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INDEX

SR NO.

PARTICULARS PAGE NO.

1. EXECUTIVE SUMMARY 6

2. INTRODUCTION TO HRM 7

3. INTRODUCTION TO SUCCESSION PLANNING

8

4. IMPORTANCE OF SUCCESSION PLANNING

12

5. SUCCESSION PLANNING PROCESS 14

6. ADVANTAGES OF SUCCESSION PLANNING

25

7. MISTAKES TO BE AVOIDED IN SUCCESSION PLANNING 27

8. SUCCESSION PLANNING:THE INDIAN PROSPECTIVE

30

9. STUDY OF MURRUGAPPA GROUP SUCCESSION PLANNING

42

10. CONCLUSION 46

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EXECUTIVE SUMMARY

The project explains the concept of succession planning and how it is important for

the successful functioning of a business. It proceeds to highlight the business

functioning trend in India which mainly is about family businesses. But seeing the

recent trend of few of the big Indian businesses opting for proper professionally

planned succession planning, it isn‘t long when India will pick up this practice in

every aspect. Many recent examples of succession planning in the Indian

businesses have been stated such as axis bank, Tatas, Infosys, ONGC, Eicher etc.

With main focus on Murugappa group succession planning. Murugappa group of

companies is a great example of family business training their heirs in a

professional manner to lead the business.

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INTRODUCTION TO HUMAN RESOURCE MANAGEMENT

Human resources are the most valuable and unique assets of an organization. The

successful management of an organization's human resources is an exciting

dynamic and challenging task, especially at a time when the world has become a

global village and economies are in a state of flux. The scarcity of talented

resources and the growing expectations of the modern day worker have further

increased the complexity of the human resource function.

Even though specific human resource functions/activities are the responsibility of

the human resource department, the actual management of human resources is the

responsibility of all the managers in an organization.

It is therefore necessary for all managers to understand and give due importance to

the different human resource policies and activities in the organization. Human

Resource Management outlines the importance of HRM and its different functions

in an organization. It examines the various HR processes that are concerned with

attracting, managing, motivating and developing employees for the benefit of the

organization.

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INTRODUCTION TO SUCCESSION PLANNING.

Succession Planning

“Thinking About Tomorrow Today”

In organizational development, succession planning is the process of identifying

and preparing suitable employees through mentoring, training and job rotation, to

replace key players — such as the chief executive officer (CEO) — within an

organization as their terms expire. From the risk management aspect, provisions

are made in case no suitable internal candidates are available to replace the loss of

any key person. It is usual for an organization to insure the key person so that

funds are available if she or he dies and these funds can be used by the business to

cope with the problems before a suitable replacement is found or developed.

Succession Planning involves having senior executives periodically review their

top executives and those in the next-lower level to determine several backups for

each senior position. This is important because it often takes years of grooming to

develop effective senior managers.

There is a critical shortage in companies of middle and top leaders for the next

five years.

Organizations will need to create pools of candidates with high leadership

potential.Succession planning involves a careful balancing of the concerns and

needs of a firm’s founding and senior managers, on the one hand, and its more

junior investment professionals and managers, on the other hand. The founding and

senior managers want to be properly rewarded for their efforts in building and

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growing the firm, and this may include rights to continue to participate in fund

economics after these managers have begun to wind down their active

involvement. These desires must be balanced against the need to provide increased

economic benefits and firm governance rights to junior managers and investment

professionals in order to develop the next generation of managers for the firm.

Definition

Succession planning can be broadly defined as identifying future potential leaders

to fill key positions. Wendy Hirsh1 defines succession planning as 'a process by

which one or more successors are identified for key posts (or groups of similar key

posts), and career moves and/or development activities are planned for these

successors. Successors may be fairly ready to do the job (short-term successors) or

seen as having longer-term potential (long-term successors).'

According to Hirsh, succession planning sits inside a very much wider set of

resourcing and development processes called 'succession management',

encompassing management resourcing strategy, aggregate analysis of

demand/supply (human resource planning and auditing), skills analysis, the job

filling process, and management development (including graduate and high-flyer

programmes).

Enforcing the succession plan:

A careful and considered plan of action ensures the least possible disruption to the

person’s responsibilities and therefore the organization’s effectiveness. Examples

include such a person who is:

• suddenly and unexpectedly unable or unwilling to continue their role within the

organization;

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• accepting an approach from another organization or external opportunity which

will terminate or lessen their value to the current organization;

• indicating the conclusion of a contract or time-limited project; or

• moving to another position and different set of responsibilities within the

organization.

Coverage

Organisations differ in size, scope and type, so it is difficult to point to any single

model of succession planning. However, it is most common for succession

planning to cover only the most senior jobs in the organisation, plus short-term and

longer-term successors for these posts. The latter groups are in effect on a fast-

track, and are developed through job moves within various parts of the business.

This focus on the most senior posts - perhaps the top two or three levels of

management - means that even in large organisations, only a few hundred people at

any given time will be subject to the succession planning process. It also makes the

process more manageable, because it is much easier to concentrate on a few

hundred individuals rather than (say) several thousand. That said, however, many

large organisations attempt to operate devolved models in divisions, sites or

countries where the same or similar processes are applied to a wider population.

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The role of HR

Succession planning needs to be owned by line managers, and should be actively

led by the chief executive who has a key role in ensuring that it is given the

importance it deserves by other senior managers; ensuring that there is a healthy

pipeline of potential leaders is about nothing less than the future of the

organisation. But it is not realistic for CEOs and those around them to have sole

responsibility for this; they have neither the time nor the expertise.

