foreign), but these competitive traits, and the drive to succeed in global markets, have not yet been focused on developing people. India now requires its leaders to work towards nurturing its pool of future managers, instead of merely driving their companies. According to the ABB (Asocham Business Barometer)report of 2007 Corporate India not ready with succession plan, says Assocham Business Barometer India Inc. has a long way to go for putting in place its succession plan at top level, which has an important bearing on the market valuations of the companies, confidence of the business associates and morale of their employees, an Assocham Business Barometer Survey has revealed.
  26. 26. 22 The ABB Survey of 275 leading management consultants, corporate, academicians and professionals on ‘Missing Link in Succession Plan’ found that a select few companies in India formulate and effectively implement succession plan for the key positions in their organization structure. This was confirmed by 75 per cent of the ABB respondents. They rated Indian companies four on a scale of 10 in terms of long term planning and grooming of the successor to the head of a firm. Ninety two per cent of those surveyed said a considerable weightage is being given to the companies, which have a hierarchy in place top-down. The analysts rate succession planning as a crucial component of an impeccable management structure. The leadership acts as a catalyst in building goodwill and brand valuation of an organization. Such factors play deciding role in determining the worth of a company in the bourses. The share market has rewarded the corporate entities having properly structured succession plan with higher valuations. Eighty-nine of the management consultants and academicians said a well-placed succession plan is an important component of corporate governance. Non-existence of a second in command of a business entity could harm the interests of minority and widely dispersed shareholders as an element of ‘uncertainty’ prevails. “Leadership performs an instrumental role in laying down the long-term foundation and imparts strength to the organization. As a good corporate governance practice the board of directors and management should set up a clearly defined succession policy defining the number two and three positions in an enterprise, even among the family-owned and run businesses”, Mr. Venugopal Dhoot, President, ASSOCHAM said. Corporate governance calls for setting of guidelines to be followed by the Board of Directors and the management of the company in order to safeguard the interest of stakeholders, which include shareholders, investors, employees, consumers, suppliers and the society. The long-term competitiveness and efficiency level of a firm could get adversely affected due to lack of a succession plan, according to 83 per cent of the experts surveyed by ABB.
  27. 27. 23 The performance of a company gets hampered without a well-defined hierarchy and affects the team spirit of the staff. As many as 67 per cent of the respondents expressed their concern that employees' morale gets affected in the absence of uncertain management chart. They feel that a question mark is put after a stage in the growth path of even the best performing official due to the absence of clearly laid succession policies. Management line of command becomes highly concentrated in a company with a single individual at the helm. It does not trickle down through a well-defined structure. Fifty-nine per cent experts felt that in a highly concentrated command structure, a ''coterie'' is established among the CEO who is not fed the true picture by those who benefit from such a situation. Well performing employees with self-dignity get demoralized lot and become vulnerable to high attrition. About 55 per cent of the consultants were convinced that the movement of professionals across the companies is to some extent influenced by the succession plan and overall hierarchy structure of these organizations. Family run business is a way of life for India Inc. However, it has not come as a hindrance for the growth of these business concerns. Although it is easy to define succession planning in such firms, off late instances of intra-family disputes are being increasingly witnessed. This could hurt the interest of minority shareholders, as this is an evidence of gaps in corporate governance among such companies, 72 per cent of the ABB respondents felt. Around 60 per cent of the survey respondents were optimistic that the family run businesses in India are moving fast towards professionalizing their organization set up. Twenty five per cent of them believed that the change in the management set up of these companies is taking place at very slow pace. Some of the IT companies in India have set excellent example of timely identifying, planning and grooming of the successor to the key person leading the organization.
  28. 28. 24 The factors like lack of long-term vision, self-confidence of existing CEO, majority shareholders exercising control over management, are responsible for absence of successors at top position in large number of Indian companies, the ABB found. When asked about the performance of India vis-à-vis other mature economies like US, UK, Germany, Japan in terms of corporate head selection, 59 per cent of the ABB respondents said that India Inc is catching up fast . As the Indian companies are going global making their presence is felt around the world with large number of overseas mergers and acquisitions taking place, it is imperative for the Indian business houses to realize the need and importance of identification and grooming of the heir to their leaders. The management of a business enterprise is not driven by an individual. Companies commanded solely by one person holding top position can run into the risk of ill health, natural disaster, possibility of frauds, dispute with the Board. According to reports in 2010 Indian companies are more ready to have succession planning Economic Developments in India have put the focus on how to develop and prepare leaders to manage in a growing economy. The primary business priorities for Indian organizations according to their top executives are growth and improving and leveraging their talent. DDI India Leadership Report findings o About 4 in 10 leaders in India identified themselves being as in a high-potential program, a greater proportion than being in the global sample. o Organizations in India were more likely to have succession plan for higher-level managers compared to the average organization worldwide. o Although 44 percent of multinational organizations in India had a process to identify multinational leaders, only 26 percent had a process to develop them. The number of businesses in India having intra-company succession plans for their mid- level managers is decidedly more than anywhere else in the world, reveals the India Leadership Forecast launched by talent management expert, Development Dimensions International (DDI). The report reflects an increased demand for internal leadership development due to the high growth rateof organizations in the recent years. The statistics suggest that 61% of
  29. 29. 25 Indian organizations have a process to identify high-potential Leaders compared with 50% of the global organizations. High-potential leaders that are placed in accelerated development programs are more positive and confident about their future roles. Nearly 42% of Indian organizations have such special programs in place to help leaders face future challenges. These frameworks enable leaders to identify the areas that they find challenging, discover what is expected of them in their new roles and help new leaders implement a development plan, which can be applied in their daily activities. They also aim at developing effective decision-making skills managing relationships for greater impact. Organizations in India are more effective at clearly communicating the importance of such leadership modules by monitoring them at regular levels and intervals. Commenting on the Leadership Forecast Report findings, Richard Wellins, Senior Vice President, DDI, said,” Leadership transition can be one of the most stressful experiences in a person’s life, most notably because leaders are expected to be successful in the new role. Good leadership will be important in the future, to help control costs, cope with increasing change and tackle the expected upturn". Economic Developments in India have put the focus on how to develop and prepare leaders to manage in a growing economy. The primary business priorities for Indian organizations according to their top executives are growth and improving and leveraging their talent. DDI has spent the last 40 years developing leaders at every level—nearly 6.3 million worldwide—and helping organizations optimize their leadership talent. In a well-funded, high growth economic environment, it is imperative for India Inc. to craft effective leadership transfer mechanisms. Be it family-run businesses, PSUs or professionally-managed companies, the responsibility for effective succession planning and its implementation rests with shareholders’ representatives – the company’s Board January 2005: Reliance Group, India’s largest private sector enterprise, is split as the two Ambani brothers agree on a legal segregation of assets. While Anil Ambani would take over the telecom, infrastructure, media and power businesses, elder brother Mukesh Ambani would take charge of Reliance Industries, which operates in petrochemicals, oil and gas exploration, refining and textiles. The death of business monarch Dhirubhai Ambani in 2002
