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Succession planning is a systematic approach to:

Building a leadership pipeline/talent pool to ensure leadership continuity

Developing potential successors in ways that best fit their strengths
Identifying the best candidates for categories of positions
Concentrating resources on the talent development process yielding a greater return on

Succession planning recognizes that some jobs are the lifeblood of the organization and too
critical to be left vacant or filled by any but the best qualified persons. Effectively done,
succession planning is critical to mission success and creates an effective process for
recognizing, developing, and retaining top leadership talent.

There are several factors typically found in successful succession planning initiatives. For

Senior leaders are personally involved.

Senior leaders hold themselves accountable for growing leaders.
Employees are committed to their own self-development.
Success is based on a business case for long-term needs.
Succession is linked to strategic planning and investment in the future.
Workforce data and analysis inform the process.
Leadership competencies are identified and used for selection and development.
A pool of talent is identified and developed early for long-term needs.
Development is based on challenging and varied job-based experiences.
Senior leaders form a partnership with human resources.
Succession planning addresses challenges such as diversity, recruitment, and retention.

Succession Planning can be defined as a purposeful and systematic efforts made by an

organization to ensure leadership continuity, retain and develop knowledge and intellectual

capital for the future, and encourage individual employee growth and development. - (Schein,
1997; cited in Caruso, Groehler & Perry, 2005.

1) To identify and proactively plan for critical work force positions, by developing a pool of
potential successors and encouraging a culture that supports knowledge transfer and employee
2) To build human resource programs that attract and retain qualified individuals.
3) To implement a framework that identifies the competency requirements of critical positions,
assesses potential candidates and develops required competencies through planned learning and
development initiatives.
Continuing the legacy of successful businesses, and especially privately owned or family owned
businesses, is a key value and goal of succession planning. Owners of these businesses, however,
who typically spend most of their days worried about gaining market share, hiring and retaining
motivated employees, and outrunning the competition, usually fail to give succession planning
any thought, much less seek advice about the subject. The reasons for their inattention to
succession planning include:
It requires business owners to confront their own mortalitywhich is the same reason many
people defer or delay writing a will. Successful and energetic managers find it hard to imagine
letting anyone else take charge, including a family member or key employee. For most business
owners, maintaining control is central to their identity.

Succession planning, a multi-faceted and complex subject, can appear daunting.

Owners know any succession choice will likely alienate those who are passed over,
potentially upsetting key people in the organizationwho may leave.

If employees include the owners family members, family dynamicsgood and bad

will be involved, making most owners dread succession planning.

Most business owners simply dont know how to approach it.

Succession Plan Components

A succession plan must clearly communicate a series of decisions that specify, among other
things, how ownership and management will transition when certain events occur. While
ownership transition and management succession are usually synonymous, they are not always
linked. The owner should not blur the two concepts, which involve separate and distinct
Other key succession plan components include creating equity or equity-based incentives for key
employees and effective evaluation processesfor the plan itself and for personnel.
An effective succession plan for companies that lack outside or independent directors, should
consider adding this component to the corporate governance structure. The primary distinction
between a succession plan and an effective succession plan is that the latter incorporates most of
these components, creating a more holistic solution. Above all, an effective succession plan must
be flexible, changing as the business evolves.

Models of succession Planning: There are various models of succession planning. They are,
1) Succession planning by position - management driven: Incumbent identifies the
individual(s) who are in their view best qualified to move into the position in the short term (say
within 1 year); the medium term (within 2 years) or the longer term (3-5 years); The incumbent
may also identify their perception of the development needs of the candidates they have named;

2) Creating succession planning "pools": In this model, high potential candidates are
identified within the organisation as the senior managers of the future; They are usually selected
by a task force of senior managers (often with the assistance of Human Resources) who set aside
a day or more to go through a list of all employees above a certain level and assess which
individuals should be identified as high potential. To facilitate decision making, they will often
agree on some criteria by which to select the individuals, and may have the person's most recent
performance appraisal as an additional resource. Once the pool has been identified, those who
make the list will generally receive some special attention. How much attention will depend on
the organizations willingness to make a financial commitment to the program? Often the Human
Resource Department puts together a "fast track" program in which they assist the person to
develop an individual development plan. They may provide some group training; they may
institute a mentoring program, and identify certain training programs these people should attend.

3) Top-down/bottom-up succession planning: This model is based on the current and expected
future needs of the organisation, as well as on ongoing two-way communication with employees.
This process involves:
Senior management as a group determines what competencies are required to enable a person to
take on the key roles. Certain criteria for progression are determined as across-the-board
requirements for development, for example, education levels, organisational cross training,

participation in management training. All employees at a pre-determined level are provided with
the information developed by Senior Management by a session about succession planning and
career development. This session outlines clearly the requirements for progression in the
organisation. This enables staff to determine whether they are interested or not in progression;
and to self-identify if they wish to be involved in a program which will help them to meet the
criteria for development and progression; Employees who signal their interest in progression
then participate in a workshop in which they are given guidance and led through such processes
a) Using 360 degree feedback to determine their strengths and weaknesses particularly relating to
management skills,
b) Developing their own individual development plan and reviewing it with other appropriate
c) Learning how to take responsibility for their own career growth, and
d) Considering what would be good "next moves" for them to make in their careers. Assessment
centres could also be used as part of the workshops.

Challenges in Succession Planning:

a) Lack of funding for leadership development
b) Inability to locate or create a pool of active and passive candidate
c) Lack of assessment tools
d) Lack of succession planning tools and career development tools
e) Inability to identify the future talent needs of the organization

f) Lack of interest from senior executives

Guiding Principles
1) Supports the five fundamental values of the New Brunswick public service: Integrity, Respect,
Impartiality, Service and Competence.
2) Conducted in accordance with the Civil Service Act, its regulations and the policies
established by the Board of Management.
3) Strikes a balance between the values of fairness, accessibility, transparency, and efficient use
of government resources for current and future needs.
4) Aligned with current and future business needs of government and departmental/agency
strategic plans;
5) Aligned with the goals of the Corporate HR Plan and the Executive Development Strategy to
develop current and aspiring leaders;
6) Candidates are assessed using methods that are competency-based and free from favouritism;
7) Communication is open and transparent.

