Will the new CEO be good enough?

We had seen in a previous article about succession planning that, it is really vital for the smooth transition of a firm. We also saw a situation in which a CFO becomes the CEO and really screws up the situation. Now with the fact that Mr Mohandas Pai is all set to become the new anchor of Brand Infosys, will the same question arise years down the line? Was the selection of the anchor rite? Did Infosys have a good succession planning in place? Did Infosys expect the sudden separation of Mr Nandan Nilekani who was a visionary and the man with the golden touch? Time would tell us the answers. Of course, Mr Pai is a shrewd and brilliant man, but his ability to handle business delivery is not tested yet. But with him being the new anchor, it can either be a make or break for Infosys. The shares of Infosys havent fluctuated much over the last one week.

Succession Planning

The whole topic of succession planning gains significance, in the light of the fact that; the average tenure of a CEO has decreased drastically over the years. A major reason could be that, the business environment is becoming more competitive and turbulent and hence requires a lot of zing to survive the rough waters. So thus the concept of a lifetime CEO has become obsolete. And the era of making a CEO search an internal affair of a company has passed as well.

Succession planning is required at every level of the company. The succession planning for a CEO involves multiple stakeholders. But the most important stakeholders would be the incumbent CEO and the board of directors. Most of the companies keep a time horizon; say 5 years, as the tenure of a CEO. During this tenure, they plan who would be the next CEO. They would also have an emergency plan, in case of any emergency. But otherwise, the grooming of the succeeding CEO would be done keeping in mind long term plans.

But what can be the major factors which decide how the new CEO has to be selected. An outsider can run the risk of adversely impacting the culture of the company. But when there is a need to cause a change to the strategy of a company, an outsider can add value as a CEO. In companies where an entitlement culture exists, appointment of an outsider can be seen in negative light. By entitlement culture, it means that, the insiders of the company feel that they are entitled to lead the company in the future.

Companies which have established rules and processes for succession planning are more equipped to handle changes in turbulent market conditions. But how the market views the appointment of a CEO, depends on how the current CEO performs his job.

Mostly when a company feels the need of a new CEO, they start benchmarking the internal contenders for a CEO with external talent. But some companies still do not do that. Mostly these are companies which do not have formal succession planning processes established. The sheer complexity of emotions which flies around when a new CEO is to be appointed makes the things more complex. Insiders would not prefer a new person to take their opportunity. The board might have friendly tie ups with many insiders whom they feel that will support their strategy and line of thinking. Factors like these might prevent the company from appointing a CEO who is an outsider.

The case of coca cola, under Ivester, is a good example of how lack of benchmarking and succession planning procedures can put a company in a quagmire.

Campbell soup has a good succession planning in place.