The HR function therefore has a critical role in supporting and facilitating the

process, not least in compiling all the necessary information on potential

candidates. Any career move at senior level is a process of multiple dialogues, in

which a senior representative from HR will collect views from senior line

managers in an iterative fashion, testing, challenging and amending them as the

dialogue goes on, making sure that all possibilities are covered, and maybe putting

proposals for decision to a succession development committee. HR departments

are of course also heavily involved in giving career advice and information to

individuals, and assessing and advising on their development needs. The HR

function is also centrally concerned in the design and management of assessment

processes and information support, including the development and maintenance of

computerised databases.

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IMPORTANCE OF SUCCESSION PLANNING

Succession planning is an essential part of doing business, no matter how certain

your future appears. It's easy to put off planning when everything seems to be

going so well, right? Wrong. Now is the time to begin succession planning. Here

are some reasons why it can't — and shouldn't — wait:

You can't plan for disaster. No matter how good you and your staff are at

revenue projections or economic predictions, no one can truly plan for

disaster. Whether it's an unforeseen illness, a natural disaster, or a CEO's

decision to suddenly retire, the reasons for having a succession plan in place

before it is needed are endless. So while you can't plan for disaster, you can

put into place a series of contingencies that will help your company stay

afloat if, in fact, catastrophe occurs.

Succession planning benefits the business now. Just as business practices

have evolved over the years, succession planning has also grown and

changed. It's no longer a plan that can only be accessed when leadership is

going to change; a succession plan can be used before its "real" intent is

necessary. It can be used to build strong leadership, help a business survive

the daily changes in the marketplace, and force executives to review and

examine the company's current goals.

Succession planning gives your colleagues a voice. If you're running a

family business, the process of succession planning will give family

members an opportunity to express their needs and concerns. Giving them

that voice will also help create a sense of responsibility throughout the

organization, which is critical for successful succession planning. Resist the

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temptation to solely carry the entire weight of creating and then sustaining a

plan.

A succession plan can help sustain income and support expenses. Talking

about money should be a priority. People generally don't want to work for

free and things don't pay for themselves. A succession plan can provide

answers as to what you — and your staff — will need for future income, as

well as what kinds of expenses you may incur once you step out of the main

leadership role. Ask yourself questions about your annual income and other

benefits including health and dental insurance for you and your dependents,

life insurance premiums paid for by the company, your car, professional

memberships, and other business-related expenses.

Succession planning gives you a big picture. Some companies mistakenly

focus solely on replacing high-level executives. A good succession plan can

go further, however, and force you to examine all levels of employees. The

people who do the day-to-day work are the ones keeping the business going.

Neglecting to add them to the succession planning mix could have dire

consequences. As you develop your plan, incorporate all layers of

management and their direct reports.

Succession planning strengthens departmental relationships. When

regular communication occurs between departments you are more likely to

experience synergy, which breeds a culture of strength. Make sure that you

link your succession planning activities with human resources. After all, HR

is about people. By including HR in succession planning, you can

incorporate elements like the employee-evaluation process, which can help

when deciding whether to fill vacancies with internal candidates.

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SUCCESSION PLANNING PROCESS

Succession planning recognizes that some jobs are the lifeblood of the organization

and too critical to be left vacant or filled by any but the best qualified persons.

Effectively done, succession planning is critical to mission success and creates an

effective process for recognizing, developing, and retaining top leadership talent.

Success factors

There are several factors typically found in successful succession planning

initiatives. For example:

Senior leaders are personally involved.

Senior leaders hold themselves accountable for growing leaders.

Employees are committed to their own self-development.

Success is based on a business case for long-term needs.

Succession is linked to strategic planning and investment in the future.

Workforce data and analysis inform the process.

Leadership competencies are identified and used for selection and development.

A pool of talent is identified and developed early for long-term needs.

Development is based on challenging and varied job-based experiences.

Senior leaders form a partnership with human resources.

Succession planning addresses challenges such as diversity, recruitment, and

retention.

Effective succession planning

The following information includes:

• A graphic representation of a six-step process for effective succession planning

• A table with descriptions of each step in this process.

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Step 1: Link Strategic and Workforce Planning Decisions

This step involves:

Identifying the long-term vision and direction

Analyzing future requirements for products and services

Using data already collected

Connecting succession planning to the values of the organization

Connecting succession planning to the needs and interests of senior leaders.

Step 2: Analyze Gaps

This step involves:

Identifying core competencies and technical competency requirements

Determining current supply and anticipated demand

Determining talents needed for the long term

Identifying “real” continuity issues

Developing a business plan based on long-term talent needs, not on position

replacement.

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Step 3: Identify Talent Pools

This step involves:

Using pools of candidates vs. development of positions

Identifying talent with critical competencies from multiple levels—early in careers

and often

Assessing competency and skill levels of current workforce, using assessment

instrument(s)

Using 360° feedback for development purposes

Analyzing external sources of talent.

Step 4: Develop Succession Strategies

This step involves:

• Identifying recruitment strategies:

- Recruitment and relocation bonuses

- Special programs

• Identifying retention strategies:

- Retention bonuses

- Quality of work life programs

• Identifying development/learning strategies:

- Planned job assignments

- Formal development

- Coaching and mentoring

- Assessment and feedback

- Action learning projects

- Communities of practice

- Shadowing.

Step 5: Implement Succession Strategies

This step involves:

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Implementing recruitment strategies (e.g., recruitment and relocation bonuses)

Implementing retention strategies (e.g., retention bonuses, quality of work life

programs)

Implementing development/learning strategies (e.g., planned job assignments,

formal development, Communities of Practice)

Communication planning

Determining and applying measures of success

Linking succession planning to HR processes

– Performance management

– Compensation

– Recognition

– Recruitment and retention

– Workforce planning

Implementing strategies for maintaining senior level commitment.

Step 6: Monitor and Evaluate

This step involves:

Tracking selections from talent pools

Listening to leader feedback on success of internal talent and internal hires

Analyzing satisfaction surveys from customers, employees, and stakeholders

Assessing response to changing requirements and needs.