Benefits of Succession Planning:

1) Aligning strategic goals and human resources to enable the right people in the right place at
the right time to achieve desired business results.
2) The development of qualified pools of candidates ready to fill critical or key positions.
3) Providing stability in leadership and other critical positions to sustain a high-performing
public service and ensure the uninterrupted delivery of services and programs.

4) Identifying workforce renewal needs as a means of targeting necessary employee training and
5) Helping individuals realize their career plans and aspirations within the organization
6) Improving employees ability to respond to changing environmental demands, and
7) The opportunity for timely corporate knowledge transfer.
Succession does not always unfold as the owner envisionedfor example with a trusted
successor stepping in once the owner reaches a ripe old age. Instead, the owner may suddenly
die, become incapacitated, or receive an employment offer too good to refuseperhaps to
become a university president or take a high-level government post. In these cases, business
owners or their families may enter crisis mode, making hasty, and often ill-advised, decisions.
Effective succession planning creates a stable and sustainable platform that helps to guide the
company forward with a solid management team to assure management succession and an
ownership structure that removes uncertainty about ownership succession. As we will see,
ownership succession and management succession are two very different matters.
An added benefit of effective succession planning is the stability it offers lenders, investors,
suppliers, vendors, and customers. It also preserves and protects one of the most critical,
expensive, and often overlooked assets of any businessits people, who possess a wealth of
experience, knowledge, and intellect. Partly because effective succession planning can serve as a
powerful hiring and retention tool, it can perform double duty by also helping to address
challenges that seem more pressing, like growing the business and beating the competition.
Like any other business strategy, succession planning is a tool and a process, not a cure-all.
Effective succession plans will not singlehandedly bring a business new customers, greater
profitability and market share, or improved employee relationships.

Succession Planning Process

Step 1: Link Strategic and Workforce Planning Decisions:
This step involves:
a) Identifying the long-term vision and direction
b) Analyzing future requirements for products and services
c) Using data already collected
d) Connecting succession planning to the values of the organization
e) Connecting succession planning to the needs and interests of senior leaders.

Step 2: Analyze Gaps

This step involves:
a) Identifying core competencies and technical competency requirements
b) Determining current supply and anticipated demand
c) Determining talents needed for the long term
d) Identifying real continuity issues
e) Developing a business plan based on long-term talent needs, not on position replacement.

Step 3: Identify Talent Pools

This step involves:
a) Using pools of candidates vs. development of positions
b) Identifying talent with critical competencies from multiple levels early in careers and often
c) Assessing competency and skill levels of current workforce, using assessment instrument(s)
d) Using 360 feedback for development purposes

e) Analyzing external sources of talent.

Step 4: Develop Succession Strategies:

This step involves:
a) Identifying recruitment strategies:
Recruitment and Relocation bonuses
Special programs.
b) Identifying Retention Strategies:
Retention Bonuses
Quality of work life programs.
c) Identifying development/learning strategies:
Planned job assignment
Formal development
Coaching and Mentoring
Assessment and feedback
Action learning projects
Communities of practice
Step 5: Implement Succession Strategies
This step involves:
a) Implementing recruitment strategies (e.g., recruitment and relocation bonuses)
b) Implementing retention strategies (e.g., retention bonuses, quality of work life programs)
c) Implementing development/learning strategies (e.g., planned job assignments, formal
development, Communities of Practice)
d) Communication planning
e) Determining and applying measures of success
f) Linking succession planning to HR processes

Recruitment and retention

Performance management
Workforce planning

g) Implementing strategies for maintaining senior level commitment.

Step 6: Monitor and Evaluate

This step involves:
a) Tracking selections from talent pools
b) Listening to leader feedback on success of internal talent and internal hires
c) Analyzing satisfaction surveys from customers, employees, and stakeholders
d) Assessing response to changing requirements and needs.

Who to Involve in the Succession Planning Process

A business owner should consult with a number of resources to help create an effective
succession plan. Usually, over time, business owners develop relationships with trusted financial
advisors, bankers, legal counsel, accountants, and colleagues. Additionally, the board of directors
should play a strong role in creating and implementing the succession plan. However, it is
dangerous to involve too many people. The result can be too much noise and not enough action.
It is most important to include people with different perspectives so the resulting succession plan
reflects a comprehensive approach.
It is also important to ensure that there is a formal method, which includes specific goals,
objectives, and defined timelines, that allows the process to be monitored and evaluated as it
proceeds. Specific tasks may be delegated to smaller groups. For example, some people may be
tasked with determining how other similarly situated companies, perhaps including competitors,
handle succession planning. An effective succession planning process must be subject to
adjustments, modifications, and revisions as it evolves.

Succession Planning and Incentives

One significant byproduct of the succession planning process is learning that the company may
need more depth and experience in certain areas. This realization may require making hires or
exerting stronger efforts to retain key people. Creating successful incentives is extremely
important for an effective succession plan.
The owner should consider both cash and equity-based incentives. The latter are often used to
attract new hires and retain key executives while simultaneously allowing the current owner to
effect a gradual change of the organizations control.
An employee stock ownership plan, or ESOP, might be appropriate for business owners who
want to ensure their employees retain a significant stake in the enterprise. A detailed discussion
of ESOPs is beyond the scope of these materials. Essentially, ESOPs are tax-advantaged
structures that allow a companys employees to acquire ownership from the current owner.
Numerous issues determine an ESOPs viability, and ESOPs are not solutions for many
businesses. But in the right circumstances, they can be part of an effective succession plan.
Several other equity or equity-based plans can provide incentives to hire and retain key
personnel. They include stock options, restricted stock purchases, stock appreciation rights, and
phantom stock plans.
With the exception of ESOPs, the incentives described above involve incremental, as opposed to
one-time, changes of control. They provide a platform that creates a group of enterprise owners
who are presumably vested in the companys success. Because in most cases their ownership
vests over time, these owners develop an increasing stake in the company.
In addition to these plans, which generally prove highly effective, an owner can use other
techniques to shift ownership to a designated successor, whether family member or key
executive. These strategies usually involve a direct sale of equity over time and with appropriate

