Monday, April 20, 2015

Succession planning? What's that?

Outlook recently had a story on two high-profile companies, L&T and ITC, whose chairmen have hung in for longer than investors and analysts would think desirable. At L&T, AM Naik has been chairman for 12 years; at ITC, Y Deveshwar has been around for even longer-18 years. Neither is exactly young- Naik is 72 and Deveshwar 68.

Many promoter-managed companies have put in place norms for the person at the top to exit at some age. These are two professionally managed companies where succession planning has been found wanting. I refuse to buy the argument that a CEO deserves to stay on because he has performed well. Performance cannot be judged by financial results alone. One dimension on which performance needs to be measured is having a solid line of successors- and seeing how well the company performance after the CEO has exited.

What does the record of the two companies on succession planning say about corporate governance? I leave it to you to judge.

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