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Succession Planning: The Exemplary Tata Way
|by Rahul Juneja|
There is a lot of hoopla these days with regard to succession planning of leaders. Whenever a visible leadership change occurs, the image of the incoming leader appears to be much less than the exiting leader. The fallacy lies in our tendency to make an unfair comparison between the embellished profile of the outgoing leader and the unclear profile of the incoming leader. That is why Lal Bahadur Shastri initially looked inadequate as a replacement for Jawaharlal Nehru, Homi Sethna looked inadequate compared to Homi Bhabha and Vikram Sarabhai, and Ratan Tata was thought to be less than J.R.D. Tata. But all of these turned out to be successful transitions.
Thus a public focus on the candidates rather than the process can become counter-productive. Many international companies use their own tested process. BP practised the system of identifying and grooming 'The Turtles' which the CEO monitored personally as revealed by Lord Browne in his book.
The GE approach is fabled. In the 1980s, Reginald Jones was chairman. The process that he and the board undertook to prepare a list of possibilities, how they shortened it and how he finally zeroed in on Jack Welch is the subject of a Harvard case study. The process included a plane trip by Reginald Jones individually with each of the contenders. During the trip Jones asked his companion candidate a surprise question, 'Suppose this plane crashed and neither you or I were to survive. Also suppose that just before the crash you are asked to name a successor at GE, whom would you choose and why?' According to Jones, the conversation revealed a lot about the candidate himself. Jack Welch, of course, became an immensely successful CEO. After his 20 years, Welch went on to repeat a modified process when the board chose Jeff Immelt around mid 2000s.
In India, the Hindustan Unilever (HUL) system of C and D listers has been much lauded. It is a continuous process of discussing people and identifying people at different levels for the distance they are judged to be able to travel in their career. In his autobiography, the first Indian chairman of HUL, Prakash Tandon, wrote about how he started to think about his successor within a year of his assuming chairmanship in 1961. A subsequent chairman, T. Thomas, also described how he went about the difficult choice between two outstanding candidates, Susim Datta and Ashok Ganguly. The process centred on identifying a list of candidates, placing them in specially chosen and challenging roles, and then observing the outcomes.
The parent Unilever also had a well established system. For decades, Unilever produced internal CEOs and chairmen. In the 2000s, when the non-executive chairman and CEO were both Unilever lifers, the Board felt the need for change. First, they brought in a Swedish outsider, Michael Treschow, as non-executive chairman and followed with another outsider as CEO, Paul Polman from P&G/Nestle. The process was driven by the board with a great deal of sensitivity and confidentiality.
The Tata case is interesting. From what is publicly known, succession planning was not a strong point until the late 1980s. In the late 1970s, the unsuccessful succession planning attempt by Voltas is etched in the public mind. Chairman Tobaccowala initiated a high visibility, open search which resulted in the recruitment of Ramesh Sarin of ITC as the CEO. Subsequent events proved that Tobaccowala had no intention of giving up his executive power and authority. Inevitable clashes followed and Sarin moved on.
But something positive by way of process must have happened during the last 20 Ratan Tata years. It is known that Ratan Tata set up a group HR function as part of his re-organization plan in the 1990s. The intent was to introduce good practices within the companies with respect to talent management and succession planning. While there is not much outside information about how much progress the companies have made, something right must be going on. The succession transitions are impressive from an outsider's perspective. Further, the board directors seem to be involved and to drive the leadership changes in the companies.
In Tata Steel, Jamshed Irani became CEO in 1991 amidst tumultuous circumstances of the Russi Mody departure. In earlier interviews, Irani had mentioned that by the late 1990s, he presented to Ratan Tata a comprehensive review of possible successors; together, they zeroed in on a few possibilities. From this list, B. Muthuraman emerged as the CEO in 2001. Muthuraman, it is learnt, did a similar exercise and discussed it quite early on with Ratan Tata and the board while choosing his successor in 2009. He too accomplished a successful transition.
In Tata Consultancy, S. Ramadorai took over from the legendary F.C. Kohli in 1996. He was filling big shoes. He grew the business dramatically over the next decade and a half, including the IPO of the company. By mid 2000s, he is reported to have made a short list of potential successors for discussion with Ratan Tata and the board. From this list emerged N. Chandrasekharan. Ramadorai walked out of his TCS office on the date of his retirement so that his successor would have a free hand.
In Tata Chemicals, change was sought in 2001. Outsider Prasad Menon was recruited to succeed Manu Seth. Perhaps because of what he had learnt at ICI, his earlier company, Prasad Menon started to think about succession early on. Apart from pacing potential, solid internal leaders, the leadership brought in a young TAS officer into the company and tested him through hugely challenging assignments. All the identified candidates were watched, coached, talked about and nominated to Advanced Management Programmes. Finally a choice was made by selecting R. Mukundan, with a short bridging role by veteran Homi Khusrokhan.
The successful transitions completed in the listed Tata companies during the last two decades are impressive: Titan (where Xerxes Desai gave way to Bhaskar Bhat), Voltas, Rallis, and Indian Hotels. The conclusion is that whatever the process, the Tata group seems to have got succession about right - not perfect, but it seems to be effective and deliver positive results.
Now Tata is in the midst of the mother of all successions, finding a successor to Ratan Tata. Instead of focussing on the possible candidates, let us reflect on the process they have announced.
Firstly, a search committee has been appointed with the composition and membership placed in the public domain. The choice of candidate is wide open: man or woman, Indian or foreigner, internal or external. Secondly, the search committee has provided brief public updates of the status; it is not surprising those details or candidates are not revealed. Thirdly, the search committee has set itself approximate time targets so that their work inadvertently does not become desultory. Lastly, they have internally adopted relevant criteria and a methodology, taking the assistance of a specialist firm. There does not seem much else to do by way of process.
Based on the recent track record of successful transitions and the transparent process for the chairman succession, the Tata group has a good chance of getting the succession right. It is better that we wait for the search committee to do its job rather than keep speculating on names and individuals.
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