vesting schedules. As a result, the equity is effectively earned and paid for with cash, services, or
There are also numerous estate-planning techniques that involve transfer of ownership to grantor
trusts and the use of single member limited liability companies. These are useful as part of an
effective succession plan. These sophisticated, complex transactions can provide meaningful and
effective strategies for succession planning.
All of these plans can be structured in combination. Many companies employ a variety of them,
creating a wide spectrum of equity-based incentives for key employees. Each strategy involves
significant legal, tax, and accounting issues. Owners should consult their tax and legal advisors
to assure that these plans are structured and implemented in the most efficient and cost effective
Evaluation and Documentation
An effective succession plan should be in writing and rigorously referenced during the plans
implementation phase. This helps those responsible for implementation, keeps the process
sustainable, and assists when evaluating the plans success.
Senior management and the board should regularly review the plan to determine whether it
remains effective or requires revisions. The succession plan itself must be as dynamic as the
selection process. It cannot be viewed as an immutable, irrevocable document. Rather, it is an
evolving expression of the future needs and goals of the enterprise.
It is equally important that ancillary aspects of the succession plan, especially those addressing
ownership transfers, be thoroughly and carefully documented. This results in clarity and mutual
understanding of the terms and conditions of ownership transfers. It also enables future
beneficiaries to understand the plans components, expectations, and mandate. This is especially
important when addressing issues like performance criteria and vesting schedules.

When direct equity transfersas opposed to deferred compensation plans such as stock
appreciation rights or phantom stock plansare involved, it is critical to execute a written
shareholders agreement (or operating agreement in the case of a limited liability company).
These agreements typically address issues related to management, governance, and equity
transferability. They are essential to avoid, or at least minimize, future disputes over ownership,
management and control.
Last, if the company lacks an effective personnel evaluation policy, it should consider
implementing one as part of its succession plan. These policies help identify potential leaders and
successors. They also provide a guide to successfully mentoring talent, and developing a broader,
more inclusive management team.
Common Mistakes
Succession plan horror stories abound. Most succession planning mistakes, which can produce a
host of unintended consequences, can be attributed to poor planning, lack of foresight, and
inattention to detail. Others can be chalked up to owners who lack commitment to the process.
They fuel dissension by wavering and failing to follow through.
In many ways, succession planning resembles any other strategic or business plan that companies
undertake to identify new customers or markets. All require analysis, planning, commitment to
implementation, monitoring, periodic evaluation, and adaptability, as well as buy-in from
owners, family members, and key employees. Failed plans lack these components or
inadequately focus on them.
An effective succession plan should not be considered an end. Rather, its continued success
requires that it be viewed as a beginning.

Pitfalls for Succession Planning:

1) Focusing only on the "technical competencies" and failing to consider the team-building and
leadership development requirements
2) Underestimating people within the organization or overlooking employees that don't appear to
fit your standard "company template"
3) Implementing a program that is designed for upward mobility only - lateral succession moves
should also be included in the plan
4) Failing to offer the appropriate training and developmental opportunities.
5) Creating a development program that only offers generic "leadership" training programs
6) Not holding managers & leaders accountable for succession planning Not sharing the data
with employees - you run the risk of losing promising employees if they don't feel the company
has a plan for their development
7) This is why succession planning must be a coordinated effort between HR and line and senior
executives must ensure the line managers get involved with their own division succession
planning efforts.
8) Finally, don't make the mistake of thinking succession planning is only concerned with
"upward" succession. Lateral assignments may also be used because there are fewer
opportunities as you progress upward in the organization.
9) It's the role of every manager to help their promising subordinates develop their fullest
potential by continually challenging them and increasing their leadership competencies.

Succession Planning in India The Indian business environment is largely driven by family-run
businesses, public sector enterprises and professionally managed companies (mostly MNCs).
Without doubt, family-run businesses make for a huge percentage of business houses in India.
Family-run companies account for roughly 50%* of the market capitalization of publicly traded
companies in India and contribute to around 55%* of GDP; hence, the relevance of these
companies for the overall economy.
If numbers are to be believed, only 13% of family-run businesses survive till the 3rd generation
and only 4% go on to the 4th generation. Additionally, one third of the business families
disintegrate because of generational conflict at the leadership levels. Professionally run
succession planning is key for the sustainability of businesses. Family disputes and the lack of
succession planning have triggered the decline in fortunes of many business families.
Traditionally, succession planning in family-run businesses has always been a hush-hush affair,
clearly depending upon the life expectancy of the founding chairman or patriarch. Succession
planning in family-run businesses is generally an intuitive process with the family patriarch
taking the decision as to who will take charge of the business empire. Dr. Ganesh Shermon,
Partner & Country Head - People and Change Practice, KPMG says, Traditionally, family-run

