When it comes to finding a successor for the top job,India Inc seems to prefer insiders from within its ranks,unlike some global giants like Yahoo and HP that have passed on the reins to the outsiders.
Experts believe that the trend of putting faith in an insider for the top managerial posts is more prevalent among Indian corporate houses,as illustrated by engineering and construction giant Larsen & Toubro recently,and groups like Tatas in the past.
Choosing an internal candidate for top positions provides multiple benefits for the corporates,and also sends out the message that hardworking people would be rewarded,they say.
“Indian companies have a strong tendency to choose internal candidates for senior positions,” Global management consultancy Hay Group’s Practice Leader (Building Effective Organisation) Mitali Bose said.
“The chances of lateral hiring by companies,especially in India,for senior positions are not very high. In fact,Indian corporates very rarely look to bring in outsiders for top management positions,” she said.
Unveiling a long-awaited succession plan,corporate major L&T on Friday appointed K Venkataramanan — associated with the company for over four decades — as the new CEO and MD.
Incumbent A M Naik would remain Executive Chairman.
Similarly,Tatas zeroed in on Cyrus Mistry,son of construction tycoon and the group’s single largest shareholder Pallonji Shapoorji,as successor to Ratan Tata.
In both instances,the decision was taken after extensive search processes after considering even external candidates.
“An insider will have a good understanding of the company. He will know people and culture of the company well,” Ma Foi Randstad CEO and Managing Director E Balaji said.
Pallonji Mistry is also gearing up to hand over the reins of Shapoorji Pallonji Group to Shapoor Mistry,Cyrus’ elder brother and a long-time veteran at the group.
Earlier in January,Godrej Properties appointed Pirojsha Godrej,son of group chief Adi Godrej,as its new MD and CEO.
A number of large corporate groups in India having some business families as major shareholders also leads to the insiders,mostly from the promoter family,being appointed successors for the top job.
Globally,succession plans present a mixed picture. Prominent corporates such as Yahoo! and HP opted for rank outsiders to steer their enterprises battling tough business conditions.
On the other hand,companies like Apple and GE have chosen internal candidates to succeed their illustrious chiefs — the late Steve Jobs and Jack Welsh respectively.
Yahoo’s present CEO Scott Thompson was earlier the President of PayPal,while HP is currently headed by eBay top honcho Meg Whitman. Interestingly,Yahoo! and HP saw many sudden changes at the top level in the last one year.
“These days,career progression is taken seriously by employees. Appointing an internal candidate as the successor also sends out a good message that hardworking people would be rewarded by the company,” HR consulting firm ManPower Group (India) Managing Director Sanjay Pandit said.
“It is also a good (talent) retention tool,” he noted.
One of the major benefits of having an internal person for top managerial posts is a better understanding of the company culture.
“Above all,the internal person would have a credible relationship with people in the company. This is very important since Indian companies are mostly relationship driven,” Hay Group’s Mitali Bose said.
On the other hand,the latest succession plan at L&T has also elicited some apprehensions considering that Venkataraman is 67 years old and just has three years time at the new post.
“Given that the company has very ambitious plans for rapid growth and that the entire top team is past sixty,the board should have by now groomed a generation of younger leaders,” Hyderabad-based Indian School of Business Professor K Ramachandran said.
Ramachandran,who is the Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at ISB,pointed out that Naik could have opted to be a chairman emeritus providing grooming inputs rather than continuing to play an executive role “that implies indispensability”.
“Going for an outside candidate to succeed (at top positions) also reflects the lack of talent internally.
Companies are focusing on developing internal talent and a deep management bench (which is a good sign),” Balaji said.
L&T’s current chief A M Naik joined the company in 1965 as a Junior Engineer while his chosen successor 67-year-old K Venkataramanan has been with the group since 1969.