Who?s next? As succession stares India Inc in the face, and the succession saga grapples stakeholders, there seems to be no readymade solutions at hand. Leading the hunt for the coveted leader are stalwarts of Indian business?Tata Group, Infosys, EIH?to name a few. With special search committees, hunt beyond family scions, a host of external and internal candidates and even foreigners in reckoning, succession planning has found a renewed focus in business dynamics. If the Tata Group and Infosys have set up search panels consisting of the who?s who, Bharti Airtel and Wipro are grooming the next line with Shravin Bharti Mittal, all of 23 entrusted with Bharti?s international operations for the ?integration of Zain Africa?, and Azim Premji?s son, 33-year-old Rishad Premji, appointed as the chief strategy officer at Wipro. RPG Enterprises, on the other hand after the grooming bit, is laying ground for succession in the old-fashioned way, with the patriarch segregating the business between his sons in his lifetime.

?Is your board working??, a Bain & Company survey released in 2009, states that globally board members discussed CEO succession at least once a year in more than 60% of S&P 500 companies, while in more than a third of the companies, the issue was discussed more than once. More than 80% of the S&P 500 companies had an emergency succession plan in place. In contrast, the report states that board members of Indian companies shy away from company leadership issues with little encouragement from the CEO or promoter. More than 75% of the respondents reported that their board did not discuss succession planning at all. In addition, Indian boards hardly get involved in the professional development of company?s top leadership. Fewer than 20% of the respondents had any formal or informal role to play in planning the CEO?s succession.

With around 95% of registered firms in India being family businesses, the blurring line between ownership and management becomes more critical. Adi Godrej reportedly pointed out how ?there is no Rubicon to differentiate a family-owned and family-managed business. Family ownership and management, and non-family ownership and management, are a continuum. And firms lie in the grey area of this continuum?. However, there is a growing emphasis to make a clear distinction between ownership and management. As Raman Mahadevan, Chennai-based business historian, cites NC Mehta as early as the 1960s, ?Great firms have disappeared simply because they did not master the art of entrusting the management to more competent hands who have nothing to do with their family?. Mahadevan explains that if one were to draw lessons from history, there is clearly a strong case for ?professionalisation? of management and de-linking it from ownership. ?This would be a necessary pre-condition for any succession model to be successful,? he says.

And, India Inc has initiated first steps in finding a right balance between ownership and management. Amit Burman, vice-chairman, Dabur India, says businesses have realised that for better management, they have to turn to professionals. ?The Burman family is in its fifth generation in business. Ten years ago we turned to professionals to manage the company and since then the company has grown in a big way.? Burman explains that Dabur is a board-driven company with four professional executive members and two family members?chairman and vice-chairman?who have a non-executive role. ?We have a family council and all family members over 25 years are members and each one has a veto power. All company decisions are conveyed through the chairman and vice-chairman. The selection of the chairman and VC is ratified by the Board.?

A practice also followed by other business houses. Nikhil Nanda, JMD, Escorts Group, believes that it?s imperative that businesses are managed professionally. ?In family-owned businesses one has to strike a balance between the management and promoter family. Ideally, promoters should stay out of day-to-day operations and concentrate on strategic planning. Professional management ensures and enhances the value of the business. It is very important to empower the board, the directors and the professionals.?

Take the example of Sweden?s best-known business family, the Wallenbergs, having investments in a hundred companies such as ABB and Ericsson, they have perfected the art of keeping ownership separate from management. They follow a simple rule for succession in which the oldest son automatically becomes the group chief, provided he has the ability and inclination to lead. Their responsibility is to be the owners, and execute that responsibility and their business ideas through board memberships.

However, some experts opine that ownership and management can hardly be separated in India. SR Mohnot, author of ?Reliance, An Industrial Legend?, says that in family-owned businesses, the compulsions of ownership prevents the separation. Echoes Morgen Witzel, senior consultant with the Winthrop Group of Business Historians, ?The American model for some time has been based on the concept of separation of ownership and control. Family owners are encouraged to step back and let independent professionals run businesses. This has been the case since the 1920s in the US and in Britain since the 1960s and 1970s. It is less prevalent elsewhere in Europe, and in India and China, owners still play a strong role in the management of companies.? And does separation of ownership and managerial control actually translate into better-managed companies? ?I am not sure. Over the years we have seen some highly incompetent professional managers and some brilliantly talented owner-leaders, and the reverse. It is about finding the right leader for the right time. Whether that leader is also the business owner is not always relevant,? says Witzel.

All in the name

Shakespeare said ?What?s in a name?? But that might not hold true in business. As RM Lala pointed out for the candidature of Noel Tata, ?the track record will be very important, but there is a magic in the name ?Tata?. If you have the required qualities, and other things being equal, if you are a Tata, you will always be way ahead.? Burman concurs, ?The family name is important, it carries a different weight, especially for investors.?

According to Lalit Khaitan, chairman, Radico Khaitan, business families are doing their bit to keep up with competition from professionals, from attending the best of universities to specialised high-quality training. ?Owners are not just owners, they have now become ?professional owners?. They have business in their blood and pick up skills in their formative years, on those trips to their parent?s office, they are generally more committed as they have stake in the business. This is a world of head-hunters and a professional can be netted by other companies, but family will always be family. If you look at big business houses, Birlas or Ambanis, the family is at the helm.? Khaitan cites the example of how SD Brar, erstwhile CEO and managing director of Ranbaxy Laboratories, had to make way for Malvinder Singh and Shivinder Singh, sons of the late Parvinder Singh. They remained under training for a long time and ultimately took over.

