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BW Businessworld

The Key To Succession

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Leadership and succession are two of the more important management issues in any organisation, and in many ways they are intertwined. Finding the right leader to head a company can make or break it. When Lou Gerstner was picked up to rescue IBM, there were many eyebrows raised. After all, nothing in Gerstner's background gave any clue as to why he would do well as the chief of a computer behemoth that had got into deep trouble and was on the brink of bankruptcy. Gerstner had a sterling record but he had primarily had experience in consulting (McKinsey), financial services (American Express) and Fast Moving Consumer Goods (RJR Nabisco). He had never worked in the technology industry, which was then going through a major upheaval.

Meanwhile, there was a lot of hype about how Carleton Fiorina would revive the sleepy Hewlett-Packard. Carly had an impressive track record in telecom (AT&T and its spinoff, Lucent) and, more importantly, seemed to have just the right profile to take the fabled but troubled HP into a new era. Unfortunately, while Fiorina raised the public profile of the company, her misses and mistakes were far more apparent than the things she did right. Indeed, her successor, a low key Mark Hurd, proved to be better for HP.

Even if you find the right leader once, the bigger problem that often crops up is finding the right successor to a great leader. Often the leaders who are about to retire attain legendary status because of their achievements. Finding someone to fill those shoes is a hugely complex job. It is not helped by the fact that the new person being chosen is often compared with his predecessor from day one - and people tend to forget that even the original leader made mistakes in the early years.

When Ratan Tata took over, there were plenty of people who expected him to fail. After all, Ratan was succeeding the legendary J.R.D. Tata, and many of the things he did immediately after taking over seemed rather odd. For one, he took on the old guard — Rusi Mody, Darbari Seth, Ajit Kerkar — all of whom had built legendary mini empires within the Tata group. More importantly, at the time of taking over the conglomerate, Ratan Tata didn't have the most impressive of track records.

Today, as he prepares to hand over the reins of the group to a successor, there are few who would doubt his business acumen, vision or legacy. Many consider him to be the greatest businessman of this era. He proved a worthy successor to JRD in every way. The big problem everyone foresees is that he has set the bar so high that it might be almost impossible for any successor to do half as well as he has done.

At the moment, corporate India is facing quite a succession crisis. A number of exceptional leaders who have carved out impressive empires are about to step down. In Infosys, N. R. Narayana Murthy will retire as the chairman. With co-founder Nandan Nilekani already out of the company to pursue the UID project, there is a lot of worry that the next chairman of Infosys will lack the charisma and overall vision of Narayana Murthy. Especially since, most of the other founders of Infosys are also fast approaching the retirement age.

In Larsen & Toubro, A. M. Naik is preparing to retire finally after a long innings full of achievement and glory. And there is no successor in immediate sight. There are talks that Naik will restructure L&T so that independent businesses are handled by different leaders, and no one presides over the multidimensional company as a whole. Also, other larger than life leaders who are expected to retire over the next four or five years include P.R.S. Oberoi, Shiv Nadar, Y. C. Deveshwar among others. Each of them have built their businesses over several decades and scorched a path that is hard to follow for anyone. Of course, the hunt for Ratan Tata's successor is already on.

What prevents companies and leaders from creating proper processes to find a successor well in time? Why don't organisations develop clear strategies to identify, groom and train successors from within the company?

The answer is that there are plenty of companies that do have processes to identify and train successors — GE and Unilever are two global companies that have developed rigorous processes to groom successors from within. But in many cases, these processes still end up failing. The Unilever system for example worked for many years and then started sputtering when the business environment changed. Similarly, in GE, despite Jeff Immelt's obvious achievements in the past decade, there are many who think that he is not doing anywhere as well as his predecessor Jack Welch. There are several reasons for that. First, the internal succession candidates often are in the same mould as the outgoing leader. More importantly, these people have worked too deeply within the organisation to be able to questions systems and processes — something that every leader needs to do after taking over. Equally importantly, there might be better candidates outside and by restricting the search to internal candidates; the search committee might be doing the organisation a disservice. Also, there are very few companies that span a broad array of industries and geographies (GE is one of the very few and the Tata conglomerate in India is another) — which means few internal candidates ever have the full training that the next generation of leader inevitably needs.

Meanwhile, there are also dangers in parachuting people from outside to take over as a successor to the outgoing chief. For one, a regular practice of choosing people from outside the company reduces the incentive for the best brains in the company to stick around for the long term. Equally, no matter how well the outside candidate is researched and vetted, whether he or she will work out is always a matter of hit and miss. Lou Gerstner worked out beautifully, but Carly Fiorina did not.

In family owned and run companies, where scions are expected to take over the next generation, other problems crop up. For one, there would be different people with different visions and capabilities in the next generation. So should the patriarch hand over the bulk of the business to the eldest son or daughter - or divide it equally between his sons and daughters? Or should he give the running of the business to the most talented person in the next generation even if that causes some heartburn?

It would seem that it is a no-win situation as far as succession planning goes. But this need not always be the case. Sure, there will always be an element of risk while searching for a successor. And sure, it will always cause some degree of heartburn. There are a few things that all leaders and their search committees should follow. These are:

Start early enough. Ideally the leadership search should start seven years before retirement and the most promising candidates identified and in place at least five years before the actual takeover.
Make sure that both internal and external candidates are considered. There should be a process in place to identify bright young performers within the company and then groom them to handle the widest possible spectrum of jobs, and monitor their progress over the years.
Have repeated meetings to figure out what the company would need for the next four or five years after the leader retires. Is the next successor's job going to be about consolidating businesses that were entered into by his predecessor? Identifying and getting into new business areas? Restructuring the business altogether? Expanding into new markets? Each of these tasks requires different skills and often different leadership qualities. Having a clear idea about what the task will be before the successor will help in choosing the right one.
      And finally, after a successor has been put in place, give him enough rope to learn and do things his own way. Quite often, a successor is judged on his performance from day one, which is unfair. He should be given at least a couple of years before people start worrying about whether he is doing the right thing or the wrong ones.

There are plenty of cases where successors have proved as good, if not better, than their predecessors. In the US, Jack Welch comes to mind. He succeeded the legendary Reginald Jones but carved out his own path. In India, TCS has had great success with successors - first Ramadorai proved a worthy follower to the great F.C. Kohli. And then, Chandrasekharan is taking TCS to a new trajectory after taking over from Ramadorai. In ITC, Deveshwar had gone far beyond his illustrious predecessors, and in ICICI, K V Kamath lived up and exceeded every expectation and has now handed over the baton to Chanda Kochhar, who is also doing rather well.

The author is the editor of Businessworld