From IT giant Infosys to cola major Pepsi, succession planning is a cropper

Since June began, daily news has become filled with stories about how companies and even a national party like the Bharatiya Janata Party (BJP) are grappling with succession planning. No, we are not talking about small companies here.
They are all giants in their respective sectors – IT bellwether Infosys Technologies, Cola major PepsiCo India, infrastructure major Larsen & Toubro, private sector bank YES Bank, outsourcing firm iGate and investment bank JP Morgan to cite a few. Of course, what caught the attention of billions of Indians was the Infosys saga, the sordid drama played out at the BJP office and more recently, Wal-Mart India and PepsiCo India.

From all the news reports, it would seem that either the companies were caught napping or the competition was too hot for the CEOs. Take the example of Infosys. On June 1, the company announced that Founder & Chairman Emeritus N. R. Narayana Murthy will take over as Executive Chairman. Murthy had retired from all executive roles at the company seven years ago. Not only did this disrupt the succession planning set up by him and the other founders, but he also recruited his son Rohan Murthy as a member of the Chairman’s office. Rohan will be the first family member from the second generation to get involved in its leadership. While many critics panned Murthy for this “nepotism”, others welcomed the decision saying it would restore some of the former glory to the company.

Wal-Mart India chief leaves

On June 27, Wal-Mart India announced the sudden departure of Raj Jain, who had joined the company in 2006. He had become head of India business in 2007. The company press release did not give any reasons for his departure. Since Bharti Walmart began operations in India, it has been in the news for all the wrong reasons. Major government agencies like Enforcement Directorate, Reserve Bank of India have put the company under scanner for alleged violations in FDI.

In March 2011, Wal-Mart began conducting a worldwide review of its policies, practices and internal controls for compliance with the US Foreign Corrupt Practices Act (FCPA), a law that covers the bribing of officials overseas. Bharti Walmart suspended five executives on grounds of alleged corrupt practices in November 2012, including the company’s chief financial officer. It seems with all the bad press, the company’s chief executive seemed like a convenient displacement.

Cola chief fired or resigned?

Things were not so amicable at PepsiCo India. The company on June 21 announced that Manu Anand, region president for India and south Asia, has quit the company. Anand who had spent 19 years in the company will be leaving with immediate effect, according to a company statement. Sources close to the development told Economic Times that less than expected revenues from the Indian Premier League and loss of market share to rival Coca-Cola were reasons behind Anand’s abrupt departure.

This is the first time in the history of PepsiCo India that the head of a company has quit at such a short notice, without a succession plan in place. Though Anand claimed in an interview that his exit was personal, a company statement attributed it to “deciding to join another company”.

What is interesting about Anand’s exit is that the development came a day after rival Coca-Cola announced the elevation of India CEO and president, Atul Singh, as deputy president, Pacific Group. Singh is the first Indian to hold this post within Coca-Cola.

No build-up for a successor?

At 71, L&T Chairman A. M. Naik wants to retire but cannot find a suitable candidate to fill his shoes. “If I was running a new economy company, I would have lined up 10 successors without a problem. If I was in charge of a bank, a financial services company, CPG, FMCG, IT...[such companies], there would have been no succession problem. But, there are no Indians available [to take on the leadership role] in the entire industry - or anywhere in the world. I gave the last five searches over the last four years to five different firms - without any restrictions - to create a team from any nationality. It is not yet possible,” he told Economic Times in an interview.

Race for CEO’s post

With iGate, it’s an entirely different scenario. CEO Phaneesh Murthy is now facing yet another sexual harassment suit – the third in the last 10 years. By sacking Phaneesh Murthy and removing him from the board, iGate has the unenviable task of finding a successor for him. In fact, a news report said that Infosys board members BG Srinivas and Ashok Vemuri, who are in queue to succeed Chief Executive S.D. Shibulal when his term ends in early 2015, are learnt to be in discussions with a headhunter who has the mandate to find a CEO for iGate Corporation.

CEO succession planning lags badly

Most of the high-profile examples took place in the last one month. Either the CEOs have been asked to leave or they were simply not good enough. The psychology of companies today is if the CEO does not perform well look for someone outside the company. Though it may work for the company in the short term, it would portray the company in a bad light as the company has failed to develop leaders within. More than half of companies today cannot name a successor to their CEO if the situation arises, according to a study on succession planning by Heidrick & Struggles. While 54 per cent of the 140 respondents, including CEOs and board directors, said they are grooming an executive for this position, 39 per cent said they have zero viable internal candidates.

CEO succession planning is ultimately a board’s responsibility. The Heidrick study showed that boards spend only two hours a year on CEO succession planning.

According to Russell Reynolds Associate report “CEO Succession Planning: A Framework for Boards” globally an estimated 43 per cent of large cap company CEO successions are unplanned. So many company boards continue to carry a high level of “succession risk”. It is high time that companies like Larsen & Toubro and Infosys critically evaluate their current CEO succession plan as uncertain processes sap investor confidence.
anu.kurian@peoplematters.in