But as the Tata Group and Infosys have forayed into a different realm of exploring external candidates to head the business, experts seem divided on the possibility that an outsider can really take the company forward. Peter Cappelli, director, Center for Human Resources, The Wharton School, University of Pennsylvania, and author of ?Talent on Demand: Managing Talent in an Age of Uncertainty?, says it is possible that the new leader may not be the promoter or large shareholder, and it?s also quite possible that the process is delegated to experts and that the owner/promoters do not drive it. ?However, in succession, the professional manager has an edge over the family insider only if it is a public-listed company. When there are public shares, control of the company becomes an issue as family interests and those of public shareholders are in conflict,? says S Raghunath, professor, corporate strategy & policy, Indian Institute of Management, Bangalore. Raghunath adds that distribution of income is a ticklish issue in family-owned companies. While those family members who are involved in the management would want to retain the profits within the company, those not involved in managing the business would push for dividend payouts within the family. The non-working family members may be sceptical of the managerial capabilities of their extended family members. They may feel that their own company is paying money to incompetent relatives. There could be perceived inequities and potential tensions.

Also, there are underlying dynamics that play out in the insider-outsider equation. As Cappelli points out, ?Generally insiders are very nervous about outsider leaders, and there is good reason for that. Outsiders come in when things need to be changed. Insiders are preferred when things are going fine. It?s worth noting that not everyone is happy about insider succession either, especially those who do not get the top job.? However, many companies prefer an insider. As Anu Aga, retired chairperson of Thermax, says, ?My preference would be for a person from within the company. If no one from the company makes the grade, then we have to look for a successor from outside. It is human tendency to take one?s own people for granted and not value their merit. So, often, internal people are bypassed, which should not be the case.? Thermax ten years ago decided to let non-family professionals run the operations and a family member to be a non-executive chairperson. ?While the family brings in long-term perspectives and values and reinforces the desired aspects of the company culture, the MD takes full responsibility and accountability for the operations.?

In search of a perfect model

Increasingly, more businesses are realising for organisational effectiveness and stability, succession has to be planned at all levels. Anu Aga says the family, for its own long-term interests, needs to select the most suitable and competent person from its members. She adds that there are two kinds of successions?the drop dead kind where the person either dies or leaves, and the planned one. In India, owners tend to hold on to their positions till they drop dead. ?I feel the owner has to set a good example by retiring at a reasonable age and ensure that the next person is successful. The planned succession model is the relevant and effective one. At every level, there has to be someone who is groomed to take over in a planned manner, and yet there has to be a contingency plan. After retirement, there should not be any remote control. The successor should be allowed to make mistakes and learn from them.?

Experts opine there is no ?best succession model?. Mohnot observes that succession models vary with the type of organisations?large or small; domestic or global in spectrum of activity coverage; family-oriented or wholly professional or a mix of two. The decision makers should choose two to four potential successors and groom them for some time?over two to five years, by rotating their function and monitoring them. The final choice should fall on one who can effectively perform the leadership role. The delineated route is more easily followed in a professional organisation. But in a family-oriented organisation, the mettle will fall on ownership attributes. Here, grooming for a good period for the leadership role is a prime imperative. Mohnot adds, ?The current ?Tatas case? is a good example of a professional approach to succession. However, it falls short on the grooming element.?

Cappelli, too, affirms that there is no single-best model. He explains two succession models?the ?racehorse? model where several individuals inside are in competition to be CEO, and the ?relay? model where an individual is designated early on. The former is advantaged when we don?t know what the business will need at the time of a succession, the latter when we do and where grooming and smooth transfer of power are crucial.

The bigger idea is ?whatever works best for that company?. Witzel believes that the objective of succession planning for any company should be to find the right leader at the right time. ?The only thing that is common everywhere is that succession planning takes a long time. It is sometimes said that the first task of a leader upon taking office is to start the search for his successor. Also, the choice of a new leader should be a consensual one,? he says. Witzel cites the example of Coca-Cola in the 1970s, which saw a kind of gladiatorial contest in which three rivals were urged to fight it out; the last man standing, metaphorically, would be leader. ?This caused all sorts of disturbance in the corporation, and in my view was partly responsible for Coca-Cola?s strategic mistakes in the 1980s. GE, on the other hand, has a fairly good record of smooth handovers from one leader to another, though there have been some exceptions. As a result, GE has stayed on track,? he says. Succession, Witzel advises, needs to appear to be smooth and painless, even if it is not so.

Noted business historian Gita Piramal explains that in all succession planning in family run-businesses, there are three key players: the promoter family, the managers and other stakeholders comprising the workers, investors, customers and vendors. And no one player can do without the other two and all three have to be satisfied with the outcome of the planning. So what does each player want? Piramal elaborates that the stakeholder group mainly wants stability. The manager group wants personal growth and peer recognition. The promoters want bigger dividends. There are many areas where desires are common. For example, promoters also desire peer recognition in the same way as do managers. Promoters and investors are completely aligned in their desire for higher profitability and profits. At the same time, there are conflicts also between the three groups. A succession planning exercise will work best with a successor who has the potential to meet the aspirations of all three groups of players. Just the way, Ratan Tata had recently assured Tata?s shareholders, ?Put faith in the panel. The best person will succeed me.?