Succession Planning vs Legacy
TATA and Raymond have more than 100 years of legacy and Infosys has more than 30 years of legacy. They have contributed to the economy and job creation in the country in a significant way. Currently all the three are facing issues and criticism in reference to their succession planning. While all businesses go through the cycle of profit & losses, succession is an important and critical part of the Business planning. Although the most obvious, this has been a challenge for many. The same issues existed back in the days of Ramayana and Mahabharata. Kingdoms were destroyed because of succession issues. Brother killed a brother, son imprisoned the father and less deserving son was made a king. We have read many such stories and yet refuse to learn or adapt.
In what areas of succession planning did these companies go so wrong?
- Leadership & its Acrimony
TATA: Founded by Jamsetji Tata in 1868, the Tata group is a global enterprise, headquartered in India, comprising of over 100 independent operating companies & present in more than 100 countries. Tata Company’s revenue is at $100.39 billion and the group collectively has employed over 695,000 people.
In 2005, the board increased the retirement age of non-executive directors to 75, ensuring that Tata would be in office till 2012. And finally, when he packed his bags at Bombay House and handed over the baton to Cyrus Mistry, it was only to return four years later in 2016.
Mistry was not hands-on with most group businesses as being the group chairman is a different ballgame altogether from being a board member. In contrast, Ratan Tata joined the group in 1962 and became its chairman only about three decades later, in 1991. By then, he knew the group inside out.
It is not easy to replace a stalwart like Ratan Tata. Many names like Indira Nooyi, Anshu Jain, Arun Sarin, Noel Tata etc made it to the list. But finally, Cyrus Mistry was selected to lead the group. He was selected because he was young, his family was a major shareholder, he was Managing Director of Shapoorji Pallonji Constructions, he was known to the Tata family.
The issues that led to Mistry’s ouster are majorly his style of leadership and his decisions to on board young leaders in the leadership team. The decision of selling the UK steel business and the public spat with DOCOMO. The old guard felt that there was lack of governance.
Mistry was selected as he was one of the largest shareholders and was known to TATA group and family. But Mistry had never handled large diversified group of companies spread across several countries and geographies. I also somewhere feel that there was huge communication gap between the Tata biggies (old) and Mistry. Succession Planning lesson 1 – never discount the importance of qualification over personal rapport
But If I have to pick one big reason it was his style of functioning and leadership that lead to some discomfort or insecurity. His exit was acrimonious. Now there is a new leader N Chandrashekaran, who was the Managing director of Tata IT business. The difference between him and Mistry is that he is an employee promoted to lead a group and Mistry was a promoter chosen to lead a group. The style of functioning may make the difference as the new CEO would be more receptive and open to seek guidance from the old senior Tata veterans. This could pay way to smooth functioning.
- No Will to let go
Infosys: Now here is a company that a group of entrepreneurs built into a respectable and valuable global major. They followed high standards of governance and ethical standards. After playing the musical chair, the core promoters handed over the company to a professional board. Circumstances became tough and NRN had to come back to steer the ship for a short while. The new board comprised of Industry veterans and they selected Vishal Sikka which had approval of the core promoters.
When Sikka took over the company the IT industry was going through difficult times. His performance during his tenure was fair. Here again the Style of functioning and Leadership was an issue. The core promoters could not handle his style of functioning. The Core promoters indirectly also questioned the decision-making ability of the board. Along with Sikka three more board members quit.
NRN wanted to drive the company from the rear seat. For instance, if you have appointed a driver to drive the car, before starting the journey give him clear instructions on where to go and how to drive you and then don’t need to interfere. Just imagine a scenario where you are driving a car and someone sitting in the rear seat constantly nags you it would be difficult for you to concentrate and drive. You may decide to opt out and that’s what Sikka did. Succession Planning lesson 2 – Founders must know when it is time to let go and let others steer the company.
If NRN was so insecure and felt that there were governance issues then why didn’t he sack the entire board, they all stood by Sikka and accorded their approvals on his decisions. He, in a way also questioned their integrity.
If one has to identify the main reasons for the fiasco they could be, Issues with leadership style, interference from the core promoter and constantly throwing darts at the CEO. How do you want him to perform? Learn to let go and move on. In olden times, the King was supposed to retire at a specific age and go to the ashram and groom the next generation. Why can’t we follow that?
- No Will – No Trust
Raymond: The earlier two cases were more so to deal with Intangible Problems (mind related problems) but this one is a tangible problem (to deal with wealth).
This is a classic case of not executing a proper and well-structured estate and succession plan. Singhania family is not new to family feuds and family litigations. 1987 the Singhania family had a family settlement, where three groups Mumbai, Kanpur and Kolkata got their share of wealth. But that did not go will as planned, the issue continued till 2017 for a bungalow property in Juhu, Mumbai.
Dr. Vijaypath Singhania and his late Brother Ajaypat Singhania’s family also had to go through their own share of family litigations. Dr. Vijaypath Singahia’s estranged son Madhupati Singhania who relinquished his rights post the family settlement has brought a new angle to the family litigation. This time his children are up against the grandfather and have filed a suit against him.
In the year 2002 Dr. Singhania gifted his share of holding (37.17%) in the Raymond group to his youngest son Gautam. It seems now there is some issue between Dr. Singhania and Gautam.
To reinforce, this is a classic case of not executing a proper and well-structured estate and succession plan. And this is not the first case or the last case. It is difficult to understand why people with such good acumen and brilliance fail look at these potential contingencies. History repeats itself, Dr. Singhania has seen quite a few family litigations and even then he gifted his entire shareholding to Gautam.
We as Indians are born with the belief that nothing wrong will happen to us. Most of us are emotional and not practical.
Succession Planning lesson 3 – We surely need a “Trust where we cannot trust”. Along with the Trust it is also important to have other legal documents and agreements in place.
I hope that people learn from such cases and execute a proper estate plan, this can only help them and their loved ones from the heart aches and litigations.
Top Learnings from these three cases:
- Mentor and groom the successor while retiring leader has not moved out.
- Give a descent time line to the grooming process, don’t rush.
- Define the does and don’t.
- Giving up of complete control should be done in a phased manner, can be linked to performance.
- While identifying the successor the retiring team should analyse the leadership style and whether that would suit the culture and the ethos of the organisation.
- One can give management but not the entire stake or ownership (especially when it comes to the handing over to the next generation).
- Don’t just look at the hard qualities but it is important to consider the softer qualities of the successor also.
- Don’t do back seat driving, it can lead to an accident.
- It is important to try before you let go off the control but once you have decided it, then move on and don’t hang on (everything comes with an expiry date).
- Put the successor on a training take over period and then move on (once you are satisfied).
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