  30. 30. 26 without leaving a will triggered a drama that resulted in the division of assets between the two estranged brothers. April 2009: P. J. Nayak, Chairman & Managing Director of Axis Bank resigns after losing 1- 8 in the voting for appointment of Shikha Sharma, Head of ICICI Prudential Life Insurance, as the new MD of Axis Bank. While the members of the Bank’s Board submitted that Sharma had experience in banking and insurance industry, Nayak vehemently disagreed with the Board’s decision stating that an insider should take over as his successor. Despite the Board’s several recommendations previously to groom and develop a successor, Nayak paid no heed and was vocal with his views that advance succession planning was not practiced at public sector banks. April 2010: Infosys Technologies reconstitutes its CEO Nominations Committee to include K. V. Kamath, Non-Executive Director of ICICI Bank, along with previous members Jeffrey Lehman, Professor at Cornell University (Chairman) and Deepak M. Satwalekar, CEO of HDFC Standard Life Insurance, to hunt for Narayan Murthy’s successor – a candidate who not only should have deep understanding of the IT Industry and Infosys, but should also possess Murthy’s ‘personal style of leadership’. One of the most overwhelming challenges faced by organizations in India and across the globe is CEO Succession Planning. The recent turn of economic events has posed a serious threat to the corporate health of organizations as stakeholders in even the most stable and successful organizations questioned the business acumen, ability to sustain confidence and decision-making capabilities of its business leaders. Although the world economy is emerging from the aftermath of this recession, there is still the dagger of ‘establishing a strong leadership bench’ hanging over companies who are struggling towards a post-downturn recovery. Dr. Shalini Sarin, Country HR Partner & Director – HR, Schneider Electric India emphasizes this point - “‘Do we have an effective succession planning process to assess and develop future leaders?’ – it is precisely at this critical juncture of global economic recovery that such a question is gaining prominence.” After a brief but torrid, financial downturn, India is back on a growth trajectory and is reckoned as the second largest growing economy with a GDP of $1.4 trillion and an 8.8% GDP growth rate. In such a well- funded and high growth economic environment, it has become almost compelling for
  31. 31. 27 companies to have a well-defined and articulated succession plan and an able leadership pipeline to sustain future growth. Succession Planning in India The Indian business environment is largely driven by family-run businesses, public sector enterprises and professionally managed companies (mostly MNCs). Without doubt, family- run businesses make for a huge percentage of business houses in India. Family-run companies account for roughly 50%* of the market capitalization of publicly traded companies in India and contribute to around 55%* of GDP; hence, the relevance of these companies for the overall economy. If numbers are to be believed, only 13% of family-run businesses survive till the 3rd generation and only 4% go on to the 4th generation. Additionally, one third of the business families disintegrate because of generational conflict at the leadership levels. Professionally run succession planning is key for the sustainability of businesses. Family disputes and the lack of succession planning have triggered the decline in fortunes of many business families. Traditionally, succession planning in family-run businesses has always been a hush-hush affair, clearly depending upon the life expectancy of the founding chairman or patriarch. Succession planning in family-run businesses is generally an intuitive process with the family patriarch taking the decision as to who will take charge of the business empire. Dr. Ganesh Shermon, Partner & Country Head - People and Change Practice, KPMG says, “Traditionally, family-run businesses focused on dividing the silver among the next generation rather than grooming the right person to take up the job. However, with changing times, family-run businesses need to ensure that the chosen successor has necessary education and skills and should be made to work his / her way up the management. Alternatively, companies should be bold enough to appoint a professional manager when there is no suitable candidate within the family. Companies such as Ranbaxy, Murugappa Group and Eicher have set a precedent in this regard.” In 1998, when Dabur India realized the might of behemoth MNCs and their scale of operations, it valued the need for a professional to run the operations of the company in order to build a professionally-managed company with strategic business outlook. And that’s when Dabur India roped in an outsider as its CEO, Ninu Khanna, rather than passing the reins to a family-member. Sunil Duggal, Dabur’s CEO since 2000 has taken the business to new heights by strategic acquisitions and has expanded the product portfolio to make Dabur a comprehensive FMCG company from an Ayurvedic products seller. Today, majority of the
  32. 32. 28 Board members at Dabur do not belong to the Promoter family. The Tata Group too is on the lookout for a successor to Ratan Tata, who retires in 2012, and for other group companies too, as the Heads of Tata Steel and Tata Motors head toward retirement. Passing on the reins of the organization to a family member has a lot of legal implications too. Hiralal Walchand, Director, Walchand Associates, which deals in will trust services and family law, says “Family members (sometimes even far-off relatives) join companies as employees but demand legal ownership rights during division of assets. This should be avoided as dividing assets amongst so many claimants completely devalues the company.” In case of listed family-run business houses, the first step towards planning a strategic succession is to increase the holdings in various group companies. Walchand explains that, “Increasing holding by the parent company wards off the risk of future acquisition. B. K. Birla, for instance has been working toward increasing the family’s stake in its group companies of cement, textiles, et al.” Once that is achieved, the patriarch can appoint either family members or internal and external candidates to take on the mantle. This ensures that when the patriarch steps down, there is no change in the way business is done. In the recent succession plan chalked out by RPG Enterprises, Group Chairman R. P. Goenka segregated the ownership and control of various group companies amongst his sons Harsh Goenka and Sanjiv Goenka where the former was named the Chairman and the latter Vice Chairman. The business will, however, continue to run the same way with each brother continuing to control and run the companies they were handling previously. In the case of PSUs, many of the appointments are guided by political considerations. The fact that quite a few of the top jobs at PSUs are either unfilled or manned by acting CEOs indicate the lack of importance attached to the process of top management succession planning. In spite of the political stifling, some PSUs have formulated very strong succession planning practices. Prakash, Managing Director - India, Leadership and Talent Consulting, Korn/Ferry International, says, “PSUs are unique in that almost invariably grow their own timber. Public sector companies really do not have a succession planning system per se, they have an internal promotion system.” Companies like Indian Oil, Bharat Petroleum, Hindustan Petroleum, BHEL, NTPC, ONGC, State Bank of India have worked on establishing leadership competency frameworks, assessed managers for development and
