Human Capital Outlook

Active involvement of the Board in a Leadership transition process

Not surprisingly, a period of executive leadership transition—the departure of a current and the appointment of a new leader is fraught with risk. There exists a strong linkage between the way this transition process is handled & the resultant organizational outcomes, whether good or bad.

A majority of large publicly traded Indian companies’ Boards have been found to have inadequately addressed & ill defined succession practices which lead to rudimentary leadership transition plans. How would they deal with any of the hypothetical scenarios- when the CEO quits without warning, does something unacceptable that calls for his immediate ouster, or worst case, the CEO dies. Investors amongst other stakeholders loathe uncertainty, and there`s nothing more uncertain than an open CEO slot. Most Indian companies’ boards are not prepared to handle a situation like this & worst still, this does not seem to be on their top agendas either.

There exists a strong case for boards of Indian companies to actively take part in the process & not just the outcome- the appointment of the incumbent. It needs to shoulder the responsibility and the challenges of having an effective succession plan in place. By delegating the process to a search committee or leaving it for the leader to take the call, & if poorly managed, these transitions too often occasion a crisis, leading to decreased organizational efficacy and even failure. Globally, several examples of well-established organizations faltering during and after a leadership change exist with a resultant disillusioned board, dysfunctional management team, bewildered stakeholders & now, more than ever before, a strikingly negative media glare.

Leadership transition is an integral process involving all stakeholders in an organization. It begins long before (and continues long after) the outgoing leader departs, and presents a remarkable opportunity to move forward with a new understanding of the complexities, challenges, and changes the organization must address. The ideal situation is to have the leader depart & the successor announced simultaneously or even before the transition occurs. But this has hardly been the case at most Indian companies.

In mature global companies, examples ranging from GE, Citigroup to IBM, effective leaders have planned an exit that was as positive and graceful as their entrance. They worked towards fulfilling the mission & goals of the organisation with a sense of where they want the organization to be and to a certain degree, their personal goals as to where they want to be personally when they leave. When those goals are realized, the transition to new leadership, to find a successor becomes a primary focus. It becomes, literally, the ultimate responsibility. However, with the explosive growth being witnessed by Indian companies, leadership transition & succession planning hardly come as a priority. There are several examples of large Indian companies with the leader nearing retirement, taking repeated extensions & the board still hesitant to draw out a succession plan, overwhelmed with the presence & personality of the incumbent.

In a dynamic business environment, like any other contingency, leadership transition strategies also need to be proactively devised. This calls for an effective board partnership in not just selecting the successor, but managing the process. For the departing leader, it is not as simple as just ‘passing the baton’, he should plan, communicate & participate in the process, involving all stakeholders. However, the leader should not select his successor.

It is here that the Board is best suited & needs to emphasize the vision of the organisation for the future & reassess the major issues it will face in the next 5 to 10 years. This will help shape the qualities required of the new leader to march towards that vision. If the present leader proved right for yesterday and today, the new leader must be equally right for tomorrow. ‘Continued excellence in the future’ and not ‘perpetuation of the past’ should be the mantra.

However, most often, the Board tends to quickly find an internal replacement for the leader and that too without any external, unbiased evaluation of the competencies & capabilities of the incumbent. In most of the cases, the board does’nt even have a long exposure to those next in line. It is also ill-advised not to look outside--even if only to "calibrate, measure & benchmark" the internal candidates.

The succession challenge amongst Indian companies is compounded by the fact that a substantial number of publicly traded companies are family controlled, which makes it even more difficult to address the issue on a purely objective basis. Boards of such companies are still maturing & have only recently begun addressing the issue.
Indian companies are still a far cry from companies like GE where its Board started looking for a replacement for Jack Welch way back in 1997, much before his retirement due in 2001.

Increasingly, the board of directors at India Inc. should be at the helm as the guiding force for ensuring a steady flow of effective leadership. In conjugation with the HR of the organisation, a self-renewing succession culture that will develop leaders at all levels of management should be encouraged. Claude 49 has resulted in an increasing representation of independent, outside directors on the Board, increasing corporate governance amongst other functional & reporting standards.  A proactive focus by the directors on the issue of leadership transition would have the organisation prepared for foreseen or unforeseen leadership vacuums.