2/3/14 Sebi may make succession plan a must in listed companies - Economic Times

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Sebi may make succession plan amust in listed companiesReena Zachariah, ET Bureau Jan 30, 2014, 12.54AM IST

MUMBAI: All listed Indian companies will need to put a

succession plan in place if the capital market regulator

implements a proposal that's under consideration as part of

efforts to ensure that an organisation is not caught

unawares by the death, departure or poor performance of a

leader, all of which could hurt investors.

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The proposal comes against the backdrop of most Indian companies not having a formal succession

programme for appointments to the board and senior management positions, the lack of which can have an

adverse impact on strategic direction, financial performance and productivity.

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2/3/14 Sebi may make succession plan a must in listed companies - Economic Times

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The Securities and Exchange Board of India, or Sebi, is likely to discuss this along with other corporate

governance proposals at its board meeting in the second week of February. The proposal is in line with best

global practices prevalent in developed countries, especially the UK, where the Corporate Governance Code

requires boards to have an orderly succession plan in place, and acquires significance amid recent

developments, including the death of Tata Motors MD Karl Slym.

"The incident brings to the fore the importance of succession planning. It gives the message to the board the

need to be prepared... rather than wait for events to overtake them," said Amit Tandon, founder and MD of

proxy advisory firm IIAS. Shares of Tata Motors fell about 6% on January 27, a day after news of Slym's

death broke.

Sebi wants to ensure that investors don't suffer due to a sudden unplanned gap in leadership, by mandating

boards to develop an action plan for a successful transition, with the programme being reviewed periodically.

The proposal would mean companies having to state in their annual reports whether they have a succession

plan in place. This won't mean that companies need to reveal details of the plan, since this might mean

critical information would be available to competitors and may lead to poaching of key employees. Also,

people who don't find their names in the successors' list could quit.

Tata Motors, which brought Slym on board 16 months ago, is looking for a new boss. One of India's leading

mutual fund houses, Unit Trust of India Asset Management Company, was rudderless for three years after

chairman and managing director UK Sinha left to join, ironically enough, Sebi.

Engineering giant Larsen & Toubro and consumer goods enterprise ITC are among India's biggest companies

that have leaders who have been at the helm for a long time.

Governance experts said companies should keep in mind that succession planning is not just about the

leadership development process but also a riskmanagement exercise as it impacts the stock price. About

112 executive directors died between 2006 and now while holding board positions in 116 NSE-listed

companies. Of these, about half were chairmen or managing directors at the time of their death, according to

data from researcher Indianboards. A 2012 Stanford study showed that more than 160 American CEOs died

from heart failure (39), cancer/tumors (30), strokes (28) and accidents (14), among other causes.

While multinationals and some large Indian firms have succession plans in place, even in case of an

emergency situation, many don't.

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"Succession planning is more in vogue in professionally managed and widely held companies across the world.

But in Indian promoter-driven companies, that the successor is a family member is a given. The risk of his

capabilities has to be borne by shareholders," said Prithvi Haldea of New Delhi-based Prime Database.

2/3/14 Sebi may make succession plan a must in listed companies - Economic Times

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"In family-run companies where children or relatives are underage, they should have a succession plan in

place," Haldea suggested. Companies should have an action plan that can be adopted even in the case of poor

performance.

"There should be a succession plan for a time horizon of two-three years for a known change, such as

retirement or the evaluation period of a CEO's performance.

Companies should hire for second-level leadership so that even if the CEO is for a long time, you are planning

for the future," said R Suresh, managing director, RGF Executive Search. In this regard, global companies are

much better placed to have a choice of candidates because of their structure.

"The strategic business unit (SBU) and regional CEO structure at multinationals naturally gives a varied choice

of professionals at leadership position," Suresh said. "Indian companies do not have a fully developed SBU

structure, which means company CEO will be taking control of the entire business operation," he added.

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2/3/14 Sebi may make succession plan a must in listed companies - Economic Times

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Readers' opinions (10)

Sort by: Newest | Oldest

31 Jan, 2014 09:11 PM

subramanian ramaswamyiyer (chennai)

Everyone seems bent on crossing laxmanrekhs.

30 Jan, 2014 10:17 AM

Keshav Sachdev (Chandigarh)

I can say from experience that making a succession plan which is open to people affected by it and also open topublic scrutiny is an extremely bad idea.

30 Jan, 2014 09:02 AM

sameer (Mumbai)

Feel we even the regulator should have a clear succession plan from Executive Director level onwards. Thiswould ensure continuity of vision, mission and decision. This should be a must for Market infrastructure

Institutions also

30 Jan, 2014 07:34 AMsubramanian ramaswamyiyer (chennai)

Listed companies will become hunting grounds if such intrusions into management are made. Free markets

and controls are opposite sides and you cannot have a bit of this and a bit of that like central govt secretariat at

all.

30 Jan, 2014 07:29 AM

Newyear (kottayam)

The fraudsters need to be reigned

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