Securities & Exchange Board of India (Sebi), the market regulator which is primed to safeguard the interests of investors, changed the rules of the game in corporate India in February 2014. Regulation 17(4) of Sebi from then on included disclosure on succession plans in listed companies. Aimed at ensuring that investors do not suffer due to a sudden unplanned gap in the leadership of a company, this regulation stipulated that a succession plan be put in the public domain by way of disclosure on the company website as well as mention in the annual report.
This noble requirement of transparency has been marred by the opacity of corporate India. The recent developments in Bombay House, the Mecca of Indian private sector, surrounding the change of guard at the helm of the Tata empire brings to relief the uncertainties surrounding corporate succession. It is the right of every corporate house to choose its leadership team and also to renew the top echelon of a company based on exigency of business. However, the manner in which Cyrus Mistry was asked to go left many questions unanswered.
Ratan Tata is the icon of Indian industry today. He began his career on the shop floor of Tata Steel in Jamshedpur in 1961 and was elevated as chairman of Tata Industries in 1982—thus emerging as the successor to J.R.D. Tata, from whom he took over as chairman of Tata Sons, the group’s holding company in 1991. Ratan Tata’s elevation in 1982 was opposed by the satraps of the empire, notably Russi Mody of Tata Steel, Darbari Seth of Tata Chemicals, Ajit Kerkar of Indian Hotels (Taj group), A.H. Tobaccowala of Voltas and jurist Nani Palkhivala, who headed cement major ACC. One by one these notables bid adieu and Ratan Tata, whose performance in group companies Nelco and Empire Mills prior to his elevation in 1982, was questioned by the satraps, emerged as the unquestioned leader.
Ratan Tata did not follow the J.R.D. Tata type of succession planning. When he announced his desire to lay down office at the annual general meeting of Tata Steel in August 2010 (shareholders pleaded that he revise his decision), he did not groom a successor. Major shareholder of the group, Shapoorji Pallonji’s chief, Cyrus Mistry, who was among those entrusted by the Tata Sons board to chose a successor, emerged as the choice in 2012 and the rest is history.
Ratan Tata’s elevation in 1982 was opposed by the satraps of the empire, notably Russi Mody, Darbari Seth, Ajit Kerkar, A.H. Tobaccowala and Nani Palkhivala. One by one these notables bid adieu and Ratan Tata, whose performance in Nelco and Empire Mills was questioned by the satraps, emerged as the unquestioned leader.
The Sebi requirement of 2014 empowers the Remuneration and Nomination committee of a company’s board to put in place a succession plan. This panel also decides the remuneration of the key functionaries. According to the Economic Times, this empowered panel of Tata Sons in its meeting on 28 June had reviewed Mistry’s performance and recommended an enhancement of his pay. Within four months of this development, Mistry was found wanting and asked to quit. This opacity betrays the lack of implementation of the Sebi regulations by the crème de la crème of corporate India.
Multinational companies (MNCs) have succession planning as part of their ethics. The Indian units of these companies, notably Hindustan Unilever, mark talent from the very inception of a manager’s career (HUL calls its trainees “business leaders”). As they grow, some are marked “high performers” and groomed to take up board positions in India and abroad. Those who do not make it to this list are so informed and they find their way to other pastures. Many Livertites rise to be CEO of firms outside after leaving the cradle. Some years back, when Unilever chief Neil Fitzgerald was asked what India meant to his business, he replied “five per cent of Unilever’s turnover; ten per cent of talent pool”.
Tata Administrative Service (TAS) too has been a source of leadership talent in the industry. One wonders why so far homegrown talent within the Tata pool has not been considered for elevation to the top (there are whispers that perhaps this time round it may be so).
Indian companies can take a leaf from MNCs in terms of grooming talent, succession planning and disclosure. KPMG compiled a survey in 2015 on Corporate Social Responsibility (CSR) reporting by companies. It studied top 100 listed companies and found that the 2013 amendment to the Companies’ Act, which mandates disclosure on CSR spending, is being flouted, one way or the other, by a number of entities.
Disclosure requirements of the Sebi regulation of 2014 on succession planning and the 2013 CSR stipulation must concern the boardrooms if transparency in business, which is part of “ease of doing business”, is to be achieved.