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LEADERSHIP COMPETENCIES FOR SUCCESSION

PLANNING

COMMUNICATION [VERBAL & WRITTEN]

Communicates effectively with others in an open, timely and sensitive

manner.

Typical Behaviours:

Demonstrates effective communication: listens generously, seeks to

understand, provides feedback and communicates in a positive manner, and

ensures others understand messages

Establishes trust and credibility in working relationships through open,

honest, consistent and frequent dialogue.

Organizes, interprets and disseminates all information to internal and

external audiences including complex work and advice clearly, concisely

and plainly.

Consults with everyone affected, listens to all views and considers them

fairly.

DECISIVENESS

Is proactive and demonstrates the ability to make informed, balanced

decisions in a timely manner and stand behind them.

Typical Behaviours:

Understands fully the effect and consequences of each decision and stands

accountable for decisions.

Deals with performance issues in a timely, fair and constructive manner

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Demonstrates commitment to performance management in actions and

words

Takes decisive action/is proactive in moving initiatives forward or solving

problems.

DISCRETION

Demonstrates good judgment

Typical Behaviours:

Shows consistency balanced with fairness

Ensures decisions are consistent with the directional focus of the University

Uses conflict resolution skills effectively

Considers all sides of an issue and balances all interests, including future

impacts

LEADERSHIP OF THE DEPARTMENT/UNIT

Sets and communicates direction to further the Strategic University Plan,

supports the department or unit and provides appropriate opportunities for

individual development.

Typical Behaviours:

Establishes scope for decisions by individuals and balances this with need to

make independent decisions.

Administers and supports staff development in a proactive, equitable and

consistent manner.

Provides recognition to support teamwork and individual contribution

Communicates on behalf of the department/unit when required

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Ensures the development and application of performance measures and

targets to assess results

Provides opportunities and promotes an environment that encourages

continuous development

Supports [coaches/mentors] others to take responsibility for achieving the

highest possible levels of performance

Builds effective communication links with other departments and effectively

facilitates resolution of issues/needs, which cross-departmental lines.

Pushes decision making down to the appropriate level and provides

necessary guidance and support to other decision makers.

ORGANIZATIONAL COMMITMENT

Demonstrates identification with, support and commitment to the

organization

Typical behaviours:

Puts aside personal preconceptions and self-interests and concentrates on the

common goal and the betterment of the University.

Demonstrates pride in working for Athabasca University

Supports the University [e.g. Its plans, policies, programs] in a positive

constructive manner.

Promotes and acts with integrity in dealing with students and employees.

TEAM PLAYER

Works in all types of committees and groups, supports the committee or

group and contributes to its effectiveness.

Typical behaviours:

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Respects and anticipates the needs, feelings, and opinions of others

Encourages discussion of issues and concerns

Creates a sense of community; facilitates communication within the group

Recognizes the value of teamwork

VISION

Views current events and future possibilities from multiple perspectives,

develops future oriented scenarios and communicates these effectively to

others in the organization.

Typical behaviours:

Suggests and embraces new methods and ideas that enhance the

achievement of Athabasca University’s vision.

Clearly understands and communicates the AU vision as it applies to the

department or unit.

Keeps in mind the organization context and direction, looks beyond the

immediate environment for opportunities for improvements and

enhancements.

Continually scans current and future environment and identifies themes and

emerging issues.

ANALYTICAL/SYSTEMIC THINKING

Takes a logical approach to planning and problem solving and establishes

priorities. Analyzes issues and problems systematically and thoroughly. Focuses on

critical details while maintaining a broad perspective.

Typical behaviours:

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Grasps complexities and critical details quickly and accurately

Develops well-defined, step-by-step approaches to analyze and solve

complex problems.

Identifies relevant alternative and evaluates the potential consequences of

each before taking action

Makes an effort to solve common problems by drawing from previous

experience or similar circumstances.

Assembles and integrates information from a variety of sources to present

what is relevant to a given issue or situation.

ACCURACY AND THOROUGHNESS

Makes sure that work is done correctly, completely, and with high quality in a

timely manner.

Typical behaviours:

Verifies assumptions and information by checking with credible sources,

experts or first hand experience.

Carefully reviews own work for accuracy and completeness

Carefully reviews other people’s work for accuracy and thoroughness.

Identifies and addresses all details that are needed to ensure smooth

functioning

Follows up to make sure that tasks have been completed and others have met

commitments.

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SERVICE ORIENTATION

Anticipates and responds to the needs of internal and external customers.

Develops and maintains strong relationships with internal and external

customers.

Typical behaviours:

Responds promptly to customer needs or requests of others

Expends significant time and effort to meet important commitments made to

internal or external customers

Offers unsolicited help to those in need.

Takes advantage of opportunities to present examples and scenarios

illustrating importance of client service

Presents examples and/or suggestions on how to improve services to

customers

Presents arguments and/or suggestions that convince clients that their

interests are being well served

CONFIDENCE

Demonstrates a genuine belief in the likelihood of personal success and

communicates a positive self-esteem to others.

Typical behaviours

Creates a feeling of confidence in the department or units ability to provide

timely and quality service.

Shows strong assertiveness skills when dealing with customers and peers.

Demonstrates a genuine belief in the likelihood of personal success.

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PERSERVERANCE

Continues steadfastly toward results/objectives until the desired result is

achieved or is no longer reasonably attainable.

Typical behaviours:

Leads by example, ensuring actions are implemented and goals are achieved

Focuses on outcome, allows flexibility on how the outcome is achieved.

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ADVANTAGES OF SUCCESSION PLANNING

Succession planning is an essential part of doing business, no matter how certain

your future appears. It's not easy to put off planning when everything seems to be

going so well. Here are some reasons why it can't — and shouldn't — wait:

You can't plan for disaster.

