The old order changeth, yielding place to new – Alfred Tennyson.
One big challenge we face in a Business is how to best pass on the business to the next generation – a new CEO.
Succession planning is a process for identifying and developing the organizational members who have the potential to fill key organizational positions. For CEO and senior level positions their strategic as well as operational performance is evaluated. A recent Korn/Ferry Survey reveals some interesting findings. Nearly all large companies accord CEO succession planning as a critical activity. Yet, only 35 percent of them are prepared for either the unexpected or planned departure of their CEO. Another study by Vell Executive Search highlights Chief executive officers promoted from within a company do not perform nearly as well as ones recruited from outside.
A large number of global companies do not even have a CEO succession plan – so is it that succession planning is viewed as just a perfunctory exercise? The debate boils down to hiring internally or externally.
Selection from within – we cannot develop CEOs overnight it takes time – about 5 to 10 years to understand the culture and the external forces. The system identifies and tracks CEO material from middle levels then puts them through intensive training – goal setting, team-building and testing them under tough conditions. At top levels the incumbent CEO’s ability to groom the star employees may get compromised as they may perceive a competition from them.
Doug Ivester of Coca Cola was groomed personally by CEO Roberto Goizueta as his successor for almost 10 years. He took over as CEO in 1997 when the tenure of his predecessor Roberto Goizueta came to an abrupt end due to his sudden death. Yet Ivester had to resign as in less than two years. One reason quoted is that though Ivester impressed at operations but was never tested at the strategic level. The lesson here is what makes executives successful in the past may not necessarily work for them in a scenario of new challenges.
On the other hand Anne Mulcahy became the first woman CEO in Xerox’s history in 2001 who proved her leadership abilities in the turn-around of Xerox a deeply troubled copying and printing giant. Having served in Xerox from 1976 to 1991 her quality of honesty, communication, fearless in tough situations was well known to all in the company. And it is these very strengths of hers that the troubled Xerox needed badly for a turnaround. But Mulcahy’s statement which appeared in Fortune, June 9, 2003 is quite puzzling – “I never expected to be CEO of Xerox. I was never groomed to be CEO of Xerox. It was a total surprise to everyone, including myself…”
Selection externally – helps bring in new ideas & new perspectives. It’s like fishing in a much larger pool. The external candidates typically face less resistance to make changes in status quo.
Bill Ford in 2006 selected Alan Mulally a veteran of Boeing as CEO of Ford Motor Company. A question arises why choose someone who has no experience in automobiles and had twice been passed over as for CEO at Boeing. Mulally has to his credit an impressive performance record studded with aggressive cost cutting measures in tough circumstances. Then there is a commonality between Cars & Airplane industry in managing manufacturing assemblies. Ford Co. under Mulally has made some great strategic moves in new models and fuel efficiencies.
Another case in 2005 Sir Howard Stringer a westerner was brought-in to take charge of a Japanese company – Sony and turn it around. Despite Sony’s deep rooted oriental cultural and language barriers he succeeded.
Carly Fiorina was lured from Lucent Technologies Inc. to take the helm at HP in 1999. Fiorina’s nearly six-year reign at Hewlett-Packard Co. ended abruptly as board members forced her out, disappointed by her inability to transform a plodding technology giant dominated by printer sales into a more nimble innovator. Maybe she did not go far enough in understanding – The HP Way.
In the final analysis
The examples above highlight the unpredictability of outcomes in both systems – hiring internally or externally. Even with succession planning in place the ultimate decision is based on subjectivity. Yet the need to have a comprehensive succession planning system is vital – as it ties together many of the HR & leadership processes in an organization. It has a powerful motivational component and helps in retention. And if the system is structured, transparent and robust as in General Electric (GE) and IBM the subjective element reduces considerably. There is also a need for the Board to play an active role rather than leave it to the outgoing CEO.