How a successor solves inherited problems

For a business CEO — to answer the question I have asked in the headline — it is, maybe, two-three years, which is a third of a tenure of seven-10 years, but the cleaning up of the past must be done in a congenial way. The rules for business and politics are quite different, despite superficial similarities.

In Indian politics, we are experiencing shambolic and vituperative public utterances through which the present government places the blame for its five major problems on its predecessors —black money, employment, farmer issues, health and education. It is sobering to note that these same problems were identified when the Bombay Plan was written in 1944 by a group of eight businessmen, 75 years ago. Of course, they did not explicitly blame the colonial government. Blaming the predecessor occurs in the politics of other countries as well. During his first term as president, Barack Obama said at a fund raiser in Atlanta, “We got here after 10 years of an economic agenda in Washington that was straight forward. You cut taxes for millionaires, you cut rules for special interests, and you have cut working folks loose to fend for themselves. That was the philosophy of the last administration and their friends in Congress.”

Business boards and investors act faster when they observe the blame game in business organisations. By experimenting within the 24 hour life cycle of a fruit fly, scientists are able to derive hypotheses for testing on longer living animals.  Analogous to life cycles, CEO tenure can be thought to have four phases: First, seizing the baton; second, dealing with issues firmly (very importantly, be perceived to be dealing); third, envisioning the future; and last, preparing the legacy that the CEO would like to leave. 

Faced with increasing predecessor overhang, shareholder activism and technological disruption, CEOs get a short period to seize the baton and deal firmly with the issues on hand. In fact, John Flannery got punished within one year, before being eased out of GE as the successor to Jeff Immelt. 

As CEO of Hewlett Packard about a decade ago, Meg Whitman made veiled excuses for four years of write downs, layoffs and revenue declines. She blamed the actions of her predecessors, Leo Apotheker and Mark Hurd. Last year, the Commonwealth Bank of Australia (CBA) CEO, Matt Comyn, laid the blame for wrongful selling consumer credit insurance at the door of his predecessor, Ian Narev. What do you think our bank chairmen would say about non-performing assets (NPAs)? Or, for that matter, some of the private sector CEOs! All CEOs inherit the predecessor’s ‘karma’ balance sheet of credits and debits — managing the debit notes sensibly, and being seen to do so robustly are both important.

It is a delicate task and balancing act. Almost certainly, during this period, there would be actions that would suggest a criticism of the past, especially if the predecessor is around in any position of influence as chairman, advisor or board director. Shades of this were visible in the cases of Ramesh Sarin at Voltas, Vikram Pandit at Citi, and Carly Fiorina at HP. Jim Donald, a field-driven, operating man from the retail domain, was hired as CEO-designate of Starbucks in 2005. Within 18 months, Chairman Howard Schultz and the board decided that the 40 per cent slide in Starbucks stock prices between 2005 and 2007 warranted the exit of Jim Donald. Imagine the number of Indian CEOs who would be on the exit list if the stock price of their company became the yardstick for their staying on! 

It is only after the first 2-3 years, that the CEO’s bigger challenge arise: setting forth his or her own vision for the future and to deliver his or her future legacy.  Managing the predecessor’s debit notes without playing the blame game, and yet doing so robustly and visibly, is a complex twin challenge for any incoming CEO. Through examples, I have explored this subject while writing my recent book, titled Crash: lessons from the rise and exit of CEOs. 

There is an old joke about the advice that a predecessor gave his successor. “I have left you three envelopes in the right drawer. Open them and follow my advice whenever you face a dilemma.” When the successor opened the first one at a difficult moment, it read “Blame the predecessor”. On the next occasion, the slip read, “Reorganise the company”. On the third occasion, the envelope said, “It is time to prepare three envelopes for your successor”.

The writer is an author, corporate advisor and distinguished professor of IIT Kharagpur. During his professional career, he has served as vice chairman of Hindustan Unilever and Director, Tata Sons

 


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel