What the experts have to say on selecting a new CEO Source: Changing leaders: the board's role in CEO succession, by Jay W. Lorsch and Rakesh Khurana, Harvard Business Review, May-June 1999.
What the experts had to say: 1. What can a company do to ensure a successful succession? Ideally, a corporation should assure that there is a developing talent pool within their own company so the next CEO can be promoted from within. However, even under the best of circumstances, one third of large corporations hire new CEOs from the outside. A good example as to how a global corporation with a successful CEO is establish a line of succession is Coca-Cola which just made the news with its own internal promotions (NY Times article from 10/30/99). 2. How should management-development and succession processes be managed? A good, stable management develop program is essential. However, Board involvement is crucial according to Henry Wendt, retired CEO of SmithKline. He says "The Board's supervision of the succession process should take place in the context of its broader responsibility for the organizational structure of the company, particularly the reporting relationships of senior executives. Those relationships, after all, define the routes traveled by potential successors." 3. How should the board work with the sitting chief executive during the process? The experts, all current or retired CEOs of large corporations, all agreed that the succession process needed to be clearly set forth, and needed to begin years before the anticipated retirement of the current CEO. Furthermore, they recommend contingency plans for the unexpected loss of a CEO, including the selection in advance as to who would assume duties as interim or acting CEO. If an internal executive can't be found, G.G. Michelson, a former senior vice president of R.H. Macy who has served on numerous Fortune 500 boards, recommends bringing in a caretaker "who's deeply experienced but is too advanced in age to act as chief executive for the long term." The panel strongly recommends that the Board routinely have discussions without the CEO present, designating one member to convey, as appropriate, what transpired to the CEO. George D. Kennedy, former CEO of International Minerals and Chemicals, says "you have to have the opportunity to sit in executive session and talk frankly with your fellow board members about what's going well and what's not in the succession process, particularly concerning the chief executive's role. Those sessions should be an integral part of board meetings. Otherwise, the CEO may feel offended if he or she is suddenly asked to leave the room." The successful CEO is expected to be strongly involved in selecting his or her replacement, but the ultimate authority and responsibility rests with the Board. 4. What makes for a strong CEO candidate? The candidate has to have a strategic vision for thew company, to be able to represent the company to outside constituencies, to be able to function without praise from others, to make difficult decisions alone, to be able to judiciously and ethically handle the power and perks of the position. Having successfully run a large division of a corporation may not assure that the candidate will be able to assume the role of a CEO. Gillette's former CEO, Alfred M. Zeien, points out that the ability to listen is crucial: "when others are presenting information or expressing points of view, is the person really listening to what they have to say, or is he just formulating his reply? Many of the problems that otherwise-talented people have when they become chief executives can be traced to their inability to listen." George Kennedy adds "another thing you have to look at is the candidate's personal stability, and that requires some knowledge of his or her family life and other activities outside the corporation. The better you know the person's sense of ethics and ability to cope with pressure, the better you can judge whether that person is going to be swayed by the power of the CEO office." 5. When should outside candidates be considered? Even though many companies go outside for their next CEO, the panelists tended to agree that having to do so was a sign of failure. They did note that in some instances it is unavoidable. For example, IBM didn't keep pace with the pace of change in the computer industry and had to find new leaders from the outside. 6. How much competition should be encouraged among potential CEO candidates? There will always be competition, but too much internal competition can be dangerous. However, it is likely that once the final selection is made, some good people will leave. 7. What role should executive search firms play? George Kennedy states bluntly "you are better off if you don't need one. To expect an executive search firm to do the board's job is a miscalculation." Michelson says they are more helpful in verifying references and other qualifications that finding talent. She goes on to say "a broad's search committee can usually identify more good candidates than and executive search firm." Kennedy disagrees to some extent saying there are instances where executive search firms can make a connection with a good candidate who has turned down offers by many other companies. Zeien emphasizes that "a search firm is only as good as the specification it receives from the board." He goes on to say "most companies have distinct cultures - some almost look more like cults than cultures - and it's extremely hard to gauge how an outsider will fit in. The board has to develop a clear, detailed spec for the position - that's a role it can't off-load to the search consultant." 8. What role should former CEOs play after they are succeeded? The panel was unanimous on the role of the CEO after retirement, best summed up by Kennedy's comment "my feeling is that upon retirement the CEO becomes the exclusive problem of his or her spouse. --------- Source: Changing leaders: the board's role in CEO succession, by Jay W. Lorsch and Rakesh Khurana, Harvard Business Review, May-June 1999.
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