Article: The Advisory View: Succession Planning in PSUs

Strategic HR

The Advisory View: Succession Planning in PSUs

Experts share ways to develop leadership and succession in organisations
 

CMDs are not appointed by internal promotion process, although the ultimate appointee may be an internal candidate

 

Clients don't want to work with organizations where they see no gender diversity. 50% of the investors in NYSE are women

 

On Succession Planning in PSUs

Dhruv Prakash, Managing Director - India, Leadership and Talent Consulting, KORN/FERRY INTERNATIONAL
PSUs are unique in that almost invariably grow their own timber. PSUs generally have an internal promotion system and hire at entry level. Their system of internal promotions reaches the Executive Director level, which is one level below the Board. The Board level appointments are done only by Public Enterprises Selection Board. At that level then only, the pool becomes open to other PSUs and the market. The internal promotion system works through the DPC process (Departmental Promotion Committee) and people who get promoted are assigned to the roles available at that level. Sometimes it has a flavor of succession in the sense that the committee looks at the kind of experience the person will need to go to the next level or they might appoint someone to a role he / she has expertise in.
In terms of appointment of CMD, the process is the same as that of the other Board level appointments. CMDs are not appointed by internal promotion process, although the ultimate appointee may be an internal candidate. The Public Enterprises Selection Board advertises a vacancy, receives applications, prepares the dossier for each candidate with their experience, qualifications, performance ratings and summation of confidential reports. They then short list candidates and send it to the Ministry, who in turn sends it to the Cabinet with the three finalists and with their recommended candidate. The cabinet committees have the authority to either accept the recommendation or chose any of the other shortlisted candidates or request them to start the process all over again. The concurrent CMD is not involved at all in this process.

On Leadership Transition

Richard Wellins, Senior Vice President, DDI
The role of Board of Directors is key to succession management in all types of companies. To me, there are two key roles to any Board – to help formulate, craft, and advice on strategic direction, and to ensure sound succession management processes are in place at least three levels down. They should also regularly review the performance / potential of top talent. A poor current example right now is that of HP. Three CEOs, all external hires, all faced significant challenges over a short period of time - this is a Board failure. Why are no insiders capable?
In family run businesses, the key challenge is degrees of freedom. If the CEO is turning the business over to a second generation family member, the Board may have a very limited role. Over long run, internal successions are more successful than external because the existing CEO has made the choice of the right person and successful transition a key priority. Key elements for successful transitions include identifying a small pool of potential succors and nurturing them in advance, and preserving the core values / areas of competencies while pursuing change / innovation. A key factor in transition is the current CEO and successor discussing and calibrating on what needs to be preserved, and what should change. A company can last decades / even centuries. Thus, a successful transition is really balancing the company legacy with the ‘new agenda’. In successful transitions, the past CEO is still ‘around’, they may be in the invisible background, continuing to serve as a mentor, coach and advisor. In other cases, they may formally take the role of CEO to ensure a successful transition, like in the case of Xerox where ex-CEO Anne Mulcahy mentored current CEO Ursula Burns when the company was losing out in the photocopy segment.

 

On Inclusion of Women in Boards

Poonam Barua, Founder Chairman, Forum for Women in Leadership
During succession planning, there is always the risk of the Board as well as the CEOs looking for their own “clones”, thereby barring fresh perspectives coming in. ‘Men in black suits’ will most likely be inclined to look for ‘men in black suits’! And many of the Indian organizations seem to be doing just that as it keeps them in a fine ‘comfort zone’. Take the recent example of Tata Group and Infosys, who are looking for CEO successors, with all-male search committees.
The current market environment is redefining leadership by demanding more women in not only company Boards, but in top-positions as well. The market is defined by its consumers, suppliers, investors, and employees. They want to see more women entrepreneurs included in their supply chain, who are offering their services at a more reasonable salary and lesser cost. Women also have a much more flexible delivery style. Employees are aspiring to work in organizations where the workforce looks diverse and different. Clients don’t want to work with organizations where they see no gender diversity. 50% of the investors in NYSE are women. That’s why America is looking towards advancing women in a realistic way because a large segment of their investors are women. All these market elements are redefining leadership by demanding greater gender diversity on the Board. Companies should therefore strategize their succession planning not based on their assessment of the market alone but according to the market’s requirement of leadership. And if you don’t do that, the stakeholders will not continue to buy into your company. In corporate India, we have unfortunately not yet started to look at the mature level of future market dynamics for doing succession planning in boardrooms.
There is in fact an increasing trend of clients demanding to see more gender diversity with their business partners, because women bring in a fresh and innovative perspective of doing business. Owing to the demands of the clients, companies are now actively inducting more women in client-meetings. It should however be the other way round; companies should themselves realize the need for gender diversity, rather than being client-driven.
From WILL Forum’s interaction with over 2,500 women, we have found that there is a ‘definable’ difference in the leadership context of women. While the DNA of leadership is the same for men and women – integrity, courage, commitment – how these traits manifest themselves depends upon who are your peers, colleagues, managers, and the socio-economic eco-system in the workplace. This eco-system is totally different for women given their home pressures, stereotypes in the workplace, and issues surrounding safety and corporate culture, which does not allow women to manifest their leadership qualities authentically. This is why diversity is critical in the workplace, top management, and Boards so that the inherent leadership qualities of all individuals have an equal opportunity to shine, and this is the true value of gender diversity.

 

On Relevance of Succession Planning

Dr. Ganesh Shermon, Partner & Country Head - People and Change Practice, KPMG
Succession planning helps organizations avoid knee-jerk reaction and engages senior management in a disciplined review of the leadership talent available with the organization. Recently, most of the companies have started looking inwards for future success. Hiring people from within the organization fosters employee commitment and significantly increases the chance of making the right hiring decision. It has been observed lately that most CEOs announce their succession plans one or two years before their retirement. For instance, Mr. A.M. Naik, CMD, L&T made a public statement to freeze his succession plan two years before his retirement. Also Jack Welch announced his succession plan two years before his retirement. However, it is worthwhile to note that succcession planning process gets initiated much before the announcement date. For example, in NTPC a high level Succession Planning Committee (SPC) initiates development of three potential successors per position three to four years before the retirement of the incumbent. It is relevant that companies strategically plan their succession planning well in advance so that companies don’t have to panic during contingency. And here, the Board, CEO as well as the HR play equally critical roles. The Board is responsible for clearly conveying to the CEO that his / her performance will also be measured by his / her ability to manage succession. Additionally, the Board, in consultation with the CEO, is responsible for detailing out the criterion of selection for the next CEO. The CEO, on the other hand, needs to identify high potential leaders and spend disproportionate resources to develop them. Also, CEO needs to constantly monitor the outcome of succession planning activities at all the levels in the organization. The role of HR is to facilitate the process of succession planning by providing functional expertise in the area of potential / competency assessment and by effectively managing all the developmental programs for potential successors.
 

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Topics: Strategic HR, Leadership

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