CEO Succession – A View from Inside the Boardroom
Constance R. Dierickx
Senior Consultant and Board Services Practice Leader
RHR International Co.

The choice was obvious – the board was pleased that its work would not be difficult this time…or would it?    

The heir apparent was nearly flawless – smart and an uncanny ability to land on his feet.  He never missed a beat with the board and delivered stellar financial results.  But, slowing the rumblings became louder and louder….  

Some said he was brilliant, but that his dynamism could quickly turn to a dark volatility.  Could he sustain the financial results while simultaneously eroding the culture and driving away talent?  How much substance was there to the rumblings?  How long until the rumblings became public and damaged the overall reputation of the company, and what would that cost, ultimately?   

One director, recalling his own youthful arrogance, yelled out in a meeting – “this guy has never failed at anything – he doesn’t think it’s even possible!”  No one asked him to elaborate and the process marched on.            

When surveyed (RHR International Co., 2002), senior-level employees named as one of the top three things they want the board to know was the “real-story” on the leaders.   Managing up is valuable, but directors must be wise to it.  Know thy candidate.   

Succession planning…too often static

Succession planning is not an event that organizations “do” once a year.  Neither is a notebook with charts a viable proxy for a vigorous process.  Furthermore, since the median tenure of CEO’s in the United States (5 years), it should not be a surprise that nearly all boards will face transitions at the top. 

Succession planning is a phrase that we could do without.  Here’s why: 

1. It is often done with the highly unrealistic assumption that it will occur as planned – that is, the heir apparent(s) will not be wooed away, they will not shoot themselves in the foot, and the CEO will not retire/move on/expire. 

2. Succession plans often round up the “usual suspects.”  Usual suspects don’t become so by accident and the advice here is not to ignore them.  Rather, this is often a group that is too few in number and too lightly tested.

3. The responsibility is handed off to Human Resources.    

4.  Insularity is the norm.  A good succession plan asks not only – who do we have now?  It also asks:

1. What type of people will we need in the future, given our strategy?

2.  Who can and wants to grow into a significant role?

3.  Who is working for a competitor that ought to be with us? 

Stopgaps

Cooper Tire & Rubber reached out to an outside director, Byron Pond, a former CEO of Arvin Industries, to be interim CEO.  Williams-Sonoma brought back Howard Lester, who was CEO there for more than 20 years and had been serving as non-executive chairman.  Jerry Grinstein stepped in from the board at DeltaAirlines to the CEO role after the embarrassing, and expensive, departure of Leo Mullin.  A solid, steady, acting-CEO/director is better than a ineffective one, it begs the question of why someone else was not more ready to take on the role?  What is the cost to the effectiveness of the company of having an interim leader?  Leadership transitions may have hard costs and soft costs, neither are small.         

What is the alternative?

Observing potential candidates over time, as their responsibilities increase, is ideal.  This allows the board to observe their successes and struggles.  The board must understand how leaders handle different scenarios.  Are they gracious in success?  Do they take responsibility for mistakes?  Do they talk about what they have learned?  

Returning to our example, the organization was in the enviable position of planning far in advance. The board took the view that succession is ongoing.  They were thoughtful, diligent, and pushed management to comb the ranks thoroughly.  Lo and behold, they surfaced two people in the organization, each two layers down from the CEO.  One, a woman, who was running a very profitable operation. 

When the board inquired about these two, they learned that no one had asked either of them about their aspirations.  No conversations of significance had taken place with either about what they needed to do to move up.  This told the board two things: 1. They needed to know more about the talent in the organization and 2. The senior management team needed to do a better job of bringing highly talented people into discussions about their careers, and do it sooner.    

Bring the Corporate Values to Life  

This board was not only looking to complete the CEO succession process, but to do so in a way that the corporate values would be strengthened by their choice.  They understood that nothing ratifies values more than having leaders who model them – and nothing makes them more meaningless than allowing contrary behavior to go unchecked.  While it may be tempting to overlook “not so bad” behavior when financial performance is good, it is undermining to the goal and furthermore, breeds cynicism.  In looking for the successor to the CEO, the board found a talented man who needed to make some changes – and did so.  Because they were diligent, they also found two longer-term candidates that had not previously been on the radar screen.

 This board took constructive action in several ways –

 1.    They addressed the issues with the heir apparent out and told him to reign in his arrogance or he would lose the confidence of the board

2.  They brought newly identified people into the boardroom for some serious discussions about the future of the company and how their aspirations may fit.   

3.   They made it clear that results matter and how the results are obtained matters equally.  Their actions reinforced the message, building credibility.        

Once the apparent successor’s show-stopping behavior was identified, he got the message that it was time to act.  Take heed though: it’s tempting to create an “action plan”, breathe a sigh of relief, and proceed as usual.  Real development takes place over time and must be observed with a deliberate, patient and observant eye.  The time to do it is not after promotion. 

In this case, it was successful.  Not only did the board accelerate the succession process for the CEO and establish a method for managing succession more broadly, they sent a message that a perfunctory process would not do.  A deep and robust process that surfaced talent broadly was what they were after.  No surprise, it’s what they continue to get.