Mumbai: The boards of Indian companies must grow beyond their baseline responsibilities and play a more proactive role in succession planning, which remains a key challenge facing a large number of companies in the country. This was the overarching view of a panel of speakers at the unveiling of a joint study titled, Boards That Lead, by National Stock Exchange (NSE) and Korn Ferry, a global management consulting firm which advises company boards on best management practices and corporate governance.
The speakers said that boards should add strategic value to a company and its composition and direction can have an immense impact on the growth trajectory of the firm and shareholder value and listed several steps they felt could help boards achieve this objective. “A board can make or kill a company. Key role of the board is to make the CEO perform better,” said Harsh Mariwala, chairman of Marico Ltd.
A board should add to the competitive advantage of a company, said Naina Lal Kidwai, a veteran banker and currently the chairman at Advent Private Equity India advisory board. “It is also important to engage an external advisor to help with the process because as a board you can have some biases. External consultants can also help you benchmark internal talent with external talent and help you arrive at a more informed choice,” she said.
Kidwai said while it is vital to maintain transparency within the board during the CEO selection process, communicating the final decision carefully is also critical especially for listed companies.
The panelists were also of the view that given the importance of succession planning for all stakeholders, grooming and selection of potential successors for critical leadership roles should be a continuous process while ensuring that the selected candidate is the right cultural fit.
“It is not an event, it is a process. For the CEO selection, one tends to look more at the technical competence and commercial acumen. But one should look more closely at values and culture. Cultural fit and values should be focused on. We don’t do too much of that,” said Ishaat Hussain, former director at Tata Sons. Hussain also said that while the role of the CEO is important, a chairman plays an equally critical role in setting the tenor and direction of the board.
Korn Ferry has been advising on forming talent and leadership committees, separate from compensation committees, for a sharper focus on grooming the next generation of leaders. “Every (board) meeting should start with that committee. CEOs should know that every meeting will start with a discussion on talent development,” said Robert Hallagan, vice chairman, co-leader, board services at Korn Ferry. On smooth succession at family-owned businesses, Mariwala said to avoid conflict between chairman and CEO the responsibilities and the clarity around their respective roles should be discussed in advance. Mariwala said, “I stepped down because it was in the best interest of the organization. The board asked me to write down what exactly my role will be (as chairman). Similarly, my successor was asked to write down his role and then the board asked us to arrive at a consensus on our roles so that there is clarity.”
For promoter-driven business, succession planning can be “delicate and dangerous,” said Ravi Venkatesan, board director, former chairman, Bank of Baroda and former co-chairman, Infosys. He said in case of a family business, a non-promoter CEO should first be able to fit into the culture of the company before targeting any changes.
“You need to have somebody who is a trusted aide who can be a bridge between both the founder and the professional CEO,” said Venkatesan.
Referring to the study as a one of its kind exercise, Vikram Limaye, managing director and CEO of NSE said the exchange plans to soon come up with a new framework to strengthen corporate governance at companies in India.