  33. 33. 29 taken follow up actions in terms of internal training and developed courses in collaboration with the IIMs. Some of these practices can be compared to the best in the private sector. For instance, ONGC conducts succession planning three levels below the Board and NTPC conducts rigorous succession planning two levels below the Board. NTPC has constituted a high level Succession Planning Committee (SPC) comprising of the Chairman and the Functional Directors to own the process of succession planning. NTPC has identified 28 unique leadership positions for succession planning. Most of the positions fall under the two top executive levels - General Managers and Executive Directors. Against each position at least three potential successors are identified for grooming. This is done to ensure that sufficient depth is maintained in the leadership pipeline at all times. Succession planning is a shared responsibility of the HR function and the organization’s leadership. NTPC’s CMD, R. S. Sharma was recently succeeded by Arup Roy Choudhary, former CMD of National Buildings Construction Corporation (NBCC). The search for a successor for CMD (Chairman & Managing Director) is done pretty much the same way as the search for other Board level appointments where an advertisement is put up for the vacancy by the Enterprise Selection Board and shortlisted candidates sent to the ministry. The final decision for appointment is made by the Cabinet Committee. The concurrent CMD is not involved at all in this process. In July, state-owned telecom units, Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telecom Nigam Ltd. (MTNL) advertised vacancies for the post of CMD. The Enterprise Selection Board, formed under the leadership of K. M. Chandrashekhar, Cabinet Secretary, has received close to 100 applications and will soon announce the successor to Kuldip Singh, CMD of MTNL and Gopal Das, CMD of BSNL. Professionally-run companies in India, mostly MNCs and a handful of home-grown companies like Infosys, are more forthcoming when it comes to chalking out a strategic succession planning process. Professionally-managed companies have definite processes and employ latest techniques while identifying potential successors. Take for instance Larsen & Toubro (L&T). Well before two years of current Chairman A. M. Naik’s retirement, the organization has systematically and strategically put in place a succession planning process and will announce the name of the new Chairman six months before Naik retires so that s / he is able to get proper handholding. In many of the MNCs operating in India, the
  34. 34. 30 decision to find a successor is more in tune with business strategy and growth vision for the future of the organization. Kellogg India recently roped in Sangeeta Pendurkar, former VP- Strategy & Commercial Leverages at Coca Cola India to head its Indian operations as MD, replacing Anupam Dutta. Pendurkar’s experience in revamping Coca Cola India’s tea and coffee business (Georgia) and introducing innovative regional brands such as Minute Maid and Nimbu Fresh made her a suitable choice for Kellogg India’s strategic plan to strengthen the company’s stranglehold on the breakfast segment by introducing more regional flavors. In certain other professionally-managed organizations, senior leaders have the responsibility to design their own succession planning process, as in Lucent Technologies, where senior managers are expected to develop at least two potential successors using job rotations, challenging work assignments, special projects and executive coaching. Companies like Hindustan Unilever, P&G and ITC have traditionally groomed most of their senior management internally using a combination of talent review sessions, comprehensive training programs, job rotations and a combination of HR and leadership metrics. Role of the Board & the CEO: For corporate Boards, CEO succession planning should be one of the most important commitments toward the organization. Even though Boards across the spectrum realize the need for an effective succession plan, they seldom devise processes and practices and devote sufficient time to this activity. Dr. Arvind Agrawal, President and Chief Executive Corporate Development & HR - RPG Enterprises, says, “It is imperative for the management / executive Board to participate in the whole succession planning process. I am talking about the involvement of management or executive Board and not the legal Board. The process of succession planning is simple but the real difference lies in its execution and that’s where most companies falter. The process demands full dedication of the top management and not mere compliance as one of the points on a meeting agenda.” Not having a strategic succession planning process and an effective CEO successor is a potential risk to companies and it is the obligation of the Board to timely address this risk. This is also lacking because most companies do not have a Chief Risk Officer (CRO) to identify the potential threats that may arise due to little or no succession planning. In simple
  35. 35. 31 words, it is the responsibility of the Board to make sure that the framework and guidelines for succession planning are in place and are practiced to evaluate the developments on a regular basis. While corporate Boards play a critical role in succession planning in professionally managed companies, their role is limited in family run businesses where the family patriarch is generally the one who takes such decisions. In PSUs, the final decision of choosing the successor is taken by an external authority (generally the Cabinet) in consultation with the Board. “Normally only banks have CROs, as this is a mandatory requirement. It is not a very common role”, says Prakash from Korn/Ferry, “and wherever they are, they tend to restrict their role to systemic risks like technology risk, financial risk, political / regulatory risk, and not really people risks. CEO succession is the Board’s responsibility and the responsibility of the CHRO and from my experience, does not normally come under the risk officer’s purview.” Adds Poonam Barua, Founder Chairman, Forum for Women in Leadership, “In the global scenario, best performing companies worldwide are increasingly looking at voluntary compliance practices and provisions for having a Chief Risk Officer who reports to the Board (and not to the CFO), and identifies the challenges in the succession planning process, including the need to increase diversity on company Boards. Ultimately, Board diversity and succession planning is not just an HR issue, but a corporate governance issue. The Chief Risk Officer will also need to identify lack of diversity as an important risk for the company. Companies such as GE, KPMG, Deloitte, IBM, PepsiCo, Nokia, Microsoft, et all have huge diversity programs to ensure more women move into top management positions.” The Board is responsible for clearly conveying to the CEO that his / her performance will also be measured by his / her ability to manage succession. Additionally, the Board, in consultation with the CEO, is responsible for detailing out the criteria of selection of the next CEO. The CEO’s role, on the other hand, is to identify high potential leaders and spend disproportionate resources to develop them, besides monitoring the outcome of succession planning activities at all levels in the organization. Sometimes, the CEO’s failure to identify a suitable successor acts as an impediment to the growth of the organization. When Rohinton Aga, MD, Thermax passed away in 1996, Abhay Nalawade was appointed his successor. However, roughly five years later, the entire Board of Governors had to resign en-masse as the company struggled to compete in the changing business environment. While Rohinton Aga nurtured and grew Thermax over a long period of time, he did not pay
  36. 36. 32 enough attention to succession planning. Nalawde has, in fact, been quoted to have said, “Mr. Aga never made it explicit that he would have wanted me to become the Managing Director.” Stephen A. Miles, Vice Chairman at leadership advisory firm Heidrick & Struggles and Prof. David Larcker from Stanford Graduate School of Business re-iterate this point - “The CEO’s role is to develop viable internal successors so there are real internal candidates for the Board’s evaluation and to be an advisor to the Board on the strengths and weaknesses of the candidates. The CEO does not own this process. Many want to own it but the Board must own the process and manage the CEO.” In PSUs, the current CEO or CMD plays little or no role whatsoever in selecting his / her successor, which again is very dangerous for business continuity and hence, corporate health.
