Who’sNext:Fixing  TheFuture
cover sTorySuccession planning is criticalfor the CFO role. CFOs who havementored their successors or beenpart of such pro...
cover sTory                  formulation team.“A CFO is directly        internal successor will value and under-   groups,...
cover sTory                      “Even at RCF, when we are                         planning for succession,               ...
cover sToryManager (GM) level and above, each of       mechanism is in fact, one of the key                Once a successo...
cover sToryaccompanies succession planning. Butsuch communication, she says, “has tobe carefully managed”. The directorHR ...
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Cover story CFO magazine

  1. 1. Who’sNext:Fixing TheFuture
  2. 2. cover sTorySuccession planning is criticalfor the CFO role. CFOs who havementored their successors or beenpart of such programmes, discusswhy planning is so important andtalk about best practices Tejeesh Ns Behl joffy joseW HEN SK JOSHI, WHY INTERNAL the much-respected SUCCESSION PLANNING? Director of Finance, CFO succession planning, says S Dur- Bharat Petroleum gashankar, Executive Vice President,Corporation (BPCL), retired in August M&A, Mahindra and Mahindra, and2011, Executive Director, Treasury, S former CFO at Mahindra Satyam, isVardarajan became the new finance crucial to ensure that relationships withchief. As if on cue, his deputy took Mr the company’s stakeholders are notVaradarajan’s old job. No recruiters destabilised. “If you look at the posi-were called and no panic button was tion of a CFO, various people look up topressed. In a systematic manner, each him – the board, external shareholdersexecutive is groomed for the next job as and investors, all of them depend on hispart of the PSU petroleum giant’s suc- word and trust him to give a true pic-cession plan. ture of the company’s financial health. Examples of such seamless transi- So planning for a successor to the CFOtions for the CFO function, however, is important to maintain continuity andare few in India Inc. Exceptions such stability in fiscal management,” he says.as Larsen & Toubro and Infosys, which Typically therefore, opine industryhave set benchmark standards in suc- leaders, a CFO should be groomedcession planning, notwithstanding. from within the ranks, instead ofThankfully, the importance of groom- foisting someone from outside theing internal candidates to succeed the organisation. As with the evolution ofCFO, is dawning on many Indian cor- the term, a CFO’s role too has evolvedporations today. Which is why board- over the years – from being perceivedrooms are increasingly beginning to as a glorified cost accountant to apay attention to the guardian of a com- fund manager for the company andpany’s financial health, who occupies, a business partner to the CEO. Thewhat has become, the number two posi- next logical step was becoming parttion in the corporate hierarchy. of the company’s business strategy September 2011 CFO INdIA 13
  3. 3. cover sTory formulation team.“A CFO is directly internal successor will value and under- groups, the sheer abundance of talent involved in corporate governance, in stand much better than an outsider. means there are usually two to three the US GAAP certification for instance, contenders for any C-suite position. two CXOs are asked to certify the “There are examples like that of L&T, financial statement, the CEO and the STILL EVOLVING Infosys and the Tata Group where CFO,” Mr Durgashankar says. However, succession planning is succession planning always seems to The self-certification, he elaborates, generally still an evolving science be clearly defined. Then there are some indicates that the CFO takes respon- in India Inc, save for a few large large groups where the bench strength sibility for wrongdoing if any. Con- business groups and organisations. is so good that at any point in time there sequently, he adds, a CFO needs to Deepraditya Datta, Managing Director are one or two people who can step into demonstrate strong ethics and set the of the Mumbai-based executive search the CFO’s shoes should the incumbent standards – a benchmark which an firm Venator, says in large business leave,” he says. But by and large, says Datta, whose firm makes several CXO level hirings for large and midcap companies every year, most Indian companies do not “Succession planning have any clear succession plan in place. “Of course if they all had succession requires a certain planning programmes in place, search firms would go out of business,” he degree of self- jokes. The trend however, is catching on even in family-run firms, even if it confidence in the means an external hire. He cites the example of a recent hire his firm did incumbent – how for a mid-size manufacturing firm. “Their CFO is due to retire early next secure he year. So in May they hired a deputy CFO through us, so that the new joinee feels to gets about eight months to work side by side with the existing CFO and learn groom his not just how the company’s finances are run but why certain decisions were successor” taken and who the important clients and customers are.” —S DurgaShankar, Mr Durgashankar points to another executive Vice President, M&A, Mahindra and Mahindra, and reason why the trend is still evolving in former Cfo at Mahindra satyam India. Succession planning requires a certain degree of self-confidence in the incumbent – how secure he feels to groom his successor. “It took us 15 months to correct all the back accounts at Mahindra Satyam that included 6000 bank reconciliations. My successor (Vasant Krishnan) was working side by side with meA.PRABHAKAR RAO for the last three quarters of my tenure. We ensured he knew every aspect of the role he would take over one day, before he actually stepped into my shoes,” he recalls. When such confidence is lacking, succession planning often runs into