businesses focused on dividing the silver among the next generation rather than grooming the
right person to take up the job. However, with changing times, family-run businesses need to
ensure that the chosen successor has necessary education and skills and should be made to work
his / her way up the management. Alternatively, companies should be bold enough to appoint a
professional manager when there is no suitable candidate within the family. Companies such as
Ranbaxy, Murugappa Group and Eicher have set a precedent in this regard. In 1998, when
Dabur India realized the might of behemoth MNCs and their scale of operations, it valued the
need for a professional to run the operations of the company in order to build a professionallymanaged company with strategic business outlook. And thats when Dabur India roped in an
outsider as its CEO, Ninu Khanna, rather than passing the reins to a family-member. Sunil
Duggal, Daburs CEO since 2000 has taken the business to new heights by strategic acquisitions
and has expanded the product portfolio to make Dabur a comprehensive FMCG company from
an Ayurvedic products seller. Today, majority of the Board members at Dabur do not belong to
the Promoter family. The Tata Group too is on the lookout for a successor to Ratan Tata, who
retires in 2012, and for other group companies too, as the Heads of Tata Steel and Tata Motors
head toward retirement.
Passing on the reins of the organization to a family member has a lot of legal implications too.
Hiralal Walchand, Director, Walchand Associates, which deals in will trust services and family
law, says Family members (sometimes even far-off relatives) join companies as employees but
demand legal ownership rights during division of assets. This should be avoided as dividing
assets amongst so many claimants completely devalues the company. In case of listed familyrun business houses, the first step towards planning a strategic succession is to increase the
holdings in various group companies. Walchand explains that, Increasing holding by the parent
company wards off the risk of future acquisition. B. K. Birla, for instance has been working

toward increasing the familys stake in its group companies of cement, textiles, et al. Once that
is achieved, the patriarch can appoint either family members or internal and external candidates
to take on the mantle. This ensures that when the patriarch steps down, there is no change in the
way business is done. In the recent succession plan chalked out by RPG Enterprises, Group
Chairman R. P. Goenka segregated the ownership and control of various group companies
amongst his sons Harsh Goenka and Sanjiv Goenka where the former was named the Chairman
and the latter Vice Chairman. The business will, however, continue to run the same way with
each brother continuing to control and run the companies they were handling previously.
In the case of PSUs, many of the appointments are guided by political considerations. The fact
that quite a few of the top jobs at PSUs are either unfilled or manned by acting CEOs indicate the
lack of importance attached to the process of top management succession planning.
In spite of the political stifling, some PSUs have formulated very strong succession planning
practices. Prakash, Managing Director - India, Leadership and Talent Consulting, Korn/Ferry
International, says, PSUs are unique in that almost invariably grow their own timber. Public
sector companies really do not have a succession planning system per se, they have an internal
promotion system. Companies like Indian Oil, Bharat Petroleum, Hindustan Petroleum, BHEL,
NTPC, ONGC, State Bank of India have worked on establishing leadership competency
frameworks, assessed managers for development and taken follow up actions in terms of internal
training and developed courses in collaboration with the IIMs.
Some of these practices can be compared to the best in the private sector. For instance, ONGC
conducts succession planning three levels below the Board and NTPC conducts rigorous
succession planning two levels below the Board. NTPC has constituted a high level Succession
Planning Committee (SPC) comprising of the Chairman and the Functional Directors to own the
process of succession planning. NTPC has identified 28 unique leadership positions for

succession planning. Most of the positions fall under the two top executive levels - General
Managers and Executive Directors. Against each position at least three potential successors are
identified for grooming. This is done to ensure that sufficient depth is maintained in the
leadership pipeline at all times. Succession planning is a shared responsibility of the HR function
and the organizations leadership. NTPCs CMD, R. S. Sharma was recently succeeded by Arup
Roy Choudhary, former CMD of National Buildings Construction Corporation (NBCC).
The search for a successor for CMD (Chairman & Managing Director) is done pretty much the
same way as the search for other Board level appointments where an advertisement is put up for
the vacancy by the Enterprise Selection Board and shortlisted candidates sent to the ministry. The
final decision for appointment is made by the Cabinet Committee. The concurrent CMD is not
involved at all in this process. In July, state-owned telecom units, Bharat Sanchar Nigam Ltd.
(BSNL) and Mahanagar Telecom Nigam Ltd. (MTNL) advertised vacancies for the post of
CMD. The Enterprise Selection Board, formed under the leadership of K. M. Chandrashekhar,
Cabinet Secretary, has received close to 100 applications and will soon announce the successor
to Kuldip Singh, CMD of MTNL and Gopal Das, CMD of BSNL.
Professionally-run companies in India, mostly MNCs and a handful of home-grown companies
like Infosys, are more forthcoming when it comes to chalking out a strategic succession planning
process. Professionally-managed companies have definite processes and employ latest
techniques while identifying potential successors. Take for instance Larsen & Toubro (L&T).
Well before two years of current Chairman A. M. Naiks retirement, the organization has
systematically and strategically put in place a succession planning process and will announce the
name of the new Chairman six months before Naik retires so that s / he is able to get proper
handholding. In many of the MNCs operating in India, the decision to find a successor is more in
tune with business strategy and growth vision for the future of the organization. Kellogg India

recently roped in Sangeeta Pendurkar, former VP-Strategy & Commercial Leverages at Coca
Cola India to head its Indian operations as MD, replacing Anupam Dutta. Pendurkars experience
in revamping Coca Cola Indias tea and coffee business (Georgia) and introducing innovative
regional brands such as Minute Maid and Nimbu Fresh made her a suitable choice for Kellogg
Indias strategic plan to strengthen the companys stranglehold on the breakfast segment by
introducing more regional flavors.
In certain other professionally-managed organizations, senior leaders have the responsibility to
design their own succession planning process, as in Lucent Technologies, where senior managers
are expected to develop at least two potential successors using job rotations, challenging work
assignments, special projects and executive coaching. Companies like Hindustan Unilever, P&G
and ITC have traditionally groomed most of their senior management internally using a
combination of talent review sessions, comprehensive training programs, job rotations and a
combination of HR and leadership metrics.
The Murugappa Group, headquartered in Chennai (Madras), India has grown from humble
beginnings to become a very important conglomerate. The company started as the dream of a
driven entrepreneur in Burma in the early 1900s. Today it boasts revenues of US$ 850 million
and employs 22,500 people in its 27 business units. The company is presently undergoing a
major change, as it restructures its family governance system. It realizes that change is necessary
if they want to continue to compete in the world marketplace. Though adaptation is not always
easy, the Murugappas find strength through their heritage and values.
An entrepreneurial spirit
The family traces its business history to 1760 when the great-great great grandfather of the
founder was active in trading and money lending. He had five sons who each, separately, built