Succession planning benefits the business now.

Succession planning gives your colleagues a voice.

A succession plan can help sustain income and support expenses.

Succession planning gives you a big picture.

Succession planning strengthens departmental relationships.

Succession planning keeps the mood buoyant.

Besides the obvious benefit of not leaving your company in the lurch of proper

Succession Planning will help your company in other ways, too. Here’s a rundown

of the benefits. Remember, not all benefits will apply, depending on your specific

situation. Succession Planning can:

Reduce taxes, in some situations with family-owned businesses. For

example, if a company gets new ownership after an owner's death, lack of

planning can result in steep estate taxes. Other tax issues, such as

transferring ownership to a child, might apply.

Ensure continuity. Customers, clients, vendors, and employees all want and

need to know that a business will continue to function as they know it, even

when there’s a leadership change. Choosing and grooming a successor who

fits your mold will help this happen.

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Provide training plan for possible successors. If you identify who you

might choose as a successor early, you’ll know that that person needs more

training and one-on-one time with your current leader to gain as much

knowledge for the position while it’s still possible.

Help you plan for the future direction of the company

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MISTAKES TO BE AVOIDED IN SUCCESSION PLANNING

Many mistakes are commonly made in establishing succession planning programs.

They are worth enumerating. It is also worthwhile to describe some ways to avoid

these common mistakes.

Assuming that Success at One Level Will Guarantee Success at Higher

Levels. An individual’s success at one level is no guarantee of success at

higher levels of responsibility. The reason is simple: the competencies

required for success at each level are different. Hence, it is important to

separate thinking about how well someone does his or her current job and

how well he or she might do a job at a higher responsibility level.

Assuming that Bosses Are Always the Best Judges of Who Is

Promotable. A second mistake is to assume that, for purposes of succession

planning, bosses are always the best judges of who is promotable. That is

not always true. Bosses are self-interested players in the succession game.

They have a stake in what happens to people. Indeed, some bosses do not

want to see their best people promoted for fear of an inability to replace

them. Some bosses grade people by their own standards - with the result that

some individuals who are quite unlike the boss are not considered for

promotion. While the support of a boss is useful in developing individuals,

more objective assessments, such as multi-rater assessment are excellent in

aiding the manager’s assessment.

Assuming that Promotions Are Rewards. Some employees have an

entitlement mentality in which they feel that long service with an

organization should always be rewarded with promotions. But business

decisions must be based on who will do the best job, not who is “owed” a

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promotion because of greatest seniority. Workers must continually be

reminded that doing jobs at each level requires different competencies, and

the best way for them to compete is to prepare for future challenges rather

than expect promotions for past performance at a different level of

responsibility.

Trying to Do Too Much Too Fast. The strong results-orientation of many

organizations today emphasizes quick results. Senior leaders expect to see

all the components of a comprehensive succession system in place

immediately. That is not always realistic. It is advisable to think of

implementing systematic succession in a phased way - either from the top

down or else starting in specific divisions or locations with greatest need.

Giving No Thought to What to Call It. A fifth mistake is to devote no time

to considering what to call the succession program. As any marketer knows,

product names do matter. It is not necessary to call a spade a spade. Many

organizations choose alternative names–such as “leadership development

program,” “human capital management program,” or even “talent program.”

Assuming that Everyone Wants a Promotion. A sixth mistake is to

assume that everyone wants a promotion. That is not always true today. In

many downsized organizations, workers have seen what pressures their

bosses have to deal with. Some say “leave me out of that.” Hence, it is

unwise to assume that everyone wants a promotion–or even to assume that

money will convince everyone. It will not. Check first. Find out what people

want to do. For that reason, many organizations launch both a top-down

succession planning program and a bottom-up career planning program to

galvanize development

Lack of understanding how it works and how it benefits the organization.

Lack of a formal written plan for the person or position(s).

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Lack of availability of human and financial resources; lack of budgetary

commitment.

Superficial approach; lack of real understanding of the procedures, processes

and requirements of each area the individual is exposed to during the

process.

The requirements of the Managers/Executives are not fulfilled in providing

dedicated instructions, guidance regarding skills, knowledge and abilities

needed for the candidates to be successful.

Failure to identify key employees who may have concerns with your

succession plan.

Failure to plan for disability.

A rigid, inflexible plan NOT tailored to the needs and abilities of the

personnel involved.

Too long a wait for real movement/promotion, disillusionment, may result in

some people leaving due to apparent inertia in the system.

Selection of unqualified or unmotivated people for inclusion in the

Succession Plan. Quality of the individuals selected is paramount to the

success of the process.

Complex program, requiring considerable paper work, follow-up, reporting

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SUCCESSION PLANNING: THE INDIAN PERSPECTIVE

Companies in India have approached succession planning in different ways and

experience has shown that few have built strategies that encompass the three

critical facets of the exercise: board succession, CEO succession and building a

leadership pipeline.

Three categories of company exist in India : first, the widely held and

professionally managed companies; second, the family-promoted/family-controlled

companies, but with significant holding by minority shareholders; third,

government companies where there is a significant minority holding. Owing to the

differences in structure and functioning of these companies, succession planning

strategies could differ, though the issues tend to remain the same.

The roundtable discussion detailed here addressed each of the above facets; it

contains numerous insights as well as questions regarding the state of succession

planning in India.

Succession planning is a challenge across the globe – but particularly so in India.

Indian leaders, while highly adaptable and strongly entrepreneurial, generally

perform poorly in terms of teamwork and succession planning. Infact, the

KFI/Economist survey ranked Indian leaders

among the lowest performers on this count. This is evident in the fact that today,

fewer than 20% of Indian businesses work to develop future leadership, or to

engage actively in succession planning. Strong Indian leadership has been

emerging across multinational companies (both Indian and foreign), but these

competitive traits, and the drive to succeed in global markets, have not yet been

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focused on developing people. India now requires its leaders to work towards

nurturing its pool of future managers, instead of merely driving their companies.

