After months of suspense, Larsen & Toubro on Friday announced its much-awaited succession plan that largely opted for a continuity at the top, easing investor concerns and sending the group’s stocks higher.
The company’s board decided to split the post of chairman and managing director. While A M Naik will continue as executive chairman for five years, long-time lieutenant K Venkataramanan will take over as managing director and chief executive officer on April 1. Venkataramanan is currently the president of L&T’s hydrocarbon division. The board also approved the appointment of Shailendra Roy, senior vice-president (power business division) as a whole-time director on the board.
The market seemed relieved with the continuity theme and the company’s shares climbed as much as 5.9 per cent after the announcement to close 5.3 per cent higher at Rs 1,302.05, outperforming the Bombay Stock Exchange, which rose 2.1 per cent.
“Venkataramanan will play 20-20 cricket. I am there for the test matches” is how Naik summed up the thinking behind the new roles.
That means, while Venkataramanan will be responsible for running the company’s business, Naik will focus on completing portfolio restructuring, institutionalising independent companies and structures, and mentoring and developing the leadership team and future leaders.
Venkataramanan, who transformed L&T from a “fabrication-driven EPC contractor to a technology-led player”, said he was “honoured with the responsibility and happy that Naik’s guidance will continue to be available”.
The announcement of Naik’s successor comes at a time when the group is combating the twin factors of sluggish demand at home and a downturn in overseas markets.
Under its Lakshya strategic plan, L&T is creating 10 independent companies and seven units to bring in what it calls “focus, autonomy and accountability”. Changes in the global economy have, however, necessitated a mid-term review of the plan, which is now being finalised. In its strategic review in 2010, L&T had set a revenue target of Rs 95,000 crore in five years.
Along with Naik, L&T will see some other senior executives retiring in the next few years. In September, Chief Financial Officer Y M Deosthalee left to head L&T’s finance unit, while Venkataramanan himself retires in September 2015. Naik told reporters the search for a new CEO and MD to succeed Venkataramanan would start in January 2015.
"I am looking for the new team to get seven to 10 years at the top,” he said. High on his agenda is to get younger professionals into senior management roles and on the board. The firm now had two board members who are in their early fifties, he added. Earlier, an employee would rise to the general manager’s post at the age of 60. That has been brought down to 53. “I would like to bring it down further. We are moving forward,” Naik said. He added the company had set up a five-stage growth process for its employees and had roped in business schools to train its managers for larger roles in India and abroad.
The task of retaining and nurturing the second-rung leadership is crucial because the company has been unable to fill its posts, some of heads of business units like ship building. “We have 42 positions to be filled in the second line. We engaged human resource specialists and they told us they could not get top-class Indians in project engineering.”