  4. 4. cover sTory “Even at RCF, when we are planning for succession, a person is identified and through the rotation system in our company, he is provided exposure in other areas to update his knowledge”Jiten GAndHi —gautam Sen, Director, finance, Rashtriya Chemicals & fertilisers rough weather. “The person in the him exposure. A CFO does not just need act as a balancing partner to the CEO,” job is often not interested in talking to know about the company’s financial he points out. about succession, because he or she planning and strategy but also other Check and develop risk-taking wants to stay there and doesn’t foresee areas such as marketing, operations, ability: This is where, opines Yogesh leaving till he retires,” Sharon Allen, planned shutdowns and how much Dhingra, COO and CFO at Blue Dart, Chairman of Deloitte & Touche, USA, effect it would have on the company’s a company’s finance honcho needs to recently told the website cfo.com in profitability,” he says. have a calculated risk-taking ability and an interview. An impending CFO job Teach him to say no when needed: he or she has to make sure this skill is change would obviously jump-start the Potential successors, once identified, passed on to the successor over time. process. But to formalise succession, should also pass a ‘managerial cour- “Most CFOs nowadays are also chief says Ms Allen, the first step involves age test’, says Shailja Dutt, Managing risk officers of their companies and that encouraging executives to think about Director of Stellar Search, based on her ability can only be honed if the CFO what would happen to their companies interactions with several CXOs. This has a commercial sense of the business if they couldn’t do their jobs for some trait is more pronouncedly required in of the company. When grooming a reason. “People then start thinking a CFO, she says. “You don’t want the successor or potential successors, the about the good of the organisation as CEO to run a company like a fiefdom,” CFO needs to help them develop a a whole, rather than the protection of Ms Dutt says. Even so, more critical deep understanding of the company’s their own position,” she says. than the courage to say no, is the abil- business,” he says. ity to understand the business, feels SK It’s a team effort: More than being a Joshi, former Director, Finance at oil purely functional head, a CFO needs BEST PRACTICES marketing major BPCL. “A CFO needs to be able to manage people and be Mentor the understudy: Ideally, says to remember that he may not be the top an energiser of talent and a business Gautam Sen, Finance Director at Rash- guy but he has to work with that per- enabler, believes Mr Joshi. “At BPCL, triya Chemicals and Fertilisers, under- son (the CEO) and there may be times being a public sector company, the studies should be mentored for at least when a plan may not look feasible on task of appointing a successor is two years before being elevated to the paper but could be imperative for the carried out by the Public Enterprise CFO role. “Succession planning for any company’s long-term evolution in the Selection Board (PESB). However, post requires identifying the person and marketplace. He needs to understand there is a corporate leadership pipeline putting him through the paces to give the investors’ perspective as well and comprising senior staff of General September 2011 CFO INdIA 15
  5. 5. cover sToryManager (GM) level and above, each of mechanism is in fact, one of the key Once a successor has been identified,whom are monitored and reviewed by ways in which successors are identi- providing him with enough challengespeers, subordinates and superiors on fied in firms across the world. Cen- to sustain his interest in the position ontheir leadership style,” he discloses. In tral to this way of life is the rotation offer becomes imperative. “If you pick athe finance department, there are five of high performers through different talented guy but put him in a job whereGMs and two Executive Directors (ED) jobs in and outside finance to broaden his intelligence is not fully utilised, heand the final selection comes down to their perspective and expand their skill will leave,” Mr Joshi says. Recalling thethe EDs, which are below-board level sets. Rotations also help finance chiefs economic slowdown of 2008-2009, Mrpositions. In this case Mr Varadarajan assess whether their instincts about a Joshi says they formed a committeesucceeded Mr Joshi. particular employee are right. headed by his then deputy (and cur- Use the rotational system: Agrees rent Director Finance, S Vardarajan) toMr Sen of RCF (who mentored his manage cash flows and they were ablesuccessor in his previous assignment TACKLING to release funds to the tune of Rs 1500as Director of Finance at Gujarat State EXPECTATIONS crore for