The government is considering a study to improve succession planning in state-run companies to ensure smoother transition and business continuity during leadership changes. Ernst & Young (EY) will likely be hired for the proposed study, which will examine global best practices and assess their suitability for public sector undertakings, a government official said.
“It's about succession planning for PSU boards because there should be some continuity in business planning when an MD retires. Succession planning is common in developed nations,” the official said, requesting anonymity.
The official highlighted that in these countries, businesses often have a system in place where the next leader is identified early and groomed while still serving in a secondary role (such as a director), giving him time to gain experience and align with the company's ongoing business strategies. This kind of planning ensures that there is no disruption in leadership or business direction when the top management changes. The government is now considering whether a similar system could be beneficial for India’s PSUs.
Currently, the Public Enterprises Selection Board (PESB) oversees the appointment of top officials in PSUs, such as the Chairman and Managing Director (CMD), and Directors. The selection process involves advertising the positions, followed by interviews of applicants by the PESB. However, the proposed study aims to evaluate a new approach, where the next CMD could be appointed in advance to ensure a smoother transition.
“It's being deliberated that when someone is appointed as the CMD for two years, at that time itself the person who will succeed him will also be appointed. He will work as a director and after two years, take over as the CMD,” the official explained.
The proposal suggests that every time a director is appointed, it would be with the understanding that the person may eventually step into the CMD's role. This system is intended to provide two years of overlap between the incumbent CMD and the incoming one, ensuring continuity in leadership and business strategy. However, the idea is still being debated.
“It is not finalised. A study is being contemplated to see if it's a good thing to apply here or not. We do not know if the Director will take over, he may get an opportunity elsewhere. There are many permutations and combinations. It's not a straightforward thing and also has its disadvantages. E&Y may be asked to conduct the study,” the official added.
The proposed study is part of the government’s ongoing efforts to enhance governance and efficiency in PSUs. However, its implementation will depend on the outcome of the analysis and the advantages or drawbacks identified in the study.
“Across the ecosystem, there hasn't been any one specific study. Some research does exist globally, but there is a need for a holistic study in the Indian context which looks at specific areas that need to be addressed. The PSU boards are keen on building leadership depth because these are listed entities, provide employment to large numbers across the country, and also help deliver important services. Things are in motion as leadership and succession development in PSUs is critical," Shailender Bakshi, Leader and Partner, EY India, told Moneycontrol.
"We work with maharatna and miniratna PSUs on leadership and succession at an enterprise level. Leadership development has to be a board agenda and a strategic priority. Also, given the changes in the ways of working, and the rise and adoption of tech and artificial intelligence, the skill sets required at the leadership level will also see a massive change,” Bakshi added.
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