successful businesses that, in later generations, led to leadership in several industries in India.
The family came from a long line of members of the Chettiar sub-clan of the Vaisyas castemerchants and professionals with business interests
primarily in Burma, Malaysia, Sri Lanka and Vietnam, known for their scrupulous honesty,
trustworthiness, cleverness in trade and proficiency at money matters.
Following Indian tradition, the majority control of his deceased father's entire estate went to the
eldest son, with Dewan Bahadur receiving virtually nothing for all his work. The unfairness of
this policy spurred him to divide his estate equally among his three sons - Murugappa, Vellayan
and AMM. He did this while they were young men and while he was still alive to give them the
freedom and the opportunity to be a family energetically pursuing business together. He also
encouraged free speech among his sons until a decision was taken; then the courtesies due to an
elder had to be honored. This, too, varied from the norm in society at the time where respect for
the elder was paramount.
All three of Dewan Bahadur's sons shared their father's venturesome business spirit and
complemented each other in their managerial styles. Murugappa was marketing and external
relations-oriented; Vellayan was finance-oriented; and AMM was operations-oriented, with a
focus on details.
In the early 1930s, Dewan Bahadur and his sons made several decisions that were critical to their
later success. At a time when 70% of Chettiar wealth was in Burma, they repatriated much of
their monies to India so that the Great Depression, World War II and Burmese national
movements didn't bankrupt the family; they had an insight that India was on the verge of
industrialization; and they decided to take the family's first steps into major industry.
With the repatriated funds, they established a sandpaper plant (the beginning of today's US$ 65
million abrasives business called CUMI); they purchased a steel safe manufacturing company;

they started an insurance company; and they bought a rubber plantation. The Murugappa Group
was born.
In 1931, Dewan Bahadur's eldest son, Murugappa, visited the US for the International Chambers
of Commerce Convention. This trip broadened the family's view of possibilities for making
money and expanding the company. When Murugappa returned from the US, he kept an eye out
for a business opportunity he could set up and lead in India. When he heard from an
acquaintance that there was market demand in India for a quality
manufacturer of steel security furniture such as safes, cashboxes and filing cabinets, he moved
forward with family support, commencing production in 1940.
A much larger foray, conceived during the same time period, was to enter the business of making
abrasives, a product used by manufacturers to sand, sharpen and smooth equipment, materials,
components and end-products. The family's rationale was that if world war broke out, the volume
and variety of goods imported on British ships would decrease; thus, local manufacturing would
expand with the new opportunity. The family cleverly negotiated to buy, dismantle, ship and
install an abrasives plant from the American Midwest to its location in India. The plant was
operational in 1942. About a decade later, AMM made contact with the three largest abrasives
companies in the world - to seek a joint venture for access to new technologies. When all three
were disinterested or very slow to respond, he contacted and struck a deal with Carborundum
USA and Universal of UK. Before anything official was signed, the largest company in the field
made overtures and showed interest. Since the family had given its word to the British company,
they would not go back on it to negotiate with one of their larger, first choice firms. This was the
first of many successful joint venture arrangements (since 1952 named Carborundum Universal
of Madras, India or CUMI). After India gained independence in 1947, the Murugappa family was
among the first in India to form a joint venture. With introductions by Sir A Rarnaswami

Mudaliar, some experience in steel manufacturing of safes and with a vision for bicycles in India,
Tube Investments of India (TII) was formed in 1949. TII began as a bicycle assembly firm
representing the English Hercules brand in India. The English partner began with a 43% interest.
Over time, TII grew, integrated into most all components, and diversified into steel tubes for
furniture, industry and other applications. Hercules became the number one bicycle company in
India. The British partner eventually departed the industry, turned the Hercules, BSA and Philips
brand over to the Murugappas and divested its ownership position. One of the patterns in the
Group's development is that their foreign partners lose interest in the Indian venture due to
acquisition, management or strategy changes and sell back their shares to the family at a better
than fair price because of the trusting relationship they had built. This happened, for example,
with CUMI in 1982when its UK parent sold back Its shares. CUMI, now publicly traded, is 43%
controlled by the family.
Adaptation and growth
In India's government-regulated economy, the Murugappa Group found it necessary to adapt in
order to prosper. In the 1980s, Indian law prohibited formation of a business group, so the family
followed the system of crossholding controlling shares among separate public companies.
Recently that law has changed, and the family is restructuring again to become a holding
company. Because of government regulation in the past, it was difficult to obtain licenses for
new businesses. Between 1964 and 1980, the Group applied for 17 licenses. Out of the 17 license
applications, one was granted and the other 16 were not. The Group decided not to pursue these
because of their values. Consequently, to grow, they sought acquisition of sick units to turn
around. In the last 20 years, 17 additional companies have been acquired.
The most well publicized acquisition occurred in 1981 with the purchase of Madras based EID
Parry - a huge, decrepit, yet symbolic business that the Group had been interested in since 1958.

Parry, the second oldest commercial name in India, included fertilisers, pesticides, confectionery
and also sugar mills. For years EID Parry's creditors were asking the Group to take over its
management, given the Group's management reputation and acumen. The family repeatedly
turned down the overtures, responding that without control EID Parry wasn't in the family
interests. Eventually, the creditors relented and the family gained control of the publicly traded
company. The agreement made headlines because it showed the Group's commitment to invest in
what many in India felt was a risky venture, but what they saw as an opportunity to grow. EID
Parry is now a business with US$ 265 million in sales and is 41% family-owned. With EID Parry
came a 7% holding in a joint venture fertilizer company, Coromandel Fertilizers Ltd Chevron
and IMC Global partnered in the fertilizer growth area then later sold out. EID Parry developed a
unique organic pesticide from indigenous neem seeds that is often acclaimed to be the best in the
world. EID Parry is also in the sanitary ware business. However, not all businesses have been a
success. For example, the Group has divested a cement company, sold its electronics business
and faced difficulties with its long held construction company.
Business and philanthropy
Today the Group includes seven substantial business units comprising 27 companies in a variety
of industries: CUMI, TlI, Coromandel, Parry Agro, EID Parry, CIFCO and the only private
company, Arnbadi Estates, holder of some of the plantations. TlI now has four significant lines:
bicycles, chains, industrial tubes and roll forming. CUMI is a full line, vertically integrated
abrasives company and Coromandel is a very profitable fertilizer business. With Arnbadi and
Parry Agro, the Group remains active in rubber, tea and coffee plantations. EID Parry includes an
assortment of businesses including fertilizers, sugar mills, pesticides and sanitary ware. The
Group is in the food industry with Parrys Confectionery Ltd. CIFCO is in the financial services
of brokerage, vehicle finance, insurance and mutual funds. The Murugappa Group and family

