In many ways, this blog post is a sequel to the earlier post by the author on leadership succession, also set in the context of Tata Group leadership succession (“Successful CEO Transition: Model of Continuity with Change”, Strategy Musings, August 9, 2011). Together, both the posts develop a wealth of practical insights into leadership succession relevant for the Indian industrial and business context.
The saga of identifying a successor to the extraordinarily famous Ratan Tata, the Chairman of the USD 83 billion Tata Group of India has ended with the selection of Cyrus Pallonji Mistry of Shapoorji Pallonji Group as the successor. Cyrus would be under the care of Ratan for just over a year as Deputy Chairman and take over as the Chairman when Ratan steps down in December 2012. As one is aware, the Shapoorji family, holding 18.4 percent stake, is one of the largest shareholders of Tata Sons, the holding company of the Tata Group. The selection of Cyrus after months of global search begs the question if some kind of prior ties are essential for high profile leadership successions. Clearly, the Tata Group has its evolved over the years as a conglomerate of solid institutions, and therefore, independent of the choice of a new steward the Group could still make itself proud on the strength of the leadership at Tata Sons, the holding company as well as in the individual companies.
The succession saga, however, brings forth several important questions. The first relates to the value proposition, either of the conglomerate or of the candidates that could influence the succession process. The second relates to whether an Indian conglomerate could ever seek to have a rank outsider, even an expatriate, as a Group leader. The third relates to whether an Indian conglomerate could seek to have an executive head who is completely unconnected with the founder family. If the answer to the preceding two questions is in the negative, the fourth question is how a conglomerate would develop internal leadership talent that could take over the stewardship. The fifth question is whether the singular leadership model loses its relevance at some point and a format of collective responsibility becomes expedient, if not imperative. The sixth question is how intimately would the Board or the outgoing chairman need to be associated with the selection process. This post discusses some of the above issues while welcoming the apex selection at the Tata Group.
Thematic proposition
The starting point for any recruitment effort is the value proposition. In terms of apex leadership succession, crafting of a value proposition could be challenging. While one cannot be a privy to the value proposition that the Tata Group would have laid out, one could postulate that leadership at that level requires a thematic proposition rather than a job description. For example, having made respectable strides in globalization with acquisitions such as Tetley Tea, Daewoo Commercial Vehicles, Corus Steel and Jaguar-Land Rover automobiles, the Group could have looked at a more aggressive globalization as its next trajectory. The Group also could be looking at additional sunrise sectors to enter and grow. This could have been a reason for the Group to look for a global executive, among others, to take over the reins.
Conglomerates and corporations alike need a strategic vision to inspire succession. While the new incumbent would certainly be capable, and even expected to develop a new vision and strategy, a thematic direction is clearly needed as the first step. For a group like Reliance it could be a theme of becoming a globally dominant oil and gas player or even in a broader sense an energy behemoth. For a group like GMR it could be a theme of become a global infrastructure developer. Yet, it could be open to debate if a single thematic proposition could be developed for a conglomerate having companies with widely varying product lines and business models. The thematic proposition (or propositions depending on the plurality of purpose in a conglomerate) would be the essential platform to discuss and debate the fit between the competencies and aspirations of the corporation (or the conglomerate) and the prospective leaders.
Cultural differentiation
One can presume that the Tata Group would have had a value proposition, if not a thematic proposition, that was inspirational and exciting. Yet, it has not been possible to secure a global leader from outside the extended Group or from outside the country. The Group's inability to get one such candidate makes one doubt if national and cultural factors have a strong play. Potentially, each potential successor from the external world would have been a successful player in his or her culture, or even in multi-cultural environments. That said, unless the home country culture is a strong component of the multi-cultural background it is likely that both the corporation and the candidate would be reluctant to make the switch.
That said, successful leaders could look beyond national cultures in their career journeys. The culture of the corporation could itself be distinctive and be adding an overlay to the national cultural factors. The challenge is whether value systems would be seen as a sufficient indicator of the culture or past performance record and whether the espoused plans would be a sufficient indicator of corporate and conglomerate culture. Whether a firm has been a revenue driven or profit driven company, whether it has been an innovation driven or imitation driven company and whether it has been risk averse or risk taking company could all be seen by potential leaders in making their assessments. However, if the succession itself is planned as a tool to change the cultural dynamics the corporation would need to articulate that as a component of the thematic proposition.
Promoter connectivity
Many large corporations and conglomerates in the Asian economies, including India, China, Japan and Korea have strong promoters and entrepreneurs as the founding members. In many such companies, family succession is taken for granted. When a Group such as Tata, Birla, Murugappa or Reliance deliberately initiates a global search, perceptions on whether the lack of promoter roots would be a positive or negative factor could be a major influencer. When at the end of an extensive global search the Tata Group fell back upon the scion of the major shareholding family there indeed developed a clear perception in the Indian analysts that promoter connectivity could tip the balance in selection.
As a corollary, it is open to debate if for heavily promoter influenced corporations or conglomerates, external professional leaders would be willing to take the bow. In successful promoter driven Indian corporations, while the promoters do build a large professional leadership bench very often that leadership team would prefer to work for the promoter than for another professional leader. The Indian corporations and conglomerates have probably to look for internal talent from the group rather than embark upon external search as the Tata group has done somewhat futilely. The pointer for the other Indian groups is clear; develop leadership that combines professional competencies and entrepreneurial spirit through customized programs.