According to the ABB (Assocham Business Barometer)report of 2007

Corporate India not ready with succession plan, says Assocham Business

Barometer 

India Inc. has a long way to go for putting in place its succession plan at top level,

which has an important bearing on the market valuations of the companies,

confidence of the business associates and morale of their employees, an Assocham

Business Barometer Survey has revealed. 

The ABB Survey of 275 leading management consultants, corporate, academicians

and professionals on ‘Missing Link in Succession Plan’ found that a select few

companies in India formulate and effectively implement succession plan for the

key positions in their organization structure. This was confirmed by 75 per cent of

the ABB respondents. They rated Indian companies four on a scale of 10 in terms

of long term planning and grooming of the successor to the head of a firm.  

Ninety two per cent of those surveyed said a considerable weightage is being given

to the companies, which have a hierarchy in place top-down. The analysts rate

succession planning as a crucial component of an impeccable management

structure.

The leadership acts as a catalyst in building goodwill and brand valuation of an

organization. Such factors play deciding role in determining the worth of a

company in the bourses.  The share market has rewarded the corporate entities

having properly structured succession plan with higher valuations.  

Eighty-nine of the management consultants and academicians said a well-placed

succession plan is an important component of corporate governance. Non-

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existence of a second in command of a business entity could harm the interests of

minority and widely dispersed shareholders as an element of ‘uncertainty’ prevails.

“Leadership performs an instrumental role in laying down the long-term

foundation and imparts strength to the organization. As a good corporate

governance practice the board of directors and management should set up a clearly

defined succession policy defining the number two and three positions in an

enterprise, even among the family-owned and run businesses”, Mr. Venugopal

Dhoot, President, ASSOCHAM said.

Corporate governance calls for setting of guidelines to be followed by the Board of

Directors and the management of the company in order to safeguard the interest of

stakeholders, which include shareholders, investors, employees,

consumers, suppliers and the society.   

The long-term competitiveness and efficiency level of a firm could get adversely

affected due to lack of a succession plan, according to 83 per cent of the experts

surveyed by ABB. The performance of a company gets hampered without a well-

defined hierarchy and affects the team spirit of the staff.

As many as 67 per cent of the respondents expressed their concern that employees'

morale gets affected in the absence of uncertain management chart. They feel that

a question mark is put after a stage in the growth path of even the best performing

official due to the absence of clearly laid succession policies.   

Management line of command becomes highly concentrated in a company with a

single individual at the helm. It does not trickle down through a well-defined

structure. Fifty-nine per cent experts felt that in a highly concentrated command

structure, a ''coterie'' is established among the CEO who is not fed the true picture

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by those who benefit from such a situation. Well performing   employees with self-

dignity get demoralized lot and become vulnerable to high attrition.  

About 55 per cent of the consultants were convinced that the movement of

professionals across the companies is to some extent influenced by the succession

plan and overall hierarchy structure of these organizations.

Family run business is a way of life for India Inc. However, it has not come as a

hindrance for the growth of these business concerns. Although it is easy to define

succession planning in such firms, off late instances of intra-family disputes are

being increasingly witnessed. This could hurt the interest of minority shareholders,

as this is an evidence of gaps in corporate governance among such

companies, 72 per cent of the ABB respondents felt.   

Around 60 per cent of the survey respondents were optimistic that the family run

businesses in India are moving fast towards professionalising their organization set

up. Twenty five per cent of them believed that the change in the management set

up of these companies is taking place at very slow pace. Some of the IT companies

in India have set excellent example of timely identifying, planning and grooming

of the successor to the key person leading the organization.  

The factors like lack of long-term vision, self-confidence of existing CEO,

majority shareholders exercising control over management, are responsible for

absence of successors at top position in large number of Indian companies, the

ABB found.

When asked about the performance of India vis-à-vis other mature economies like

US, UK, Germany, Japan in terms of corporate head selection, 59 per cent of the

ABB respondents said that India Inc is catching up fast . As the Indian companies

are going global making their presence is felt around the world with large number

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of overseas mergers and acquisitions taking place, it is imperative for the Indian

business houses to realize the need and importance of identification and grooming

of the heir to their leaders.  

The management of a business enterprise is not driven by an individual.

Companies commanded solely by one person holding top position can run into the

risk of ill health, natural disaster, possibility of frauds, dispute with the Board.

According to reports in 2010 Indian companies are more ready to have

succession planningEconomic Developments in India have put the focus on

how to develop and prepare leaders to manage in a growing economy. The

primary business priorities for Indian organizations according to their top

executives are growth and improving and leveraging their talent.

Organizations in India are more effective at clearly communicating the importance

of such leadership modules by monitoring them at regular levels and intervals.

Commenting on the Leadership Forecast

Report findings, Richard Wellins, Senior Vice President, DDI, said,” Leadership

transition can be one of the most stressful experiences in a person’s life, most

notably because leaders are expected to be successful in the new role. Good

leadership will be important in the future, to help control costs, cope with

increasing change and tackle the expected upturn".

Economic Developments in India have put the focus on how to develop and

prepare leaders to manage in a growing economy. The primary business priorities

for Indian organizations according to their top executives are growth and

improving and leveraging their talent.

DDI has spent the last 40 years developing leaders at every level—nearly 6.3

million worldwide—and helping organizations optimize their leadership talent.

