Kaun banega CEO?
It was a strange moment this month when tongues wagged on the leadeship changes at Infosys Technologies, the software industry leader known as much for professional management and corporate governance as for financial growth. Vivek Sinha reports. The old order changethbusiness Updated: Apr 23, 2011 01:24 IST
It was a strange moment this month when tongues wagged on the leadeship changes at Infosys Technologies, the software industry leader known as much for professional management and corporate governance as for financial growth.
Board member TV Mohandas Pai resigned in the wake of reports that he was being bypassed for the CEO's job in the company, which is due to pick the successor to incumbent S. "Kris" Gopalakrishnan at the end of this month. This triggered the question whether SD Shibulal, the likely new CEO, had got ahead more by virtue of seniority than professional strength. All involved in the event deny this, including chairman NR Narayana Murthy, but eyebrows are still up.
The Infosys incident underlined to corporate India a simple truth: that planning succession is a big task.
Opaque management decisions are common in family-owned firms where promoters hold high stakes, but in widely held companies, it is a different ballgame.
With many senior professionals working their way up the ranks and contributing to a company's growth, often for decades — in Pai's case, it was 17 years — issues linked to morale, efficiency and fairplay are critical.
Companies such as Larsen & Toubro, HDFC and Hindustan Unilever are considered among companies that plan well ahead to ensure all these.
"Management of aspirations becomes the key for the company's board of directors," says Pratip Kar, a consultant at IFC and World Bank who earlier worked was with the Securities and Exchange Board of India (SEBI). He says the succession process needs to be transparent so that all contenders understand the criteria — and advises that the process must start early.
For instance, engineering giant L&T is expected to announce its new leadership team in March next year, months before current chairman A M Naik retires in September 2012.
"The nominations committee has a line of thought already in place but the announcements are deferred till the right time," said a spokesperson.
The Unilever group, of which HUL is a part, has a long history of seamless transitions.
"The ones who show leadership potential are groomed over a period spanning years ," says Leela Nair, HUL's executive director.
In HDFC Ltd, Deepak Parekh told the board months in advance that he will step down as executive chairman to give sufficient time to pick a replacement, which in this case was Keki Mistry, now vice-chairman.
In ICICI Bank, there were minor hiccups when Chanda Kochhar took the baton from KV Kamath to become the MD and CEO of India's largest private sector bank in December 2008. Days before Kochhar was to take over on May 1, 2009, Shikha Sharma quit as head of the ICICI's life insurance venture and went on to head competitor Axis Bank.
Ashok Kapur, secretary-general at the Institute of Directors, said the top job was not a matter of right any insider.
"Technocrats may run the day-to-day affairs of a company but they may not have the vision. Because they don't teach you vision in management schools," he says.
Vijay Govindarajan, managment don at the Tuck School of Business, said a CEO must preserve a company's core competencies and assets.
"At the same time the next CEO must be chosen with the future changes in the environment. The company needs to adapt," he said.
No wonder, succession processes are a tightrope walk.