working capital needs. Involv-Fertiliser Corporation). Such planning, While hand-holding may not be ing the understudy in such a challenge,he says, is not just left to the incum- required at that level, executives and helps him prepare for the job better.bent CFO but is a joint planning by the management consultants agree that At the same time, succession planningorganisation. “Even at RCF, when we mentoring and ensuring that one is can mean losing talent. As soon as theare planning for succession, a person transparent with team members about next CFO is identified, a company mayis identified and through the rotation expectations, is definitely needed. Both run the risk of creating consternationsystem in our company, he is provided the CFO and the HR team, they say, among the other players one level down.exposure in other areas to update his need to have their ears to the ground India Inc is full of instances where justknowledge,” he reveals. The rotation and interact with younger talent within after a person had been identified for the organisation to spot and nurture a CEO or a CFO position, a few of the potential leaders. Mr Sen cites the other contenders left. The example of instance of a young chartered accoun- ICICI bank where the appointment of tant in his organisation, who despite Chanda Kochhar as MD led to an exo- good reviews for his work, was stagnat- dus of the other top contenders from ing in his career. “Since his growth was the bank, is fairly well documented. not up to his recognised potential, we How does one address this chal- discovered that he was not getting prop- lenge? Commitment to communica- er exposure in different departments. tion, says the HR head of one of India’s As soon as the problem was rectified, top manufacturing firms, helps retain he started progressing,” he recalls. talent and defuse the tension that often “If you pick a talented guy but put him in a job where his intelligence is not fully utilised, he will leave” Jiten GAndHi —Sk JoShi, former Director of finance, Bharat Petroleum Corporation (BPCl)
  6. 6. cover sToryaccompanies succession planning. Butsuch communication, she says, “has tobe carefully managed”. The directorHR of a private bank, who did not wantto be quoted on record, added that one “Then there are someneeds to communicate not only withthe people who have been identified for large groups whererotations, but also with those who havenot been included. the bench strength is so good that at anyEXPECTING THEUNEXPECTEd point in time thereThere is, of course, a chance that anefficiently run succession plan will are one or two peoplego awry. What if the person beingmentored as CFO gets a lucrative offer who can step into theand quits? Tata Motors for instance,was caught off guard when their CFO’s shoes shouldMD, Carl-Peter Fosters quit suddenlyin September 2011. Surprised by the incumbent leave”the departure, the company is now —DeepraDitya Datta, Managing Director, Venatorconducting an internal and externalsearch for his successor. But because such a surprise canbe a problem for a company, manymanagement teams plan for thatcontingency. At some organisations in Of course not all finance teams canIndia multiple candidates are groomed, so boast of such bench strength. At mostthat if one leaves, another can take his or small and mid-sized Indian companies,her place. For instance when the finance even rotation programmes can be dif-department at a well-known pharma ficult to achieve simply because they docompany began its planning a few years not have enough senior level talent thatback, they found no one they could they can borrow from one department egates more responsibilities to his staffidentify as a possible successor. Now, after and put in another for a year. as necessary, so that if the CFO quitsthree years of careful planning, there are So what should they do? Mr Sen or is on leave, at least the two next-in-at least three people in line for the CFO says in such organisations employee commands can jointly handle the jobrole, should the need arise, according to development is more informal. After till a replacement is found.the HR head at the organisation. the CFO assumes new duties, he del- Developing a seamless succession planning system is indeed easier said than done and often is a time consum- ing process. But companies with theTHE BLUEPRINT know-how and the willingness to imple- ment such a programme, usually end have a formal succession plan programme up better-off, not only in orderly tran- Identify employees who have potential to handle responsibility and have talent sition and avoidance of outside search Assign such managers a mentor such as the Cfo costs, but also in the retention of their ensure such employees are posted for some time in another department or function, to top talent. As Mr Joshi says, having the broaden his skill and understanding of the business support of a team of skilled and capable Be prepared to manage and tackle the expectations that come once these employees colleagues always makes the CFOs job realise they are being ‘groomed’ that much easier. Clearly, there is a lot have a plan B ready in case a potential successor quits of wisdom in putting a succession plan Communicate to both chosen ones and other candidates often, precisely, and discreetly in place for the top job in finance. September 2011 CFO INdIA 17