Photo: Chris Ryan/OJO Images RF
Photo: Chris Ryan/OJO Images RF

How boards play a role in identifying potential successors

Identifying talent is one part.Having awell-laid-outplan to help develop these candidates is important for a successful process

Mumbai: Succession planning has become a critical variable in the corporate governance matrix for boards of Indian companies.

This becomes even more important as the boards grapple with differentiated and complex shareholding structures, with some companies getting increasingly more professional, or with successive generations of promoter families looking to make their mark outside the family business.

As Indian companies gain scale, expand globally and engage with different stakeholders, developing robust and rigorous processes to identify and develop the next rung of leadership has become a key component of any board’s business risk mitigation tool-kit.

In short, the board has to play a key role in driving this effort.

For example, the board at fast-moving consumer goods firm Marico Ltd is deeply involved in the succession planning of the chief executive officer (CEO) and top team.

“Marico has built into the CEO’s performance metrics a measurement addressing succession planning and development of top 30 leaders in the company. Marico’s board has a line of sight into their performance evaluations and development plans. The nominations and remuneration committee conducts talent meetings to review the talent profile of CXOs," the report says.

Potential successors are also invited to board meetings and the board reviews the talent pool on an annual basis. The firm believes that the approach reinforces the board’s accountability and gives importance to both performance and succession planning at the CEO level.

For some companies, succession planning means a rigorous and structured global process. Ingersoll Rand follows a proactive and structured process to ensure leadership continuity, transition and pipeline creation. “To identify the next level of leadership at Ingersoll Rand, the board conducts an organization leadership review (OLR) on an annual basis. The OLR is part of the DNA of the organization and the process is started every year by the global CEO. Every six months, a full day is spent on a talent review with each functional head. The board has also established a succession subcommittee which has the overall responsibility for succession planning of the CEO and executive officers," says the report.

At Wipro Ltd, the board ensures the company conducts an annual talent review process for senior management and other executive officers.

The process provides the company with a leadership-level talent inventory and capability map that connects the dots between critical talent needs and business drivers. “Careful attention to succession planning ensures that potential transitions are thoughtful, smooth and sustain value," says the company.

Identifying talent for leadership positions is just one part of the process. Having a well laid out plan to help develop these candidates is equally, if not more, important for a successful succession planning process.

IT services company MindTree spends a lot of time in identifying successors and developing them for future roles.

“A structured talent review programme has been institutionalized where the top 100 positions and leaders are evaluated at N-1 and N-2 levels. While the board has oversight of the process, the CEO has accountability for identifying and developing the CXO level, and the CXO level is responsible for the level below," the report says.

The identified leaders are also provided with structured development opportunities, which include job rotation, to gain necessary experiences and external training at Ivy League colleges to accelerate learning.