  37. 37. 33 A STUDY ON MURUGAPPA GROUP SUCCESSION PLANNING The Murugappa Group, headquartered in Chennai (Madras), India has grown from humble beginnings to become a very important conglomerate. The company started as the dream of a driven entrepreneur in Burma in the early 1900s. Today it boasts revenues of US$ 850 million and employs 22,500 people in its 27 business units. The company is presently undergoing a major change, as it restructures its family governance system. It realizes that change is necessary if they want to continue to compete in the world marketplace. Though adaptation is not always easy, the Murugappas find strength through their heritage and values. An entrepreneurial spirit The family traces its business history to 1760 when the great-great great grandfather of the founder was active in trading and money lending. He had five sons who each, separately, built successful businesses that, in later generations, led to leadership in several industries in India. The family came from a long line of members of the Chettiar sub-clan of the Vaisyas caste-merchants and professionals with business interests primarily in Burma, Malaysia, Sri Lanka and Vietnam, known for their scrupulous honesty, trustworthiness, cleverness in trade and proficiency at money matters. . Following Indian tradition, the majority control of his deceased father's entire estate went to the eldest son, with Dewan Bahadur receiving virtually nothing for all his work. The
  38. 38. 34 unfairness of this policy spurred him to divide his estate equally among his three sons - Murugappa, Vellayan and AMM. He did this while they were young men and while he was still alive to give them the freedom and the opportunity to be a family energetically pursuing business together. He also encouraged free speech among his sons until a decision was taken; then the courtesies due to an elder had to be honored. This, too, varied from the norm in society at the time where respect for the elder was paramount. All three of Dewan Bahadur's sons shared their father's venturesome business spirit and complemented each other in their managerial styles. Murugappa was marketing and external relations-oriented; Vellayan was finance-oriented; and AMM was operations- oriented, with a focus on details. In the early 1930s, Dewan Bahadur and his sons made several decisions that were critical to their later success. At a time when 70% of Chettiar wealth was in Burma, they repatriated much of their monies to India so that the Great Depression, World War II and Burmese national movements didn't bankrupt the family; they had an insight that India was on the verge of industrialization; and they decided to take the family's first steps into major industry. With the repatriated funds, they established a sandpaper plant (the beginning of today's US$ 65 million abrasives business called CUMI); they purchased a steel safe manufacturing company; they started an insurance company; and they bought a rubber plantation. The Murugappa Group was born. In 1931, Dewan Bahadur's eldest son, Murugappa, visited the US for the International Chambers of Commerce Convention. This trip broadened the family's view of possibilities for making money and expanding the company. When Murugappa returned from the US, he kept an eye out for a business opportunity he could set up and lead in India. When he heard from an acquaintance that there was market demand in India for a quality manufacturer of steel security furniture such as safes, cashboxes and filing cabinets, he moved forward with family support, commencing production in 1940. A much larger foray, conceived during the same time period, was to enter the business of making abrasives, a product used by manufacturers to sand, sharpen and smooth equipment, materials, components and end-products. The family's rationale was that if world war broke out, the volume and variety of goods imported on British ships would decrease; thus, local manufacturing would expand with the new opportunity. The family
  39. 39. 35 cleverly negotiated to buy, dismantle, ship and install an abrasives plant from the American Midwest to its location in India. The plant was operational in 1942. About a decade later, AMM made contact with the three largest abrasives companies in the world - to seek a joint venture for access to new technologies. When all three were disinterested or very slow to respond, he contacted and struck a deal with Carborundum USA and Universal of UK. Before anything official was signed, the largest company in the field made overtures and showed interest. Since the family had given its word to the British company, they would not go back on it to negotiate with one of their larger, first choice firms. This was the first of many successful joint venture arrangements (since 1952 named Carborundum Universal of Madras, India or CUMI). After India gained independence in 1947, the Murugappa family was among the first in India to form a joint venture. With introductions by Sir A Rarnaswami Mudaliar, some experience in steel manufacturing of safes and with a vision for bicycles in India, Tube Investments of India (TII) was formed in 1949. TII began as a bicycle assembly firm representing the English Hercules brand in India. The English partner began with a 43% interest. Over time, TII grew, integrated into most all components, and diversified into steel tubes for furniture, industry and other applications. Hercules became the number one bicycle company in India. The British partner eventually departed the industry, turned the Hercules, BSA and Philips brand over to the Murugappas and divested its ownership position. One of the patterns in the Group's development is that their foreign partners lose interest in the Indian venture due to acquisition, management or strategy changes and sell back their shares to the family at a better than fair price because of the trusting relationship they had built. This happened, for example, with CUMI in 1982when its UK parent sold back It’s shares. CUMI, now publicly traded, is 43% controlled by the family. Adaptation and growth In India's government-regulated economy, the Murugappa Group found it necessary to adapt in order to prosper. In the 1980s, Indian law prohibited formation of a business group, so the family followed the system of crossholding controlling shares among separate public companies. Recently that law has changed, and the family is restructuring again to become a holding company. Because of government regulation in the past, it was difficult to obtain licenses for new businesses. Between 1964 and 1980, the Group applied for 17 licenses. Out of the 17 license applications, one was granted and the other 16 were not. The Group decided not to pursue these because of their values. Consequently, to grow, they sought