also continue to build on the example of philanthropy initiated by Dewan Bahadur. His decision
to set aside a major portion of his wealth for charitable causes, starting in 1924 when he built a
hospital in his home village, commenced a tradition of helping, guiding and supporting others in
communities in which the companies do business. The family's trust, the AMM Foundation, is
sustained by a fixed percentage of annual business profits and family contributions. To date it has
built and nurtured four high schools of 8000 students, a polytechnic institute of 1000 students,
four no-fee hospitals and a rural research centre. The rural research centre focuses its activities
on developing such things as protein-efficient algae, natural dyes, organic farming and
technologies for the rural and urban poor. Although by custom, the sisters and wives of the
Murugappa men do not work in the businesses, they are the major sources of leadership and
guidance in the family's foundation and the institutions it supports.
Family ties
While success seems to overflow for the Murugappas, the family and business have also been
shaped by trauma and loss. Tragedy first struck in late 1945 at the end of WWII. Middle son,
Vellayan, age 40, was assinated while in Burma as part of a formal delegation gauging the safety
of Indian civilians returning to the newly communist country. From then on, his two brothers
functioned in the business roles as 'Mr Outside' (Murugappa) and 'Mr Inside' (AMM), under the
overall leadership of the elder - their father until his death in 1949, Murugappa until his death in
1965 and AMM until his death in 1999. Beginning in the late 1950s, the third generation sons
entered the business. They successfully avoided a common family business trap of an enterprise
slumping after the founder's generation. This was due to their elders' concerted focus on
developing the talents of the younger members as professionals through academic training,
international experience, at least two years of work outside of the family business and finally
employment at a mid-level in the Group's companies, rising one step at a time. Up through the

mid- 1990s, each of the six male family members in the third generation rose to become
managing director of one or more of the business units: MV, first son of Vellayan and the oldest
of his generation, set the pace with higher education at a college. While working at businesses
within the Group, MV was encouraged by his uncle AMM, the chairman, to play roles in the
business world beyond the family, including positions on boards, associations and delegations.
He held Managing Director or Joint Managing Director positions at Carborundum, later CUMI,
III and Coromandel until his death in 1996. Muthiah, second son of Vellayan, was adopted as a
teen by his uncle Murugappa who had no male heirs. He held several positions with the
family firms, including Ambadi Estates where he became a leading authority on planting in
southern India. He worked at Coromandel Engineering and was the Managing Director of CUMI
when he died suddenly in 1979 at age 49.
Murugappan, the third son of Vellayan trained as a civil engineer in England and used his
expertise to successfully scout unique new lines of industrial products to manufacture and sell in
India. He took over the Managing Director position of CUM I when Muthiah died and continues
as Chairman of CUMI to this day. Since 1999, he has been the family elder, but decided against
the leadership of the business, deferring to his younger brother, Subbiah. Subbiah, the youngest
son of Vellayan, has his college degree from the University ofAston in England. He is credited
with a major role in turning ailing EID Parry into a successful business in the 1980s, serving as
Vice-Chairman and Managing Director. He also had leadership positions at TI Cycles, as the
Chairman of the Murugappa Group and the Executive Chairman of ElD Parry. In 1996 he was
appointed Group CEO. Muru, the oldest son of AMM, studied mechanical engineering in
England, followed by on-the-job training at Tube Investments Group UK. He worked at, then
headed upCoromandel Engineering, the family's construction business. He died in 1995 at age

Algy is the second son of AMM. After schooling in Lawrence at Ooty and gaining his degree in
commerce in India, he went to Britain as a Management Trainee with TI. He started his work
experience at TI Cycles and subsequently moved up to No. 2 to Muthiah in the plantation
business. He was instrumental in starting up the Cholamandalam financial services business.
Currently he is Vice Chairman of the Murugappa Group and Chairman of Cholamandalam.
Since the late 1970s, six of seven sons in the fourth generation have also joined the Group,
making contributions in the business units at all levels including managing director. All men of
the same generation and age who work in the family business receive equal compensation and
perks, regardless of title, position, contribution or level of responsibility within the organization.
To enhance individual and Group success, informal mentoring among the family members takes
place with older, more experienced and/or accomp1ished members guiding, assisting and
supporting younger, less experienced members. As for inheritance, equal thirds of the family's
business shares - following the three branches of the family emanating from the three sons of
Dewan Bahadur - are divided and entrusted to the males in each generation, whether they work
in the business or not.
An important transition in organization occurred in 1985 when the Group hired for the first time
a management consultant, AD Little, to look at issues of structure and succession. This effort
resulted in a leadership succession plan in which senior members of the family of the 3rd
generation filled the positions of Business Unit Managing Directors, COO and CEO until each
retired at 65, with the selection process based on merit as well as seniority.
After India signed the World Trade Organization agreement around 1995, the family saw
opportunities, including new export-oriented activities. Because of this, they realized the
necessity of making speedier business portfolio decisions than was presently possible due to

