In a recent article, I had written about the importance to companies of employees having a long tenure. I had made the point then that stability, accountability and an understanding of the networks within the organization were critical factors in ensuring the company’s long-term success. The last two weeks have seen considerable media discussion about changes at senior levels of Infosys, culminating in what seems to have been a smooth transition. The discussions had revolved around possible differences among senior management, the quality of succession planning, and the merits and demerits of different senior managers. They did not focus on the important issue of why companies face these challenges at certain times, what drives successor selection, or how to deal with post-transition management dynamics. These are worth addressing.
First, succession issues are usually easier to manage during the early years of a fast-growing company. As the rate of growth eases, there arise situations wherein some executives inevitably find it more difficult to grow. A recent survey suggested that notwithstanding the over-indexing of visibility endowed upon young leaders, fewer than 10% of board level positions went to people below 40.
As information technology (IT) companies grew fast in the last decade, several of them, including Infosys, had demonstrated a willingness to allow young people to take on positions of responsibility. As these companies come of age, such opportunities might become rarer. Such greying should not have been construed as indifferent succession management, as was hinted in some circles, but is really the natural order of things.
Second, management experts recognize that organisations operate like tournaments, where different executives are imperceptibly pitched against each other until a few climb to higher levels. Those being considered for board positions would generally possess greater management skills. There has been a fair amount of second-guessing in the press about the chances of one or other person escalating to the board based on qualities such as their functional knowledge, rainmaking abilities or media visibility. What is missed in these discussions is that these are not criteria that always count when choosing the top leadership of a large company. Other factors, such as an understanding of what works in the organizational context, the ability to mould the organization to operate more effectively at different times, and to inspire different categories of employees are critical. Those chosen for senior-most positions will usually fulfil such softer criteria, evidence of which may frequently be invisible to the outside world.
A transparent internal debate on the issue of succession is important too. While some will naturally disagree with the conclusions of such an exercise, it helps everyone know where they stand within the organization. Several companies have lost their senior-most managers through indifference, when they could have easily been retained through discussion and career planning.
Once a selection is made, companies will often face the challenge to retain those who did not make the final cut. Boards need to recognize that people at senior levels generally possess high skill and always have a choice to move elsewhere. The company needs to ensure that it is fair to those who have served it well but could not win the race, often because the need of the hour required a different set of skills. This transition element can prove more challenging than identifying a successor. This is now the task before the board of Infosys and other such companies.
Govind Sankaranarayanan is chief financial officer and chief operating officer, corporate affairs, Tata Capital. He writes on issues of governance.
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