  40. 40. 36 acquisition of sick units to turn around. In the last 20 years, 17 additional companies have been acquired. The most well publicized acquisition occurred in 1981 with the purchase of Madras based EID Parry - a huge, decrepit, yet symbolic business that the Group had been interested in since 1958. Parry, the second oldest commercial name in India, included fertilisers, pesticides, confectionery and also sugar mills. For years EID Parry's creditors were asking the Group to take over its management, given the Group's management reputation and acumen. The family repeatedly turned down the overtures, responding that without control EID Parry wasn't in the family interests. Eventually, the creditors relented and the family gained control of the publicly traded company. The agreement made headlines because it showed the Group's commitment to invest in what many in India felt was a risky venture, but what they saw as an opportunity to grow. EID Parry is now a business with US$ 265 million in sales and is 41% family-owned. With EID Parry came a 7% holding in a joint venture fertilizer company, Coromandel Fertilizers Ltd Chevron and IMC Global partnered in the fertilizer growth area then later sold out. EID Parry developed a unique organic pesticide from indigenous neem seeds that is often acclaimed to be the best in the world. EID Parry is also in the sanitary ware business. However, not all businesses have been a success. For example, the Group has divested a cement company, sold its electronics business and faced difficulties with its long held construction company. Business and philanthropy Today the Group includes seven substantial business units comprising 27 companies in a variety of industries: CUMI, TlI, Coromandel, Parry Agro, EID Parry, CIFCO and the only private company, Arnbadi Estates, holder of some of the plantations. TlI now has four significant lines: bicycles, chains, industrial tubes and roll forming. CUMI is a full line, vertically integrated abrasives company and Coromandel is a very profitable fertilizer business. With Arnbadi and Parry Agro, the Group remains active in rubber, tea and coffee plantations. EID Parry includes an assortment of businesses including fertilizers, sugar mills, pesticides and sanitary ware. The Group is in the food industry with Parrys Confectionery Ltd. CIFCO is in the financial services of brokerage, vehicle finance, insurance and mutual funds. The Murugappa Group and family also continue to build on the example of philanthropy initiated by Dewan Bahadur. His decision to set aside a major
  41. 41. 37 portion of his wealth for charitable causes, starting in 1924 when he built a hospital in his home village, commenced a tradition of helping, guiding and supporting others in communities in which the companies do business. The family's trust, the AMM Foundation, is sustained by a fixed percentage of annual business profits and family contributions. To date it has built and nurtured four high schools of 8000 students, a polytechnic institute of 1000 students, four no-fee hospitals and a rural research centre. The rural research centre focuses its activities on developing such things as protein-efficient algae, natural dyes, organic farming and technologies for the rural and urban poor. Although by custom, the sisters and wives of the Murugappa men do not work in the businesses, they are the major sources of leadership and guidance in the family's foundation and the institutions it supports. Family ties While success seems to overflow for the Murugappas, the family and business have also been shaped by trauma and loss. Tragedy first struck in late 1945 at the end of WWII. Middle son, Vellayan, age 40, was assinated while in Burma as part of a formal delegation gauging the safety of Indian civilians returning to the newly communist country. From then on, his two brothers functioned in the business roles as 'Mr Outside' (Murugappa) and 'Mr Inside' (AMM), under the overall leadership of the elder - their father until his death in 1949, Murugappa until his death in 1965 and AMM until his death in 1999. Beginning in the late 1950s, the third generation sons entered the business. They successfully avoided a common family business trap of an enterprise slumping after the founder's generation. This was due to their elders' concerted focus on developing the talents of the younger members as professionals through academic training, international experience, at least two years of work outside of the family business and finally employment at a mid-level in the Group's companies, rising one step at a time. Up through the mid- 1990s, each of the six male family members in the third generation rose to become managing director of one or more of the business units: MV, first son of Vellayan and the oldest of his generation, set the pace with higher education at a college. While working at businesses within the Group, MV was encouraged by his uncle AMM, the chairman, to play roles in the business world beyond the family, including positions on boards, associations and delegations. He held Managing Director or Joint Managing Director positions at Carborundum, later CUMI, III and
  42. 42. 38 Coromandel until his death in 1996. Muthiah, second son of Vellayan, was adopted as a teen by his uncle Murugappa who had no male heirs. He held several positions with the family firms, including Ambadi Estates where he became a leading authority on planting in southern India. He worked at Coromandel Engineering and was the Managing Director of CUMI when he died suddenly in 1979 at age 49. Murugappan, the third son of Vellayan trained as a civil engineer in England and used his expertise to successfully scout unique new lines of industrial products to manufacture and sell in India. He took over the Managing Director position of CUM I when Muthiah died and continues as Chairman of CUMI to this day. Since 1999, he has been the family elder, but decided against the leadership of the business, deferring to his younger brother, Subbiah. Subbiah, the youngest son of Vellayan, has his college degree from the University ofAston in England. He is credited with a major role in turning ailing EID Parry into a successful business in the 1980s, serving as Vice-Chairman and Managing Director. He also had leadership positions at TI Cycles, as the Chairman of the Murugappa Group and the Executive Chairman of ElD Parry. In 1996 he was appointed Group CEO. Muru, the oldest son of AMM, studied mechanical engineering in England, followed by on-the-job training at Tube Investments Group UK. He worked at, then headed upCoromandel Engineering, the family's construction business. He died in 1995 at age 55. Algy is the second son of AMM. After schooling in Lawrence at Ooty and gaining his degree in commerce in India, he went to Britain as a Management Trainee with TI. He started his work experience at TI Cycles and subsequently moved up to No. 2 to Muthiah in the plantation business. He was instrumental in starting up the Cholamandalam financial services business. Currently he is Vice Chairman of the Murugappa Group and Chairman of Cholamandalam. Since the late 1970s, six of seven sons in the fourth generation have also joined the Group, making contributions in the business units at all levels including managing director. All men of the same generation and age who work in the family business receive equal compensation and perks, regardless of title, position, contribution or level of responsibility within the organization. To enhance individual and Group success, informal mentoring among the family members takes place with older, more experienced and/or accomp1ished members guiding, assisting and supporting younger, less experienced members. As for inheritance, equal thirds of the family's business shares - following the three branches of the family emanating from the three sons of Dewan Bahadur - are divided and entrusted to the males in each generation, whether they work in the business or not.