individual family members being emotionally involved in separate business units. In this
environment, even when everyone wanted to make a positive business decision for the Group as
a whole, it could not be made with the speed and nimbleness necessary in the faster pace of the
new global economy. Despite this realization, nothing changed until 1996 when Muru and MV
both died at early ages. These tragic events acted as a wake-up call. The family elder, AMM,
urged a restructuring to improve the future of the business by relying less on family members for
the day-to-day management of the business units as managing directors. Leadership of this task
fell to AMM until his death in 1999, then to his nephew Murugappan who continues as family
elder today, and to Subbiah,
Appointed Group CEO in 1996.
The goal of the restructuring was to introduce change without disrupting performance in an
atmosphere of openness and support. The family leaders sought the help of an esteemed Indian
colleague to help facilitate discussions of change among family members. Several insights about
the Murugappa Group's reorganization surfaced which included the
1) To be more of a Group rather than a collection of separate entities;
2) To be more flexible in the make-up of the portfolio of businesses;
3) To have less emotional attachment by individuals to their businesses;
4) To shift away from family-led units to non-family-led units; and
5) To mentor the non-family managing directors for the long-term view.
Facilitating change
To facilitate the change process, the family members on the board committed one to two days a
month for almost two years. This resulted in establishing a holding company - like board with the
intention of becoming an actual holding company in the future. In 1999, the Murugappa Group

created the new governance structure. They changed the leadership of the individual business
units from family members to professional managers and the family members moved to board
positions on the newly formed nine-member Murugappa Corporate Board (MCB). This holding
company-like board includes as directors five family members (two from the third generation
and three from the fourth generation), three independent members and the Group CFO. The
independent board members recognized the importance of their participation in the transition of
the company and wanted to work with the Murugappa family members because of their
exceptional experience, humility and a willingness to listen. They also wanted to demonstrate the
success of the holding company model for family business and to ensure the family business as
an important force in the economy of India.
The new structure was innovative for the business and for India. At once, it allowed family
members on the board to focus on strategic areas across businesses for the benefit of the entire
organization. Each family member on the MCB serves as a fulltime director with three assigned
responsibilities. One is for a function across all business units, another is to serve as
mentor/overseer for one or more businesses he has typically never led before, and the third is to
guide younger family members for future governance roles. One of the benefits of this
arrangement has been the creation of knowledge transfer and technology synergies among the
Group's businesses. The move harnessed the substantial business experience and resourcefulness
of the family members for the good of the overall company, not just a business unit, and also
brought a new perspective from the independent board members. The family members on the
board have noticed great value in the restructuring, although it is not without personal challenges
because they are being stretched to perform in areas new to them with different people,
operations and situations.The changes made in management and leadership of the business were
also noticed by workers, family and community. The family board members are aware that they

are serving as role models of the structural change, especially in bringing along other constituent
groups that need to make adjustments to the new arrangement. The new governing structures
caused a shift in decision-making to one that is more collaborative - a counter to Indian norms
and values of the traditional leadership role of elders in the family.

Future focus
As the business moves from family-operated to family-governed, formalizing the family's
business approach is being discussed within the family and among the MCB members. The
family has taken steps towards articulating what they stand for by developing their Corporate
Values and Beliefs. These are listed prominently on their corporate materials, website, and Bill of
Rights and Responsibilities for Family Member Owners, all of which can be amended by family
consensus but not by vote. The development of a Family Constitution is seen as the next
important step, but the form the Family Constitution takes - whether it should be a formal written
document or an understanding by custom and practice is under discussion. Independent
directors are trying to get the family to formalize procedures because the businesses' complexity
demands it. Family and independent directors of the board realize that the future role of family
members in the business is evolving. They are aware that family members in future generations
will have more choices in terms of profession than in the past and may opt out of the business.
Those who enter the business need education, development and training to be future leaders in
the family business at the governing level, although they will not be managing directors of units.
Up until April 2001, the MCB was headed by a family member, Subbiah. At that time, he stepped
aside and independent board member NS Raghavan took over as the MCB's first
independent non-family executive chairman on an interim basis. The reasons for this change
were to create an environment that encourages creativity and fuels growth and to make decision-

making even more rational and less personal. The board is proceeding slowly to find a permanent
non-family MCB chairman, preferring to wait for a person who is just right for the position. In
the last decade, the Group has looked at its portfolio of businesses with an eye towards future
growth. Although many of the Group's long-term
companies are in low margin, old economy manufacturing, there has been a continued focus on
investing in and maximizing research for the good of the business. Several of the business units
have launched products developed as a direct result of its proprietary research investments that
could have global markets. The value of supporting research for product innovation is a priority.
The company also seeks to balance and reduce its portfolio of companies to the six business
areas it knows well and in which it holds leadership positions. The Group plans to shift reliance
away from low but steady growth manufacturing to opportunities in the high growth financial
services sector through its business unit, CIFCO, where it has managerial and financial
capability. The Group is increasing exports and is exploring entirely new opportunities in
industries that are global employing the highly talented, yet cost-effective Indian workforce. One
such endeavor under development is information technology enabled products. For the
Murugappa Group family business leaders, the last three years have been times of great
structural changes, shifts in thinking and adaptation, all the while managing a major spectrum of
successful businesses and opportunities in a marketplace that is increasingly fast paced and
global. Sustaining them through these substantial efforts in meeting success in the future have
been the valuable lessons of their family's heritage. Throughout the generations, family members
in the business have used situations presented to them as springboards from which to creatively
adjust, flex and move forward for the good of family and community. They have anticipated
change, shown a willingness to adapt and to take risks. As fourth generation Murugu reflected
when he accepted, on behalf of his family, the IMD Distinguished Family Business Award in

October 2001 in Rome, "We consider ourselves custodians to a heritage and trustees to a
tradition, both built on togetherness, trust, mutual respect, ethical values and above all dignity,
independence and discipline. As the scope and magnitude of the family and business leadership
changes, we are preparing ourselves for the great challenges ahead.
Best Practices of the Murugappa Group
Family Development: The older generations focus on developing the
talents of the younger members, as professionals, through academic
training, international experience, at least two years of work outside of the
family business, family mentors, and a career path that provides broad
Transitions and Re-organization: They strive to introduce change
without disrupting performance through an atmosphere of openness and
support. They draw strength during change from their heritage and values.
Succession: Leadership roles change in a clear and unselfish way.

