ACAI Booster Shot #2: The Succession Illusion - Why Boards Actually Work for the CEO, Not the Other Way Around
Tata Sons' recent succession call has reignited a familiar debate: is this simply a case of a board beholden to the CEO, or is there more at play, the group's unlisted structure, RBI's regulatory reach over its NBFC arms, and the quieter dynamics of government relationships in the background? It's likely some mix of all three, and reasonable people can disagree on the weighting. But strip away the specifics of any one case, and a broader corporate open secret remains: boards are routinely beholden to the very executives they are supposed to oversee. Tata Sons is just the latest reminder of that pattern, not an isolated case.
Succession planning at most large companies, including major banks, is largely a formality dressed up as a process. And make no mistake: this is not a talent problem. Indian-origin executives run some of the largest companies in the US, and now in Japan too. Talent is not scarce. What is scarce is a board's willingness to back an internal candidate over the comfort of the status quo. Every large conglomerate, whether it employs ten thousand people or ten lakh, has depth somewhere in its ranks. Not finding a credible successor is an indictment of the board's imagination, not the bench.
Look at Disney's decade-long succession saga, cycling through an anointed heir, a public falling out, and a desperate return to the same CEO the board was meant to replace. Look at how long GE's board deferred to Jack Welch before Jeff Immelt inherited a company few successors could have saved. Look at HDFC Bank in India, where their only internal candidate's own tenure as CEO could be capped at roughly three years. They couldn't find anyone else in such a vast organisation full of talent.
Different markets, same pattern. Whether it's deference to a dominant promoter in India or capture by a charismatic professional CEO in the US, the result is the same: the board becomes a rubber stamp.
Most boards function as cheerleading squads for the incumbent. Ask yourself:
How many listed companies exist globally?
How many boards have actually removed a CEO for underperformance, rather than for a public scandal?
Does the performance bell curve simply not apply once you reach the corner office?
Is every sitting CEO genuinely a star performer?
The high-profile exits that do happen, a Vishal Sikka at Infosys, a Cyrus Mistry at Tata, a Dave Calhoun at Boeing, tend to trace back to a promoter, a major shareholder, or a regulator forcing the board's hand, not the board acting on its own initiative. Otherwise, boards sleepwalk until a crisis or a proxy fight wakes them up. Tellingly, independent directors quietly resigning in protest is a more familiar story than a CEO being formally removed for poor performance.
In practice, boards work for the CEO, when de jure it should be the reverse.
Here are five governance fixes worth debating to flip the dynamic back to where it belongs:
Mandate a live successor bench, not a paper plan. Every listed company should disclose at least two credible internal successors per key role, actively reviewed annually, rather than scrambling to produce names only under crisis pressure.
Rotate nomination and remuneration committee chairs. A long-tenured chair reviewing the same CEO year after year develops an inherent incentive to protect the status quo and justify past decisions.
Require third-party evaluation. Because almost every independent director on a board likely had a hand in appointing the current CEO, objective reviews are rare. CEO performance and succession readiness should be facilitated by external governance auditors to remove the bias of the initial hiring committee.
Tie director reappointment to succession outcomes. This is the ultimate accountability measure. A board that repeatedly fails to produce a credible internal successor should face consequences at its own reappointment, rather than simply handing the outgoing CEO a golden parachute and starting from scratch.
Let institutional investors force the issue. Waiting for a Credit Suisse-style collapse, or an IndusInd-style governance and accounting scandal, to intervene is too late. Institutional investors should treat succession readiness with the same scrutiny they apply to balance sheet risk, punishing empty benches at the proxy ballot before a crisis hits.