  43. 43. 39 Transitions An important transition in organization occurred in 1985 when the Group hired for the first time a management consultant, AD Little, to look at issues of structure and succession. This effort resulted in a leadership succession plan in which senior members of the family of the 3rd generation filled the positions of Business Unit Managing Directors, COO and CEO until each retired at 65, with the selection process based on merit as well as seniority. After India signed the World Trade Organization agreement around 1995, the family saw opportunities, including new export-oriented activities. Because of this, they realized the necessity of making speedier business portfolio decisions than was presently possible due to individual family members being emotionally involved in separate business units. In this environment, even when everyone wanted to make a positive business decision for the Group as a whole, it could not be made with the speed and nimbleness necessary in the faster pace of the new global economy. Despite this realization, nothing changed until 1996 when Muru and MV both died at early ages. These tragic events acted as a wake-up call. The family elder, AMM, urged a restructuring to improve the future of the business by relying less on family members for the day-to-day management of the business units as managing directors. Leadership of this task fell to AMM until his death in 1999, then to his nephew Murugappan who continues as family elder today, and to Subbiah, Appointed Group CEO in 1996. The goal of the restructuring was to introduce change without disrupting performance in an atmosphere of openness and support. The family leaders sought the help of an esteemed Indian colleague to help facilitate discussions of change among family members. Several insights about the Murugappa Group's reorganization surfaced which included the need: 1) To be more of a Group rather than a collection of separate entities; 2) To be more flexible in the make-up of the portfolio of businesses; 3) To have less emotional attachment by individuals to their businesses; 4) To shift away from family-led units to non-family-led units; and 5) To mentor the non-family managing directors for the long-term view.
  44. 44. 40 Facilitating change To facilitate the change process, the family members on the board committed one to two days a month for almost two years. This resulted in establishing a holding company - like board with the intention of becoming an actual holding company in the future. In 1999, the Murugappa Group created the new governance structure. They changed the leadership of the individual business units from family members to professional managers and the family members moved to board positions on the newly formed nine-member Murugappa Corporate Board (MCB). This holding company-like board includes as directors five family members (two from the third generation and three from the fourth generation), three independent members and the Group CFO. The independent board members recognized the importance of their participation in the transition of the company and wanted to work with the Murugappa family members because of their exceptional experience, humility and a willingness to listen. They also wanted to demonstrate the success of the holding company model for family business and to ensure the family business as an important force in the economy of India. The new structure was innovative for the business and for India. At once, it allowed family members on the board to focus on strategic areas across businesses for the benefit of the entire organization. Each family member on the MCB serves as a fulltime director with three assigned responsibilities. One is for a function across all business units, another is to serve as mentor/overseer for one or more businesses he has typically never led before, and the third is to guide younger family members for future governance roles. One of the benefits of this arrangement has been the creation of knowledge transfer and technology synergies among the Group's businesses. The move harnessed the substantial business experience and resourcefulness of the family members for the good of the overall company, not just a business unit, and also brought a new perspective from the independent board members. The family members on the board have noticed great value in the restructuring, although it is not without personal challenges because they are being stretched to perform in areas new to them with different people, operations and situations.The changes made in management and leadership of the business were also noticed by workers, family and community. The family board members are aware that they are serving as role models of the structural change, especially in bringing along other constituent groups that need to make adjustments to the new arrangement. The new governing structures caused a shift in
  45. 45. 41 decision-making to one that is more collaborative - a counter to Indian norms and values of the traditional leadership role of elders in the family. Future focus As the business moves from family-operated to family-governed, formalizing the family's business approach is being discussed within the family and among the MCB members. The family has taken steps towards articulating what they stand for by developing their Corporate Values and Beliefs. These are listed prominently on their corporate materials, website, and Bill of Rights and Responsibilities for Family Member Owners, all of which can be amended by family consensus but not by vote. The development of a Family Constitution is seen as the next important step, but the form the Family Constitution takes - whether it should be a formal written document or an understanding by custom and practice – is under discussion. Independent directors are trying to get the family to formalize procedures because the businesses' complexity demands it. Family and independent directors of the board realize that the future role of family members in the business is evolving. They are aware that family members in future generations will have more choices in terms of profession than in the past and may opt out of the business. Those who enter the business need education, development and training to be future leaders in the family business at the governing level, although they will not be managing directors of units. Up until April 2001, the MCB was headed by a family member, Subbiah. At that time, he stepped aside and independent board member NS Raghavan took over as the MCB's first independent non-family executive chairman on an interim basis. The reasons for this change were to create an environment that encourages creativity and fuels growth and to make decision-making even more rational and less personal. The board is proceeding slowly to find a permanent non-family MCB chairman, preferring to wait for a person who is just right for the position. In the last decade, the Group has looked at its portfolio of businesses with an eye towards future growth. Although many of the Group's long-term companies are in low margin, old economy manufacturing, there has been a continued focus on investing in and maximizing research for the good of the business. Several of the business units have launched products developed as a direct result of its proprietary research investments that could have global markets. The value of supporting research for product innovation is a priority.
