A Failure in Succession Management

Few events carry greater risk to shareholder value than a change of leadership. So why do so many boards have an ineffective succession planning process or, even worse, no process at all for finding and preparing the next leader? For a family business, transition is a once-in-a-lifetime decision and is much more difficult than transition in a non-family business. Perhaps no challenge has as much potential to exacerbate the special stresses or, conversely, highlight the special advantages of operating a family business. Family businesses falter or even fail because an outsider to the family who becomes a successor does not necessarily have the same sense of loyalty to the family, the business, or its goals.

The media has been flooded with information on what went wrong at Bombay House when Cyrus Mistry was dismissed as Chairman at the infamous Tata Sons board meeting a few days ago. And while there is an abundance of theories on the table from financial, legal and business experts and analysts, finally it boils down to bad and inefficient succession management.

Lets face it. This is the first time in the history of the Tata Group history that it has appointed a non-family member as successor. That itself was enough of an aberration. It was also the first time perhaps that the Chairman of Tata Sons was not also the Chairman of the Tata Trusts, that owns the 27 groups companies that form Tata Sons. If anything because Mr Mistry's family owned 18.4% of the stock in Tata Sons, he perhaps had the best chance of succeeding because his success would only increase the value of his stock and his failure would deplete the family wealth. After all, any outsider could not have had a stronger motivation to succeed. And that includes whoever succeeds Mr Mistry.

The two most common stumbling blocks in handling succession management has always been and will always be :

1. The lack of an agreement on the strategic direction of the company. If the board has a different view from the business leader things are very unlikely to work. And this can if not nipped in the bud create further disagreement, unpleasantness ultimately leading to failure from the business leader. Boards can't be just critics. They have to guide business leaders and tell them when they are straying from the course. If they don't do that they will only be giving judgement when it is too late to do any course correction.
2. The lack of a coherent formal process for evaluating business leaders and linking the competencies and capabilities of the business leaders to drive business strategy is another reason for CEO failure. To take the example of Cyrus Mistry, during the four years that he was Chairman of Tata Sons, was he ever evaluated formally for business and strategy actions by his board, or did they just drop a bomb on him at the end of four years, suddenly expressing pent-up disappointment?

The rate of CEO failures during the first 18 months on the job, as reported by an oft-cited Harvard Business School, is 40 to 60 percent. While released in 2005, few studies point to much improvement. The lack of measurement is another reason for failure. Documenting a succession plan is only the first step on a journey. One reason that so many successions fail so quickly is that new hires often do not fit into the organization’s culture (or powerful subcultures) well enough to do what is needed in ways that will be accepted by the people they have been hired to lead. This “fit criteria” is more important than management experts ever give it the credit that is due.

So if one looks at the Tata Sons failure in succession management, it almost seems to follow every well known reason, documented in management literature. The biggest revelation perhaps might be that while ostensibly to the outside world, Mr Ratan Tata had abdicated his post as Chairman of Tata Sons, he was very much in control of the company through his Chairmanship of the Tata Trusts. In a sense therefore he was constantly looking over the shoulders of his successor, another 'new' reason for CEO failure and silently approving or disapproving his moves perhaps without guiding Cyrus Mistry. So if the predecessor is still seemingly in control, there is almost no way the successor could succeed.

There might have been nothing worse for Mr Cyrus Mistry than being constantly under the watchful eyes of Ratan Tata everyday. And as David Ulrich says ' Succession planning doesn't start with people. Its starts with the requirements of the job'.

You need to have courage to abdicate the throne! And unless you are ready, there is hardly any point looking for a successor. But the worst part of the Cyrus Mistry episode really was the cloak and dagger approach that the Tata Sons Board took to oust Mr Mistry. Uncharacteristic of the values and the ethos of the Tata Group!

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