31

In a well-funded, high growth economic environment, it is imperative for

India Inc. to craft effective leadership transfer mechanisms. Be it family-run

businesses, PSUs or professionally-managed companies, the responsibility for

effective succession planning and its implementation rests with shareholders’

representatives – the company’s Board

January 2005: 

Reliance Group, India’s largest private sector enterprise, is split as the two Ambani

brothers agree on a legal segregation of assets. While Anil Ambani would take

over the telecom, infrastructure, media and power businesses, elder brother

Mukesh Ambani would take charge of Reliance Industries, which operates in

petrochemicals, oil and gas exploration, refining and textiles. The death of business

monarch Dhirubhai Ambani in 2002 without leaving a will triggered a drama that

resulted in the division of assets between the two estranged brothers.

                                                                                                    

Succession Planning in India

The Indian business environment is largely driven by family-run businesses, public

sector enterprises and professionally managed companies (mostly MNCs). Without

doubt, family-run businesses make for a huge percentage of business houses in

India. Family-run companies account for roughly 50%* of the market

capitalization of publicly traded companies in India and contribute to around 55%*

of GDP; hence, the relevance of these companies for the overall economy.

If number are to be believed, only 13% of family-run businesses survive till the 3rd

generation and only 4% go on to the 4th generation. Additionally, one third of the

business families disintegrate because of generational conflict at the leadership

levels. Professionally run succession planning is key for the sustainability of

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businesses. Family disputes and the lack of succession planning has triggered the

decline in fortunes of many business families. Traditionally, succession planning in

family-run businesses has always been a hush-hush affair, clearly depending upon

the life expectancy of the founding chairman or patriarch. Succession planning in

family-run businesses is generally an intuitive process with the family patriarch

taking the decision as to who will take charge of the business empire. Dr. Ganesh

Shermon, Partner & Country Head - People and Change Practice, KPMG says,

“Traditionally, family-run businesses focused on dividing the silver among the

next generation rather than grooming the right person to take up the job. However,

with changing times, family-run businesses need to ensure that the chosen

successor has necessary education and skills and should be made to work his / her

way up the management. Alternatively, companies should be bold enough to

appoint a professional manager when there is no suitable candidate within the

family. Companies such as Ranbaxy, Murugappa Group and Eicher have set a

precedent in this regard.” In 1998, when Dabur India realized the might of

behemoth MNCs and their scale of operations, it valued the need for a professional

to run the operations of the company in order to build a professionally-managed

company with strategic business outlook. And that’s when Dabur India roped in an

outsider as its CEO, Ninu Khanna, rather than passing the reins to a family-

member. Sunil Duggal, Dabur’s CEO since 2000 has taken the business to new

heights by strategic acquisitions and has expanded the product portfolio to make

Dabur a comprehensive FMCG company from an Ayurvedic products seller.

Today, majority of the Board members at Dabur do not belong to the Promoter

family. The Tata Group too is on the lookout for a successor to Ratan Tata, who

retires in 2012, and for other group companies too, as the Heads of Tata Steel and

Tata Motors head toward retirement.

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Passing on the reins of the organization to a family member has a lot of legal

implications too. Hiralal Walchand, Director, Walchand Associates, which deals in

will trust services and family law, says “Family members (sometimes even far-off

relatives) join companies as employees but demand legal ownership rights during

division of assets. This should be avoided as dividing assets amongst so many

claimants completely devalues the company.” In case of listed family-run business

houses, the first step towards planning a strategic succession is to increase the

holdings in various group companies. Explains Walchand, “Increasing holding by

the parent company wards off the risk of future acquisition. B. K. Birla, for

instance has been working toward increasing the family’s stake in its group

companies of cement, textiles, et al.” Once that is achieved, the patriarch can

appoint either family members or internal and external candidates to take on the

mantle. This ensures that when the patriarch steps down, there is no change in the

way business is done. In the recent succession plan chalked out by RPG

Enterprises, Group Chairman R. P. Goenka segregated the ownership and control

of various group companies amongst his sons Harsh Goenka and Sanjiv Goenka

where the former was named the Chairman and the latter Vice Chairman. The

business will, however, continue to run the same way with each brother continuing

to control and run the companies they were handling previously.

In spite of the political stifling, some PSUs have formulated very strong succession

planning practices. Dhruv Prakash, Managing Director - India, Leadership and

Talent Consulting, Korn/Ferry International, says, “PSUs are unique in that almost

invariably grow their own timber. Public sector companies really do not have a

succession planning system per se, they have an internal promotion system.”

Companies like Indian Oil, Bharat Petroleum, Hindustan Petroleum, BHEL,

NTPC, ONGC, State Bank of India have worked on establishing leadership

34

competency frameworks, assessed managers for development and taken follow up

actions in terms of internal training and developed courses in collaboration with

the IIMs.

Some of these practices can be compared to the best in the private sector. For

instance, ONGC conducts succession planning three levels below the Board and

NTPC conducts rigorous succession planning two levels below the Board. NTPC

has constituted a high level Succession Planning Committee (SPC) comprising of

the Chairman and the Functional Directors to own the process of succession

planning. NTPC has identified 28 unique leadership positions for succession

planning. Most of the positions fall under the two top executive levels - General

Managers and Executive Directors. Against each position at least three potential

successors are identified for grooming. This is done to ensure that sufficient depth

is maintained in the leadership pipeline at all times. Succession planning is a

shared responsibility of the HR function and the organization’s leadership. NTPC’s

CMD, R. S. Sharma was recently succeeded by Arup Roy Choudhury, former

CMD of National Buildings Constructio Conrporation (NBCC).

The search for a successor for CMD (Chairman & Managing Director) is done

pretty much the same way as the search for other Board level appointments where

an advertisement is put up for the vacancy by the Enterprise Selection Board and

shortlisted candidates sent to the ministry. The final decision for appointment is

made by the Cabinet Committee. The concurrent CMD is not involved at all in this

process. In July, state-owned telecom units, Bharat Sanchar Nigam Ltd. (BSNL)

and Mahanagar Telecom Nigam Ltd. (MTNL) advertised vacancies for the post of

CMD. The Enterprise Selection Board, formed under the leadership of K. M.