  46. 46. 42 The company also seeks to balance and reduce its portfolio of companies to the six business areas it knows well and in which it holds leadership positions. The Group plans to shift reliance away from low but steady growth manufacturing to opportunities in the high growth financial services sector through its business unit, CIFCO, where it has manageria and financial capability. The Group is increasing exports and is exploring entirely new opportunities in industries that are global employing the highly talented, yet cost-effective Indian workforce. One such endeavor under development is information technology enabled products. For the Murugappa Group family business leaders, the last three years have been times of great structural changes, shifts in thinking and adaptation, all the while managing a major spectrum of successful businesses and opportunities in a marketplace that is increasingly fast paced and global. Sustaining them through these substantial efforts in meeting success in the future have been the valuable lessons of their family's heritage. Throughout the generations, family members in the business have used situations presented to them as springboards from which to creatively adjust, flex and move forward for the good of family and community. They have anticipated change, shown a willingness to adapt and to take risks. As fourth generation Murugu reflected when he accepted, on behalf of his family, the IMD Distinguished Family Business Award in October 2001 in Rome, "We consider ourselves custodians to a heritage and trustees to a tradition, both built on togetherness, trust, mutual respect, ethical values and above all dignity, independence and discipline. As the scope and magnitude of the family and business leadership changes, we are preparing ourselves for the great challenges ahead. Best Practices of the Murugappa Group • Family Development: The older generations focus on developing the talents of the younger members, as professionals, through academic training, international experience, at least two years of work outside of the family business, family mentors, and a career path that provides broad experience • Transitions and Re-organization: They strive to introduce change without disrupting performance through an atmosphere of openness and support. They draw strength during change from their heritage and values. • Succession: Leadership roles change in a clear and unselfish way
  47. 47. 43 A STUDY ON INFOSYS SUCCESSION PLANNING The Leadership Factory In the next five years, the four remaining founders of this iconic company will walk away. So, Infosys is putting in place a succession pyramid for the ages that runs three levels deep and is 750 people wide. MATTHEW FRANK BARNEY HAD A PERSONAL connection with India that goes back to 1997. The 41-yearold American met his Bengali wife, Shreya, in a “romantic semi- conductor factory” in Orlando. Last year, Barney also sealed a professional connection with India. He, Shreya and their two young kids moved to Mysore, where Barney joined Infosys Technologies for an assignment that will have a great bearing on how this iconic Indian software company is run and perceived for generations to come. Barney is the head of leadership development at Infosys Leadership Institute. Never in the storied 29-year history of Infosys has so much hinged on this responsibility. The seven founders, each of them pillars in their own right, have built and run a company that is solid in its business construct and has values that are unimpeachable. But they are leaving, one by one. Ashok Arora left in 1989 and NS Raghavan in 2000. Last year, Nandan Nilekani went to work for the government. In the next five years, the remaining four — NR Narayana Murthy, S ‘Kris’ Gopalakrishnan, SD Shibulal and K Dinesh — will also walk away from Infosys, in deference to Murthy’s decree that all founders retire from operational roles by the age of 60 and from the board by 65. Says Barney: “It’s an inflexion point for Infosys, and we need to prepare for it.” In his earlier assignments, Barney helped some of the world’s top companies, including Motorola, AT&T and Lucent Technologies, to identify their next set of leaders. But, with Infosys, he’s working for the first time with founders seeking to pass on the baton. In July, Barney kicked off a hunt to identify 750 leaders, across levels, in Infosys — the largest such exercise the company has ever undertaken. It’s not a random, one-time exercise to meet a pressing need. It’s a formal, structured response that is intended to
  48. 48. 44 become an integral part of the company. It will, continuously, identify the sparks in the company and groom them to become leaders. Infosys has plenty of leaders, says Tv Mohandas Pai, who heads HR in Infosys and who brought in Barney. “We believe we have around 100 leaders who can be CEOs of companies of different sizes,” says Pai. “That doesn’t mean, though, all of them can become the CEO of Infosys.” What Infosys lacked all these years was a system that could efficiently identify, organise and hone that leadership, especially in the lower ranks. Which is what Barney and his seven-member team are putting in place. TO EXPLAIN THAT SYSTEM, ONE NEEDS to start at the top. At the top, there is a 13- member board. Five of its members are ‘executive members’, which means they also hold operational roles in Infosys. CEO Kris Gopalakrishnan and COO SD Shibulal are both members of the board. Below the board is a four-member executive council: Subhash B Dhar, Chandra Shekar Kakal, BG Srinivas, and Ashok Vemuri. The highest decision-making body below the board, the executive council is the grooming place for the next CEO, CFO and COO. But the beehive of activity is below the executive council. Out here, Barney has created a three- tiered pyramid that is intended to identify leaders at all levels from the 115,000 employees in Infosys. At the first level, or tier-I, Infosys is looking to identify 50 Infoscians who can join the board in three to five years. “We want each leader to be outrageously successful before they even come to my process,” says Barney of this set. At this leadership level, people typically have about 15 years of experience, and are geographical heads or business unit heads. “We need to make sure that the person is passionate about business,” says CEO Kris, of this elite pool. “Also, the person should know Infosys well. That’s why we have always been saying that the leaders should come from inside and they should have a successful track-record.” At the second level, the hunt is for leaders capable of graduating to tier-I or running a business unit in three to five years. The target number is 150. The candidates here are vice-presidents and those reporting to unit heads, and have about 10 years of experience. At the last level, the search is for leaders capable of graduating to tier-II position. This pool, which is intended to be 550-strong, is chosen from business and technology managers who are associate vice-presidents or below. They have about 5-7 years of experience. They are like the Suresh Rainas of the Indian cricket team. BEFORE BARNEY AND THIS THREE tiered structure, Infosys was identifying
  49. 49. 45 and grooming leaders, but it was more unstructured and the leadership pool was smaller. But as the company grew and its operations became more complex, as it went beyond its founders, the imperative for a leadership system increased. “They are the first among major Indian companies to go through this transition,” says John McCarthy, senior vice-president and principal analyst, Forrester Research. “It’s always a challenge when you move the original management out. So far, they have done it in a transparent and orderly manner.” But a CEO of a leading rival says the founders will be missed. “Infy is surely ahead in terms of planning its transition, but it will miss Murthy’s vision and Nandan’s ability to win and retain large accounts like BT,” he says. Professor David V Day, who is helping Infosys as an external consultant to identify sustainable leadership models, advises against benchmarking to the past. “First of all, you can never replace such visionary founders like Mr Murthy and others — they are really one of a kind. You first have to let go of the assumption that they are going to be fully replaced,” he says. “The challenge then is how are we going to develop leaders we are going to need not just now, but also in the future.” Barney has some answers. “Beginning this year, we will have the ‘tier top-off’ process every year,” he says. The ‘tier top-off’ is essentially a routine measurement of the numerical deficiency in the company’s leadership pools. The last time, Infosys did such an exercise, it was 2007 and its leadership pool was about 50. Barney and his seven-member team are now looking to do this annually, with a target size of 750. At every level, currently, Infosys is short. Against its earmarked number of 50 leaders in tier-I, Infosys has identified 37. Down the ranks, the vacuum increases. In tier-II, the number sought is 150 and it has identified 120. In tier-III, against 550, it has identified only 200. At each level, the method of identifying talent is different. Tier-I is self-nominated. Infoscians who think they are up to it can apply. Their candidature is decided after an interview with the board. For tier-II, it’s the tier-I leaders who work with the members of the Infosys Leadership Institute and the heads of business units to identify potential leaders. Tier-III is through a computer-adapted assessment tool. “The tier-I leaders are fewer and relatively easier to find,” says Barney, who speaks fluent Bangla. “But when I get to tier-III, there are nearly 10,000 people who can apply. With the tool, I can do it in less than half the time we did the same process.”
