The succession-planning imperative
In the past 12 months alone, India Inc has lost over 40 CEOs of listed entities to the Covid virus. And many board-members and CEOs of unlisted entities would have passed away too. None of these entities had a readily-named successor.
In January 2020, SEBI had to shift the deadline for separating the roles of chairperson and managing director in large Indian listed-corporates.
A ‘fact of life’—that people can fall sick, become incapacitated or even die—is ignored by corporate India. The bigger the enterprise, the tougher it seems for this fact to get assimilated by their boards! A mere 80 days will show if the Indian company-boards can actually toe SEBI’s deadline of April 1, 2022. Why does corporate India behave so poorly when it comes to succession planning for the key management personnel (KMPs) and board members?
The fundamental objective of corporate governance is to enhance shareholders’ value while protecting the interests of other stakeholders. A company’s board of directors is the primary force influencing corporate governance. The board is expected to approve strategies to develop long-term value and appoint an appropriate candidate as the CEO. It is also tasked with overseeing the performance of the CEO and the value-system within which the CEO operates. Most of the Indian boards don’t even know all the CXOs, except those that they interact with during the board meetings. Indian boards also have not fared well in terms of constantly building a stronger board composition. Does India Inc not know to retire gracefully, when it is due?
In today’s VUCA (volatility, uncertainty, complexity, and ambiguity) world, corporate boards have an important role when it comes to directly overseeing the board composition and the CEO succession planning as a planned process and not an accident. After all, as a good governance norm, it is an expectation from the boards to have succession planning to ensure business continuity & viability. Call it the board’s KRA, if you will.
The financial services sector in India contributes over 10% of the GDP. The sector employs a large number of skilled and semi-skilled workers, across Tier 1/2/3 geographies. For industry outsiders, it is exciting to read about the successful stints of a few CEOs, who have done well for their institutions and also for their stakeholders, and have actually built succession plans. But those are outliers in the larger context that exists for the sector.
The banking, financial services and insurance (BFSI) sector refuses to acknowledge its inability to groom leaders, or what is called the “banyan tree” syndrome where the current leader does not allow other leaders to grow. And their boards have not worried about developing next line leadership. Why? Is it because they could get away when it came to the regulatory dispensation, time and again? Or is it because they did not think it fit to groom younger talent to take charge? Or is it because regulations have not forced them yet? Or is it tough to step away from trappings of power, position and the need-to-feel-wanted?
Read More at https://www.financialexpress.com/opinion/the-succession-planning-imperative/2403190/