Chandrashekhar, Cabinet Secretary, has received close to 100 applications and will

35

soon announce the successor to Kuldip Singh, CMD of MTNL and Gopal Das,

CMD of BSNL.

Professionally-run companies in India, mostly MNCs and a handful of home-

grown companies like Infosys, are more forthcoming when it comes to chalking

out a strategic succession planning process. Professionally-managed companies

have definite processes and employ latest techniques while identifying potential

successors. Take for instance Larsen & Toubro (L&T). Well before two years of

current Chairman A. M. Naik’s retirement, the organization has systematically and

strategically put in place a succession planning process and will announce the

name of the new Chairman six months before Naik retires so that s / he is able to

get proper handholding. In many of the MNCs operating in India, the decision to

find a successor is more in tune with business strategy and growth vision for the

future of the organization. Kellogg India recently roped in Sangeeta Pendurkar,

former VP-Strategy & Commercial Leverages at Coca Cola India to head its Indian

operations as MD, replacing Anupam Dutta. Pendurkar’s experience in revamping

Coca Cola India’s tea and coffee business (Georgia) and introducing innovative

regional brands such as Minute Maid and Nimbu Fresh made her a suitable choice

for Kellogg India’s strategic plan to strengthen the company’s stranglehold on the

breakfast segment by introducing more regional flavors.

In certain other professionally-managed organizations, senior leaders have the

responsibility to design their own succession planning process, as in Lucent

Technologies, where senior managers are expected to develop at least two potential

successors using job rotations, challenging work assignments, special projects and

executive coaching. Companies like Hindustan Unilever, P&G and ITC have

traditionally groomed most of their senior management internally using a

36

combination of talent review sessions, comprehensive training programs, job

rotations and a combination of HR and leadership metrics.

Role of the Board & the CEO

For corporate Boards, CEO succession planning should be one of the most

important commitments toward the organization. Even though Boards across the

spectrum realize the need for an effective succession plan, they seldom devise

processes and practices and devote sufficient time to this activity. Dr. Arvind

Agrawal, President and Chief Executive Corporate Development & HR - RPG

Enterprises, says, “It is imperative for the management / executive Board to

participate in the whole succession planning process. I am talking about the

involvement of management or executive Board and not the legal Board. The

process of succession planning is simple but the real difference lies in its execution

and that’s where most companies falter. The process demands full dedication of the

top management and not mere compliance as one of the points on a meeting

agenda.” Not having a strategic succession planning process and an effective CEO

successor is a potential risk to companies and it is the obligation of the Board to

timely address this risk. This is also lacking because most companies do not have a

Chief Risk Officer (CRO) to identify the potential threats that may arise due to

little or no succession planning. In simple words, it is the responsibility of the

Board to make sure that the framework and guidelines for succession planning are

in place and are practiced to evaluate the developments on a regular basis. While

corporate Boards play a critical role in succession planning in professionally

managed companies, their role is limited in family run businesses where the family

patriarch is generally the one who takes such decisions. In PSUs, the final decision

37

of choosing the successor is taken by an external authority (generally the Cabinet)

in consultation with the Board.

The Leadership Pipeline

A recent research by Heidrick & Struggles and Stanford University’s Rock Center

for Corporate Governance (based on a survey conducted on 140 CEOs and

Directors on Boards of North American public and private companies) found that

while 69% of respondents think that a CEO successor should be ready to replace

the departing CEO, only 54% are actually grooming executives for this position. In

the Indian context, the 2010 DDI India Leadership Report findings highlight that

while 44% of multinational organizations in India have a process to identify

leaders, only 26% have a process to develop them.

38

A STUDY ON MURUGAPPAGROUP SUCCESSION PLANNING

The Murugappa Group, headquartered in Chennai (Madras), India has grown from

humble beginnings to become a very important conglomerate. The company

started as the dream of a driven entrepreneur in Burma in the early 1900s. Today it

boasts revenues of US$ 850 million and employs 22,500 people in its 27 business

units. The company is presently undergoing a major change, as it restructures its

family governance system. It realises that change is necessary if they want to

continue to compete in the world marketplace. Though adaptation is not always

easy ,the Murugappas find strength through their heritage and values.

Adaptation and growth

In India's government-regulated economy, the Murugappa Group found it

necessary to adapt in order to prosper. In the 1980s, Indian law prohibited

formation of a business group, so the family followed the system of crossholding

controlling shares among separate public companies. Recently that law has

changed, and the family is restructuring again to become a holding company.

Because of government regulation in the past, it was difficult to obtainlicenses for

new businesses. Between 1964 and 1980, the Group appliedfor 17 licenses. Out of

the 17 license applications, one was granted and their values. Consequently, to

grow, they sought acquisition of sick unitsto turn around. In the last 20 years, 17

addition a companies have been acquired.

The most well publicised acquisition occurred in 1981 with the purchase of Madras

based EID Parry - a huge, decrepit, yet symbolic business that the Group had been

interested in since 1958. Parry, the second oldest commercial name in India,

included fertilisers, pesticides, confectionery and also sugar mills. For years EID

Parry's creditors were asking the Group to take over its management, given the

39

Group's management reputation and acumen. The family repeatedly turned down

the overtures, responding that without control EID Parry wasn't in the family

interests. Eventually, the creditors relented and the family gained control of the

publicly traded company. The agreement made headlines because it showed the

Group's commitment to invest in what many in India felt was a risky venture, but

what they saw as an opportunity to grow. EID Parry is now a business with US$

265 million in sales and is 41% family-owned.With EID Parry came a 7% holding

in a joint venture fertiliser company,Coromande Fertilisers Ltd Chevron and IMC

Global partnered in the fertiliser growth area then later sold out. EID Parry

developed a unique organic pesticide from indigenous neem seeds that is of ten

acclaimed tobe the best in the world. EID Parry is also in the sanitary ware

business.However, not all businesses have been a success. For example, the Group

has divested a cement company, sold its electronics business and faced difficulties

with its long held construction company.