  50. 50. 46 NEXT COMES THE GROOMING. INFOSYS draws on several resources to groom leaders. These include mentoring, leadership workshops and simulation exercises. Mentoring is a big part of the initiation, and it runs through Infosys. Murthy mentors the board. The board members, including other founders, mentor 6-8 leaders at any point of time from the tier-I pool, which includes the four members of the executive council. “We normally mentor different people every year,” says Shibulal. “That’s because what I can mentor, say, Kris cannot, and vice versa.” So, Shibulal mentors on operations and execution, Kris on innovation and technology, Murthy on leadership, Dinesh on quality. Nilekani, when he mentored, was doing strategy. When Pai mentors, he will focus on entrepreneurship. Adds Shibulal: “It’s more about experience sharing and passing on the belief, and also how you would have dealt with a particular problem.” For future leaders like Jamuna Ravi, who is currently vice-president and head of Infosys’ European business for banking and capital markets, mentoring by board members is a huge bonus. Ravi was selected as a tier-I leader about three years ago and is currently being mentored by Shibulal. “When I was the delivery head for banking and capital markets, I used to share my ambitions with him (Shibulal) and also ask about the new competencies I wanted to acquire,” she recalls. “He told me to make my competencies visible to other people, in terms of positioning for the next role.” Barney and his seven-member team also put the 750 potential leaders through exercises that simulate business challenges such as coping with an unprecedented economic crisis or renegotiating contracts withcustomers. Day, the Woodside Professor of Leadership and Management at the University of Western Australia Business School, compliments Infosys on how it is going about it. “I don’t think anyone, with the exception of perhaps the US Army, is doing a little bit around simulation, or is doing this in any way with regards to leadership development,” he says. KRIS SAYS THE FOUNDERS WANT TO BE around to see the big transition through. Part of that handover is passing on the values that Infosys was built on. “We have created a platform with certain values, and we would like it to command respect, says Kris. “That’s very, very important for the founders.” Yet, some things will change as Infosys ceases to be a founder-run company. Manish Tandon, head of the independent validation and testing
  51. 51. 47 business, says some tier-I leaders like him are bringing a new perspective on operating in a rapidly changing environment. “It’s a win-win because I’m seeing more fresh ideas in discussions,” he says. “People like us are also asking the right questions, challenging the status quo and forcing a rethink.” Ritesh Idnani, COO of Infosys’ back-office business, says there is room to challenge old practices. “When people have credibility in the system, they can challenge,” he says. “Also, it helps that I’m willing to go and stick my neck out.” For Infosys, because of their risk-taking abilities, such leaders are important to lead transformational initiatives. Idnani, for example, scaled up the company’s BPO business from $43 million in 2005 to $316 million by 2009. He also set up its Brazil unit. Subhash Dhar, one of the four executive council members, says a company like Infosys that is aspiring to get out of the founders’ paradigm has to look outside for examples. But the next leadership, he adds, has to come from within. “Since we are a knowledge services company, there are over 100,000 aspirants for the top roles. That’s a very high aspiration quotient,” says Dhar. “It’s a good problem to have.” What’s encouraging for the next set of leaders is that the founders have ruled out their children taking over. “As one of the aspirants, I feel empowered that one day a professional will take over,” says Dhar, who started his career at Tata Unisys and joined Infosys around 13 years ago. “That it’s not going to be run like a family business is a huge, huge thing,” he says. But to match, leave alone emulate, the work of the founders, Barney’s 750 leaders, and all those who follow them, will have to step up. The Infosys Leadership Tree BOARD OF DIRECTORS Executive members Srinath Batni K Dinesh S Gopalakrishnan TV Mohandas Pai SD Shibulal EXECUTIVE COUNCIL Members Subhash B Dhar Chandra Shekar Kakal BG Srinivas Ashok Vemuri The idea formed around 3 years ago, it's the decision-making body below the board. Its members are leaders who can become the next CEO, COO and CFO, take on other top executive roles, even join the board. TIER-I
  52. 52. 48 50 Target Number 37 Current Number The idea Leaders who can join the board in 3-5 years Typical profile Running a profit and loss account, geographical heads, business unit heads Typical experience About 15 years TIER-II 150 Target Number 120 Current Number The idea Leaders who can graduate to tier-1, run a business unit in 3-5 years Typical profile Vice-presidents and those reporting to unit heads Typical experience About 10 years TIER-III 550 Target Number 200 Current Number The idea Potential leaders reporting to tier-II and capable of taking their position Typical profile Business & technology managers reporting to tier-II, associate vicepresidents and below Typical experience 5-7 years
  53. 53. 49 We want each leader to be outrageously successful before they even come to my process. MATTHEW FRANK BARNEY Head Of Leadership Development, Infosys Leadership Institute We (the board) normally mentor different people every year. What I can mentor, say, Kris cannot, and vice versa. SD SHIBULAL Chief Operating Officer, Infosys You first have to let go the assumption that they (visionary founders like Mr Murthy) are going to be fully replaced. PROFESSOR DAVID V DAY External Consultant To Infosys
  54. 54. 50 CONCLUSION At the end of the day, the crux of the issue lies in the fact that it is the shareholders‘ representatives who should own the succession planning process. Corporate India is placed at a critical juncture where the massive inflow of funds will reflect in the gradual change from concentrated ownership (Government, Promoter families) to a more diffused and diverse ownership pattern. Regardless of the ownership structure of a company, the shareholders‘ representatives (company Board or the (cabinet of ministers or patriarchs of Promoter families) will need to create mechanisms and processes to constantly groom a leadership pipeline and to identify the best candidate – internal or external – for leading the company into the future and creating shareholder value. So Indian companies have finally taken their first step of understanding the importance of succession planning and taking necessary steps to put it into action for the welfare of the company and its shareholders against the age old practice followed in India of handing the heir the reigns of the company. There are a number of areas to keep our eye on as part of our succession planning activities. Top of the list has to be that as we formulate our ideas to get those people organized to be top class performers, we need to know how they are doing, right now. The most important priority, above all, is that we keep our eye on overall performance of the business. Then, it‘s all about those who work for we, because from them, and them alone, will our business success come now, and into the future. Managing Performance Of All Is Vital: We need to carefully use our performance management skills for all of our people, to make sure that we are clear about their current performance, as well as – for our succession planning needs – that we know what their potential is too. So it is certainly something that we have to keep a close eye on as a manager. And if we do not have any kind of performance management measures then we will struggle to manage our business adequately now, let alone later on. Performance Management Matters in Succession Planning: The performance management part of succession planning is important because it gives we insights into individuals and their actual performance as well. If we are closely observing them and prepared to challenge in uncharted waters, their potential for the mid-to-long term, will start to fill the spaces that we will need as our team gradually moves along and we need great replacements.