Passing the baton... smoothly

This article was first published by Business Standard on November 07, 2019. Co-author: S.Subramanian; https://www.business-standard.com/article/opinion/passing-the-baton-smoothly-119110700037_1.html

In an ideal world, a poorly performing business leader (Chairman, CEO) will be replaced by the board. In reality, this seldom happens. It could be due to interpersonal skills, family ties, difficulty in finding a replacement or the board is a “nodder’s club”. Hence, in many companies, performance or governance may not dictate the leader’s tenure and many of the leaders tend to stay at the helm of affairs for too long. As Marshall Goldsmith, renowned leadership coach, puts it, “If you are not forced to hand off the baton before you want to, you may be tempted to hold it and keep running.”

Even if the incumbent leader’s track record is stellar, too long a tenure as the leader may make it difficult for the successor to find her feet. Ratan Tata had to face board-level storms in Tata group companies after he took over the mantle from JRD Tata, who led the Tata group for half a century.

Anu Aga faced serious problems in Thermax when she became the Chairperson of the company after the untimely death of her husband Rohinton Aga. Krish Gopalakrishnan and Sibulal and later Vishal Sikka also faced issues in leading Infosys after N. R. Narayana Murthy stepped down as the Chairman in 2011, after having led it for three decades.

These three examples are unrelated in industry, location (head-office) and size. The long tenure of their leaders and the turbulent ride for the successor is a common thread though. While there are multiple reasons for the troubles faced by these companies after the new leadership took over, one of the main reasons seems to be the long and successful tenure of the predecessors.

Leadership style and culture: Edgar Schein in his celebrated work on leadership and culture observes that organizational culture and leadership are intertwined. When a leader occupies the top position for a long time, she shapes the culture of the organization to suit her style. The influence of leadership style is very strong with family-owned firms when the leader is also the controlling owner and the distinction between the leader and the company is fuzzy. Over a period of time, the organization culture becomes too dependent on the leader’s style to the extent that it loses its flexibility to adapt to a different style.

If the leader quits when the organization is in trouble, then the new leader gets an opportunity to shake up the organizational culture. However, when the long-serving leader quits when the organization is doing well, the new leader would find it difficult to make the organization adapt to her style. The persisting culture in the organization resists the change in leadership style, thereby creating a problem for the new leader. In the case of Tata group, JRD Tata had laissez-faire style of leadership that allowed the CEOs of the group companies to run the respective firms as their personal fiefdom. When Ratan Tata took over, he tried to adopt a different style and that did not go well with incumbent CEOs and resulted in legendary board room battles.

Similarly, at Thermax, Rohinton Aga had a style of leadership which resulted in an informal culture in the organization. However, that proved to be a hurdle for Anu Aga in reviving the fortunes of Thermax. She wrote in the in-house quarterly magazine Fireside (April-June 2000), "Our culture - once our strength - has in many ways contributed to our woes. We have also misinterpreted the culture to suit our convenience. In the name of 'Thermax' culture, we have chosen to opt out of unpleasant and unpopular decisions relating to business activities and people. We have justified this paralysis by arguing that Thermax is a people-oriented company”. She took drastic steps to change the culture and revived the fortunes of the company. 

We all know the turmoil that Infosys went through after the retirement of Mr Narayana Murthy. The bridge between values of “compassionate capitalism” practised by Murthy and “entrenched in capitalism” Vishal Sikka was too long and not easy to traverse.

Smooth and timely passage of the Baton: In today's highly competitive environment, firms cannot afford such painful transitions. Research has shown that leaders with long tenures are inclined to maintain status quo while the newly appointed leaders would like to make more strategic changes to either make an impact or to accelerate growth. Now, an organization cannot always be in a “stable” mode. They will miss out on opportunities. At the same time, an organization cannot perpetually be in “change” mode. It will tire the people and the organization.

A healthy balance, as in everything else, is needed even for leadership tenure. In the Dabur group, the tenure of the Chairman is around 10-12 years, long enough for the individual to make his mark, short enough to ensure that the firm/group does not depend too much on the individual and entrenchment is avoided. Similar is the case with Murugappa Group.

Optimal tenure of a leader may be different in different industries, different organization structures and ownerships, leaders’ own attitude towards change, firm’s financial position and economic environment and easy availability of potential successors. Beyond her “peak”, a leader may be able to maintain “status quo”, but may not be able to remain “relevant” with changes in technology, emerging markets, changing regulations, environment and mindsets. Therefore, it is imperative for the long-term success of the firm that the leadership succession happens in a planned manner, as far as possible, and at the right time.