Thursday May 20, 2021

C-SUITE SUCCESSION PLANNING

Insights and perspectives from IMA’s Forum members

The complex nature of change today demands that, rather than just identifying a handful of successors for top jobs, businesses must build a leadership pipeline. This involves a shift from replacement planning and position-specific succession planning (SP) to a comprehensive, organisation-wide succession management (SM) system. Among other things, an effective SM process must be objective, honest, transparent, and – perhaps most importantly – minimise the ‘collateral damage’ from choosing one set of leaders over another. There is no magic bullet that works for everyone but it helps to follow a few broad principles. In order to garner insights on the issue, we spoke to several IMA Forum members. This paper summarises some of the key learnings.

NO MAGIC BULLET – BUT A FEW STRONG PRINCIPLES

Spread the search far and wide   

Don’t put all your eggs in one basket: There is simply no substitute for contingency planning, or for having a pool of both ‘ready now’ and ‘ready later’ (1-5 years down the line) candidates who can assume the top job. The founder of Kerzner International, a major hotel chain, focused his company’s entire succession planning efforts on a single individual: his son. When the heir-apparent died in a helicopter crash, the firm was left in a quandary. At the other end of the spectrum, when Ajay Banga took over at MasterCard in 2009, he immediately began to scout for and groom his successor. Last year, after leading a continuous, 11-year-long process that saw 40 internal HiPos being developed along with a few standout externals, Michael Miebach, a seasoned Mastercard executive was elected CEO. Mr Banga moved upwards, taking up a spot on MasterCard’s Board of Directors (Board), in place of Richard Haythornthwaite, who in turn, had hired him. At GE, Jack Welch closely followed the career paths of over 1,000 employees, spending as much as a quarter of his time on the succession planning process, which is known at GE as ‘Session C’ .

Top talent can take years or decades to mature…   

Take the long view: Energy giant Shell is headed by an apex 8-member Executive Committee that oversees the global business. Almost invariably, these top managers are home-grown, drawn from a pool of ~150 senior executives – who themselves are funneled up from two levels below, i.e. the VP/EVP level and GM/Manager level below that. Many of Shell’s senior executives have spent their entire careers – sometimes spanning 30 years or more – at the company, rising up from the Management Trainee (MT) level. In fact, Shell encourages its more promising MTs to assume senior roles quicker than in other companies, allowing them more ‘run time’ at higher levels of management. Similarly, IBM’s ex-CEO Virginia Rometty, who spent over 3 decades at the company, rose to the top from a Systems Analyst position. At Apple, Steve Jobs personally groomed Tim Cook for over a decade before the latter was ready to take on the top job, and Mr Cook in turn has identified and is grooming several potential successors.

… let it benefit from as many experiences as possible   

Ensure lateral as well as linear growth: In a VUCA world, business leaders must be able to combine deep expertise with broad exposure and influence across business lines. That is why companies like Titan place a great deal of emphasis on building cross-functional experience, or why Shell and MasterCard shuffle their C-suite aspirants across geographies and line jobs. Talent mobility is at the heart of Shell’s culture and expat assignments the norm. As a result, potential successors pick up both local and global knowledge.

Tectonic shifts demand advance preparations   

Plan for impending leadership transitions: Starting in September 2019, 5 of Titan’s CXOs were slated to retire in quick succession over a 15-18-month period. Luckily, the company had in place a well-established, 2-decade-old succession planning system and was thus well prepared. In the 3 years leading up to this shift, it intensified its efforts to bring the likely successors up to speed, including by putting them through cross-functional assignments.

Having a successor shadow the CXO for a while can avoid some major road-bumps   

Ensure a smooth transition: Here again, Titan’s case study is illustrative. S Subramaniam, its CFO, is due to retire this June, but his successor, an external hire, was on-boarded as early as February. This ‘overlap’ permits Mr Subramaniam to adequately handhold the new CFO. As importantly, it allows his successor to spend time immersing himself with operational and people issues without focusing too much on the day-to-day responsibilities.

Involve the Board, the ‘G3’ and business heads   

Secure buy-in at the top, including from the Board: Whether it is a family-run business, a PSU or a professionally-managed enterprise, the Board should ideally be responsible for CXO succession management. In most cases, the onus will lie with either the Nomination and Remuneration Committee or the Selection/Succession Planning Committee – which might include a few external experts. Equally, though, the company’s ‘G3’ – the CEO, CFO and CHRO – and business-unit heads must be closely involved in the process.

Send the right message at the right time    

Balance transparency and confidentiality: The Board must walk a tight-rope while updating internal and external stakeholders on succession-related developments. Yet, even as it is vital to communicate transparently – and in a way that allows successors to be suitably mentored – it is crucial to maintain full confidentiality.

Develop your own people but keep an eye out for rising stars outside the organisation   

Grow (mostly) from within, but look outside too: Many companies prefer to develop top leadership from within, but external hiring can help fill certain skill gaps. For example, Titan believes that if a candidate possesses 60-70% of the core competencies needed for a particular role, he/she has a bright chance of making it to the top. However, it does not hesitate to make lateral hires, especially when it comes to functional heads or when it is seeking to re-engineer a division/function. Shell sometimes goes a step further: when looking to enter a new geography or segment, it has been known to acquire top talent by entering into a JV with or picking up a stake in an existing business.

AN OPPORTUNITY TO DRIVE ORGANISATIONAL CHANGE…

Using a new captain…   

Most of the principles outlined above help to ‘steady the ship’ at times of leadership transition. But what about cases where the ship itself needs to change direction? Here, the process of leadership change can serve as a catalyst for a broader, organisation-wide transition.

…to steer the ship in a new direction...   

Dabur, Marico and Godrej Industries each sought to reinvent their company image, from a traditional family-run business to one that is professionally-managed. Dabur did this by first handing over the reins to Ninu Khanna, an outsider and then the veteran Sunil Duggal, who was promoted internally. The latter, in turn, face-lifted the brand through strategic acquisitions and an entry into the Ayurvedic-products space. In 2014, Harsh Mariwala, the Founder of leading FMCG and skin-care brand Marico, promoted his CEO, Saugata Gupta, to the role of MD while distancing himself from day-to-day operations as Non-Executive Chairperson. Contrastingly, Adi Godrej, Promoter and Chairperson of the behemoth Godrej Industries, has taken the middle road, deploying a mix of family members and outside professionals across the group companies to enable a gentler but still-fundamental shift.

Starting in 2016, Titan used its leadership transition journey not only to identify potential successors but also as an opportunity to allow fundamental, organisation-wide change. While maintaining a sense of continuity in some respects, it also focused on what needed to change, in terms of the company’s cultural aspects, apart from strategy, product offerings or at the functional levels. The hiring decisions followed from there. On a more limited scale, three years ago, Kellogg India on-boarded Sangeeta Pendurkar as Managing Director to reimagine its breakfast segment, based on her previous experience of revamping Coca-Cola India’s tea, coffee and regional beverage segments, especially the launch of successful brands such as Minute Maid and Nimbu Fresh.

...and institutionalising SP at the heart of the company’s culture   

Post-Covid the changing nature of businesses, cost structures and restricted talent mobility can pose long-term risks in the form of a less prepared/globalised talent pool to choose potential successors from. Hence, a well-defined SM system that interweaves SP and leadership development programmes with the company’s culture will not only serve as a source of competitive advantage, but also help build a flexible workforce that quickly adapts to the fast-changing business and economic milieu and ensures business longevity.