Business and philanthropy

Today the Group includes seven substantial business units comprising 2 companies

in a variety of industries: CUMI, TlI, Coromandel, Parry Agro,EID Parry, CIFCO

and the only private company, Arnbadi Estates, holder, of some of the plantations.

TlI now has four significant lines: bicycles,chains, industrial tubes and roll

forming. CUMI is a full line, vertically integrated abrasives company and

Coromandel is a very profitable fertiliser business. With Arnbadi and

Parry Agro, the Group remains active in rubber, tea and coffee plantations. EID

Parry includes an assortment of businesses including fertilisers, sugar mills,

pesticides and sanitary ware. The Group is in the food industry with Parrys

Confectionery Ltd. CIFCO is in the financial

services of brokerage, vehicle finance, insurance and mutual funds. TheMurugappa

Group and family also continue to build on the example of philanthropy initiated

40

by Dewan Bahadur. His decision to set aside a major portion of his wealth for

charitable causes, starting in 1924 when he built a hospital in his home village,

commenced a tradition of helping, guiding and supporting others in communities

in which the companies do business. The family's trust, the AMM Foundation, is

sustained by a fixed percentage of annual business profits and family contributions.

To date it has built and nurtured four high schools of 8000 students, a polytechnic

institute of 1000 students, four no-fee hospitals and a rural research centre. The

rural research centre focuses its activities on developing such things as protein-

efficient algae, natural dyes, organic farming and technologies for the rural and

urban poor. Although by custom, the sister sand wives of the Murugappa men do

not work in the businesses, they are the major sources of leadership and guidance

in the family's foundation and the institutions it supports. Vellayan trained as a

civil engineer in England and used his expertise to successfully scout unique new

lines of industrial products to manufacture and sell in India. He took over the

Managing Director position of CUM I when Muthiah died and continues as

Chairman of CUMI to this day. Since 1999, he has been the family elder, but

decided against the leadership of the business, deferring to his younger brother,

Subbiah. Subbiah, the youngest son of Vellayan, has his college degree from the

University of Aston in England. He is credited with a major role in turning ailing

EID Parry into a successful business in, the 1980s, serving as Vice-Chairman and

Managing Director. He also had leadership positions at TI Cycles, as the Chairman

of the Murugappa Group and the Executive Chairman of ElD Parry. In 1996 he

was appointed Group CEO.

Muru, the oldest son of AMM, studied mechanical engineering in England,

followed by on-the-job training at Tube Investments Group UK.

41

Future focus

As the business moves from family-operated to family-governed, formalising the

family's business approach is being discussed within the family and among the

MCB members. The family has taken steps towards articulating what they stand

for by developing their Corporate Values and Beliefs. These are listed prominently

on their corporate materials, website, and Bill of Rights and Responsibilities for

Family Member Owners, all of which can be amended by family consensus but not

by vote.

The development of a Family Constitution is seen as the next important step, but

the form the Family Constitution takes - whether it should be a formal written

document or an understanding by custom and practice – is under discussion.

Independent directors are trying to get the family to formalise procedures because

the businesses' complexity demands it.

Family and independent directors of the board realise that the future role of family

members in the business is evolving. They are aware that family members in future

generations will have more choices in terms of profession than in the past and may

opt out of the business. Those who enter the business need education, development

and training to be future leaders in the family business at the governing level,

although they wil not be managing directors of units. Up until April 2001, the

MCB was headed by a family member, Subbiah. At that time, he stepped aside and

independent board member NS Raghavan took over as the MCB's first independent

non-family executive chairman on an interim basis. The reasons for this change

were to create an environment that encourages creativity and fuels growth and to

make decision-making even more rational and less personal.The board is

proceeding slowly to find a permanent non-family MCB chairman, preferring to

wait for a person who is just right for the position. In the last decade, the Group has

looked at its portfolio of businesses with

42

CONCLUSION

One of the main purposes of succession planning is to identify groups of

employees that state an intention to leave due to retirement or for some other

reason. Another purpose is to identify factors that might either influence the

employee to not leave, delay exit, or, in the case of retirees, induce returning to

work in some capacity after retirement. This will continue to be important in the

future as the state’s employees continue to age. Currently, nearly one in three

employees in these three agencies — the Department of Employment, Department

of Family Services, and the Department of Workforce Services — is age 55 or

older and another third are between the ages of 45 and 54. This means that in the

next 20 years 60% of these employees could potentially retire. Without a strategy

to transfer knowledge, they will take with them years of experience that will be

difficult to replace This study was initiated by management in three state agencies

to investigate employee plans and attitudes toward their work environments.

Because of a high response rate, we are confident that the results of this study can

largely be generalized to all employees in these agencies.

Although there are some things over which agency management has little direct

control, such as wages and benefits, this research has shown several areas in which

action can be taken that may result in greater employee satisfaction. There are

other avenues of study that we have not covered in this report. In the future, it

would be useful to investigate gender differences in workplace satisfaction. We

will also be able to test the idea of predictive validity in the near future. As

described in this report, Research & Planning can use our administrative databases

to determine whether respondents who said they planned to leave their jobs did so

at a later time, and what were the characteristics of those who changed jobs.

43

BIBLIOGRAPHY

http://en.wikipedia.org/wiki/Succession_planning

http://hrcouncil.ca/hr-toolkit/planning-succession.cfm

http://www.entrepreneur.com/topic/succession-planning

http://www.murugappa.com/companies/

http://www.livemint.com/Companies/ Murugappa-Group-From-Burma-to-Parrys-

Corner.html