Introduction to TATA Group:

The group takes the name of its founder, Jamsetji Tata a member of whose family has almost
invariably been the chairman of the group. The Previous chairman of the Tata group is Ratan
Tata who took over from J.R.D Tata 1991 and is currently one of the major international business
figures in the age of globality. The Company is currently in its fifth generation of family
Tata group promoter holding companies:
Tata Sons
Tata Sons is the promoter of the major operating Tata companies and holds significant
shareholdings in these companies. Tata companies are commonly referred to as the Tata group
and the Chairman of Tata Sons as Chairman of the Tata group.
The companys principal activities are:

To invest in operating companies to support their growth

To promote and invest in new businesses
To maintain its shareholding in major operating companies

Tata Quality Management Services, a division of Tata Sons, assists Tata companies in their
business excellence initiatives through the Tata Business Excellence Model, Management of
Business Ethics and Tata Code of Conduct.
Board of directors, Tata Sons
1) Cyrus P Mistry, Chairman (Formerly, Ratan Tata)
2) Farrokh K Kavarana
3) R Gopalakrishnan
4) Ishaat Hussain
5) RK Krishna Kumar
Tata Industries

Tata Industries was set up by Tata Sons in 1945 as a managing agency for the businesses it
Following the abolition of the managing agency system, Tata Industries' mandate was recast, in
the early 1980s, to promote Tata's entry into new and high-tech businesses.
Tata Industries has initiated and promoted Tata ventures in several sectors, including control
systems, information technology, financial services, auto components, advanced materials,
telecom hardware and telecommunication services.
Tata Industries main activities are:

To promote Tatas entry into new businesses.

To maintain shareholding in promoted companies.
To invest in operating companies to facilitate growth.

Board of directors, Tata Industries

1) Cyrus P Mistry, Chairman (Formerly, Ratan Tata)
2) Farrokh K Kavarana
3) RK Krishna Kumar
4) Ishaat Hussain
5) S Ramadorai
6) B Muthuraman
7) Prasad R Menon
8) Ravi Kant
9) KRS Jamwal, executive director
10) RR Bhinge, executive director.

Ratan Tata has taken the group he inherited from his uncle JRD from $5 billion to $70 billion.
However, it has been a difficult search to find a successor to carry forward his vision. The group,
for the first time, is looking for someone outside the Tata family to head the group even though it
has not stopped looking within.
Tata Sons, the holding company of the Tata Group, announced the members of the five members
Committee announced to find a successor to the Group Chairman Ratan Tata who is due for
retirement by December 2012.
The members include:
1) N A Soonawala Vice Chairman of Tata Sons,
2) Shirin Bharucha, a lawyer who has worked with Tata Group for several years,
3) R K Krishnakumar, Director, Tata Sons,
4) Cyrus Mistry, Board Member, Tata Sons and an outsider,
5) Lord Bhattacharya, Director WMG-Innovative Solutions.
The search committee has now gone beyond the brief of merely searching for a leader and
recommended a restructuring of the Tata Sons board by bringing in independent directors and
younger executives from group companies. The search for a successor was done for almost one
year after the committee being formed.

Executives Nominated for becoming Successor (by Committee):

Anshu Jain
Arun Sarin
Indira Nooyi
Ishaat Hussain
S Ramadorai
R GopalKrishnan
Noel Tata

Position in their Respective Companys

Head of Corporate & Investment
Former CEO
Finance Director
Vice Chairman
Managing Director

Name of the Company

Deutsche Bank.
TATA Sons.

Challenges for Committee for the Selection of Successor:

1) Looking for someone to run Tata Sons (which is a holding company) or someone to head the
whole group, which is what Ratan Tata is doing now?
2) Why a professional CEO with the experience of running multinational companies should join
a groups privately-owned holding company? As In Ratan Tatas case, the jobs of Tata Sons
chairman and group executive head were combined. And he was a Tata. The same symbolised
the unity of the two objectives being head of the holding company and boss of the group.
3) Can a non-Tata manage to do both?
To answer this, we need to understand the business of Tata Sons. It is a holding company, and its
main business is to get its shareholdings to deliver returns. In short, its business is portfolio

The purpose of hiring a professional CEO is to maximise shareholder value. A holding company
needs a fund manager and not just a professional CEO. Is it any surprise Indira Nooyi, Arun
Sarin & others have not expressed any great enthusiasm for a fund management job. Hence
resulting in selecting Cyrus Mistry

Reasons for choosing Cyrus Mistry:

1) A major shareholder in TATA Sons.

2) Experience of being a Managing Director in Shapoorji Pallonji Mistrys Construction Group.
3) Age and belonging to Pharsi religion.
4) His career achievements and his financial knowledge were considered at the time of his vote.
5) The family is very familiar with the Tatas and that could be one of the influencing factors &
only person who knows totally about TATA than compared to other people shortlisted for the

An effective succession plan can guide a business owner, creating a roadmap for success. It can
also help owners attract and motivate successful employees. When owners commit to creating
and implementing effective succession plans that embrace comprehensive programs for
transferring management responsibility and equity ownership, they can experience the rewards of

creating lasting legacies for their businesses. Moreover, in emergency situations, an effective
succession plan can literally save the companys life.
Thus, the study on Succession Planning with reference to TATA GROUPS is hereby concluded.
The study was of a great help to provide an insight on Succession Planning and on its models.
The study also helped in order to know the path followed by the Committee of TATA to find a
successor to Ratan Tata.
The study partially enlightened the approach of TATAs towards the selection of a successor. Last
but not the least; Succession Planning is the best tool to ensure the continuum of effective
leadership if it is focused towards the impartial selection of the Successor.

1) Personnel Management C B Mamoria & V.S.P Rao Himalaya Publishing House Thirtieth
2) Human Resource Planning Dipak Kumar Bhattacharya Excel Books Second Edition