Posted by: CS Shilpi Thapar
“A person who does not worry about the future will shortly have worries about the present” – Ancient Chinese Proverb
In recent months, succession planning and execution is one of the vital board agenda for corporates and banks as the CEOs of several companies, including Barclays PLC, Nomura Holdings Inc have lost their jobs amid scandals. Recently, Vikram Pandit of Citigroup Inc , who suddenly resigned just a day after announcing quarterly results of the Company. The Wall Street considered it to be excellent quarterly results. Citigroup Inc Chief Operating Officer John Havens also resigned with Vikram Pandit.
Vikram Pandit was replaced by Michael Corbat , who has been running the Bank’s operations in Europe, the Middle East and Africa. The sudden exit of Vikram Pandit, CEO on 16.10.2012 from Citigroup Inc raises the very important and crucial issue for Corporates, Shareholders and Regulators of having proper succession plans in place for leadership roles throughout the company. In August, 2012, it was reported that Citigroup Inc Board and Vikram Pandit was working on choosing a successor, who could one day replace him. A lead contender was Muke Corbat , the head of citigroup’s operations in Europe, the Middle East and Africa, according to people close to the company. The swiftness of announcing Corbat as new CEO, and not appointing him as an interim CEO, leads to believe that the Citigroup Inc Board had a proper succession plan in place and perhaps had to start it earlier than they anticipated. Further Mr. Havens had already announced that he would be leaving at year-end, so it can be noted that Citigroup Inc Board was aware that they may lose him.
In Indian Context, Tata case is interesting. From what is publicly known, succession planning was not a strong point until the late 1980s. In the late 1970s, the unsuccessful succession planning attempt by Voltas is engraved in the public mind. But in last 20 years, it is known that Ratan Tata set up a group HR function as part of his reorganisation plan. The intent was to introduce good practices within the companies with respect to talent management and succession planning. Succession planning and execution, leader ship development have become very crucial agenda point for board of directors of companies. It is the Board’s biggest responsibility. Now days, shareholders increasingly focus on CEO succession practices as seen in recent case of Apple Inc. Though companies are secretive about succession planning, they follow a rigorous process to get visibility into the company’s leadership talent pool. For better transparency and corporate governance, the companies should discuss its CEO succession plans with shareholders from time to time.In 2009, the Securities and Exchange Commission provided shareholders the right to demand more transparency in CEO succession planning.
In India, 75 percent of Board donot even discuss the issue of CEO Succession Planning as per survey conducted by Bian and Company, US based consulting firm. This is in contrast to the top US Companies where more than 60 percent of US Companies discuss issue of succession planning at least once in the year and 80 percent companies have succession plans ready in case of emergency. For US Listed Companies, CEO Succession Planning is now almost a mandate. Recently Visa Inc. on 24.10.2012 announced CEO Succession Plan .
In India, mostly corporates are family owned. The Board of Directors of these family owned corporates are very reluctant to discuss the issues like death and don’t want to lose control , so they delay the process of succession planning. Even big corporates like Bajaj, Reliance, Ranbaxy, Birla have faced the business turmoil due to poor succession plans. Tata Group has set up the trend by announcing its succession plans. Major IT Companies like Wipro, Infosys, HCL have put in place or are in the process of putting in place, succession plans for leaderships at different levels. Hope situation will change in India and more Indian corporates will follow the trend and it will be top priority for Board.
To conclude, Succession Planning and Execution is crucial tool for Risk Management and to avoid crisis. It is too important to ignore for Board of Directors.