Is ITC's succession plan gaining speed?

As the challenges for its businesses rise, the company is making a number of internal changes to prepare a second line of leaders

ITC set the ball rolling on succession planning in early 2010, two years before Chairman Y C Deveshwar's tenure was to come to an end. It was around this time that three new members, Kurush Grant, Nakul Anand and Pradeep Dhobale, were inducted on the board. After this first change in the board in more than a decade, ITC decided in 2011 to reappoint Deveshwar as chairman for another five years from 2012. In a television interview soon after the announcement, Deveshwar called the decision a strategic move. "You don't change the general in the middle of a battle," he had said, likening the challenges facing ITC to being in a war zone and himself to a general.

At that time, the challenge was to transform ITC into an FMCG company. In 1996, when Deveshwar took over, he inherited two non-tobacco businesses from his predecessors: hotels and paper board. Thereafter, the "general" battled to create new drivers for growth: non-cigarette fast-moving goods and information technology.

In 2015, it is the over 100-year-old cigarettes business, the main profit driver for ITC, that is enmeshed in problems. The sharp rise in excise and VAT duty over the past three years has impacted volumes, and the spectre of further regulatory tightening, including a ban on loose cigarettes, in the Budget on February 28, hangs heavy over its Nehru Road, Kolkata, headquarters.

According to a Deutsche Bank Markets Research report, a 10 per cent increase in excise on cigarettes is expected in the budget. "Historically, the central government has been rational in its policy that has seen an excise duty increase of 200 bps higher than inflation over 1997 to 2000. However, since 2011, the increase in excise duty was at CAGR of 13 per cent higher than inflation, and it resulted in the excise duty collections from the cigarette industry declining in the December 2014 quarter," the report said.

Time for change

With the cigarettes business in the slow lane, the relatively new non-cigarette FMCG arm is gaining importance. Volumes in the segment grew 7-8 per cent in the September-December 2014 quarter, according to analysts. To spur growth, ITC inked an agreement to acquire two high-recall brands, Savlon and Shower to Shower, from Johnson & Johnson recently. The deal, estimated at between Rs 180 and Rs 200 crore, marks ITC's presence in the personal hygiene space. This is the second acquisition by the company in 10 months after the buyout of B Natural juice for Rs 100 crore. With a strategy based on acquisitions and organic growth, ITC's plan is to take the non-cigarette FMCG business to Rs 1,00,000 crore over the next 15 years from Rs 8,100 crore in 2013-14.

The main challenge for ITC in achieving these targets, however, lies elsewhere: is the company ready with the next rung of leaders to drive growth? ITC had begun to plan its future well ahead of Deveshwar's reappointment in 2011. Of the new board members appointed between March 2010 and January 2011, Grant was given the responsibility for overseeing the FMCG business, Dhobale was made the head of paperboards, paper, packaging, finance and IT, and Anand was entrusted with hospitality, travel and tourism at the strategy level. Much of ITC's succession planning, however, remained out of public view. It gained traction towards the end of 2014, when Grant and Dhobale's roles were swapped, while Anand was given additional charge of lifestyle retail.

Analysts say the tweak was necessary to give the three directors a holistic exposure to the company's different businesses. While ITC didn't offer comments for this story, it had said after the reshuffle that the changes had been made to prepare the organisation for the future and to provide diversity of exposure to the senior leadership.

It is widely believed that Grant or Dhobale or Anand will succeed Deveshwar. But, ITC has been extremely tight-lipped about the future. For one, Deveshwar's current term will end only in 2017, which means there is still a window of two years and things could go any which way. All three of them -Grant, Dhobale and Anand- are in their late fifties. Even as directors are appointed by shareholders for a specific term , ITC is busy creating a second line of leaders to take care of its rapidly expanding business.

Creating new roles
Last year, alongside the reshuffle in portfolios of executive directors, ITC also made some other key changes. Sanjiv Puri, who was earlier handling the India Tobacco Division, was made president of the FMCG businesses. That meant representation of the FMCG business at the corporate management level which is responsible for strategic supervision. Among other changes, B Sumant moved in as divisional chief executive of India Tobacco Division; Ranvir Bhandari assumed the role of vice-president (operations) of the hotels business and V L Rajesh became the chief operating officer for food.

Each of these segments has a chief executive and many of these roles were created to suit the changing nature of ITC's business. For instance, Sumant who moved to the India Tobacco Division will pay special attention to marketing and distribution, the key link to ITC's growth plans. Experts say the success of ITC's investment of Rs 25,000 crore over the next five years will depend on the strength of its distribution network.

While ITC has underplayed these changes, saying the reshuffle is an ongoing process, the churn inside the company over the past few years has been conspicuous. Among the not-so recent changes, but key to ITC's growth, are those of S Sivakumar, divisional chief executive of the farm business, and Sandeep Kaul, who was made chief executive of personal care products segment. Sivakumar has been responsible for spearheading ITC's celebrated e-choupal model and Kaul is responsible for the development and launch of one of the newest segments in the non-cigarette FMCG business, including Savlon and Shower to Shower which were added to his portfolio recently.

As the company expands its non-cigarette FMCG business, the challenges for its leadership are also growing. So is the second-in-command ready to take up the challenge? When the ITC board cleared Deveshwar's extension as chairman, the resolution also said that he could, during his tenure, become a non-executive chairman to pave the way for succession planning. Whether that is likely during his current tenure, or after 2017, is something ITC's Nominations Committee must be mulling over.