Developing internal leadership
Development of internal leadership is neither a simple task nor a complex endeavor for today's Indian enterprises. Most firms are sufficiently globalized and have varied operating environments that could make them on par with any multinational corporation in terms of diversity and global challenge. The career pathway for any aspiring CEO should comprise the following essentials. Fundamentally, he or she should have led growth or turnaround in any enterprise through multi-functional expertise. He should have led global foray of businesses through overseas entity formation or growth. He should have led strategic transformation of the enterprise by identifying and establishing new businesses. He should have played a notable part in recruiting and nurturing top level talent.
Some companies have tried to integrate expatriate leaders into the Indian organizational system. Examples are Kim as the CEO in Videocon and Forster as the Group CEO in Tata Motors. Though such leaders accomplished much in their stints with the Indian companies, their personal and other considerations could not let them grow to the highest levels within the Indian companies. There seems to be, therefore, a case for focusing on internal development of leaders who would not have or perceive cultural barriers or founder barriers. As Hindustan Unilever demonstrated it would be possible for Indian leaders to assume global positions. There is no reason why Indian multinational corporations cannot develop Indian leaders to manage their global operations. It could be quite a simple process of passing them through targeted domestic and overseas assignments.
Singular versus collective leadership
It would be of interest to speculate or hypothesize what the Tata Group would have done if it had no Cyrus Mistry to fall back upon. Would the Group have considered a model of collective leadership? The experiences of having co-CEOs have not validated the hypothesis that two brains are better than one. Neither the Indian Wipro nor the Canadian Research in Motion have been able to fight competition despite having two CEOs. On the other hand, European firms, especially the German ones, have routinely co-CEOs. How should the Indian groups respond to any failures in getting singular leaders in succession searches? The answer may lie in stretching the available organizational structures and talent pools.
Typically, even the current structures provide for at least five positions at the top which could lead to certain collective leadership. These are the positions of Chairman, Vice Chairman or Deputy Chairman, Managing Director or CEO, Joint Managing Director, and Deputy Managing Director. In the event Groups fail to get a potential stalwart to succeed another stalwart, they could attempt to split the responsibilities amongst the above five positions and proceed to put in place a format of collective leadership. Under the model, there could be several options to delineating responsibilities. These could range from allocating companies in the case of conglomerates (and businesses in the case of companies) to different leaders to allocating individual stretch tasks and projects such as startup, turnaround, M&A and global assignments to individual leaders, both approaches involving significant rotation. As the collective leadership, with sequential experience, hones and institutionalizes itself there could also be a possibility of singular leadership emerging out of the process.
Leadership engagement
An important question in leadership succession is who gets engaged to the process of selection. In the case of Tata Group it has been a committee specially constituted by the Tata Sons Board and comprising Tata Group stalwarts, including ironically Cyrus himself. There are usually alternatives with the outgoing Chairman himself being actively engaged as in the case of GE and GSK or an independent search committee of the Board being engaged in CEO succession efforts. The level of engagement is relevant in terms of the ability to trace the past and present, and lay out a future. At the same time, the rapport that an outgoing leader and an incoming leader would develop is an equally determinant of the selection.
It is quite conceivable that an independent search committee which does not involve the outgoing leader could be objective and clinical but fail to be emotionally connected while selecting the new leader. On the other hand, the outgoing leader could be emotionally connected not only in terms of continuity of values but also in terms of protecting his team. The body that selects the new leader may therefore have to be constituted in the context of the break or continuity with the past that is envisaged, in terms of both the business model and the leadership team. The period and intensity of overlap between the outgoing and the new leader could also be dependent on the nature and extent of change that is sought after.
Change with, or sans, continuity
Selection of a new leader is always a momentous opportunity to script a new path for a corporation or conglomerate. Many organizations gain by leadership stability and internal succession. Marriott Hotels, for example, only now has the current Founder-Chairman who has been at the helm for 40 years handing over the baton to the Chief Operating Officer who has been in the firm for the last several years driving global expansion. On the other hand, a global IT major has suffered because of mercurial changes in not only executive leadership but also the board of directors itself. Planning for succession and executing for succession are extremely important for corporations and conglomerates to revalidate, rejuvenate, retool and regrow themselves from time to time. In the ultimate analysis, there is no substitute for the leadership to be always at the edge of futuristic and competitive business development with a well prepared leadership team to ensure seamless change with continuity.
The successful nexus in terms of leadership selection in such a context could only be in terms of an ability to develop and execute a thematic vision, in alignment with cultural factors and in cognizance of stakeholder interests (and promoter proclivities). A visible mark of potential backed by a proven record of success could strengthen the new leader's ability to put his stamp on the corporation’s growth path. The concept of change with continuity is balanced by a concept of nexus with the leadership ecosystem appears to be the leading lesson from the Tata Group's leadership selection saga. A strong internal leadership pipeline and a collaborative collective leadership could act as appropriate supplements and substitutes for the Tata model. The composition of, and the role played by the selection committee, could shape the focus and the forces of change in leadership succession in an influential manner which the outside world may not be able to perceive.
Posted by Dr CB Rao on December 18, 2011
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