January 1 1997 by Robert W. Lear
The recent management succession flap at AT&T has raised a critical question: Who should head up the succession search? Should it be the CEO himself or is it a function of the board?
In AT&T’s case, I think the company’s board should have exercised its authority and appointed a management succession committee to deal directly with the recruiters. Robert E. Allen, the company’s chairman & CEO, has been the target of much criticism for a myriad of management decisions, such as his handling of the acquisition of NCR and the company’s downsizing move, as well as the sudden departure of Alex Mandl, the company’s former president. In addition, reports indicate that several excellent candidates opted out of the race without the CEO title as an incentive. Under these circumstances, the board was in a better position to determine what was best for the company to do than Allen.
AT&T’s succession struggle is just another case where the important duty of management succession was handled ineptly by the board of directors. When quizzed on the management succession subject, an alarming number of my director friends report that their own firms do an inadequate or, in some cases, a downright lousy job of it. As this has been my personal experience as well, I have tried to explore the problem.
Often, the basic fact is that most boards wait too long to get into the act. It seems to come almost as a surprise to find that the incumbent CEO has just one year left before retirement.
Only when that alarming discovery is made does the board leap into action, forming a management succession committee and beginning a serious review of potential candidates.
Long before then, the retiring CEO has been rearranging his succession cards. He may already have an heir apparent in line-a choice that could prove extremely difficult for the board to overcome at this late stage in the game. He may have moved off-track-or even fired-other logical candidates the board could have considered.
At this point, the management succession committee might say, with some logic, “Let’s talk to some of the top management about their observations on succession.” Again, it is probably too late. Top managers who hope to stay on with the company are by now aware of the CEO’s personal choice and not about to poor mouth their future boss. Instead, a contagious case of “management-succession lockjaw” spreads through the company.
What can be done to make the absolutely vital CEO decision more deliberative and more prescient? I have a suggestion. To begin with, management succession should be one of the required items in the board’s annual performance evaluation review of the CEO. The object here is to force the board, and the CEO, to think about succession early and often. This way, should it be necessary to replace the CEO before normal retirement time for any reason-sickness, death, resignation, or firing-the board will be ahead of the game.
Another suggested move is to make management succession a component of the charter of the corporate governance committee or the compensation committee and to ask for a succession report to be made to the board on a semi-annual basis as a regular agenda item. Although there are boards who will simply go through the motions and slough off any serious discussion, as well as plenty of CEOs who would like the subject downplayed at the board level until they are ready to discuss it, this would give the serious director a platform to work from.
Additionally, senior management of the company must be approached early enough so that a candid playback of their succession observations can be incorporated into the board’s thinking. I can think of several serious errors that might have been prevented had the company’s board found out beforehand how top managers really felt about the CEO’s hand-picked candidate.
Finally, the board should always consider the alternative of undertaking an outside search for a new CEO. This discussion can help provoke the essential question: “What are the critical qualities that our CEO should have at this point in time?”
There is no easy road to good management succession planning. Doing the job with maximum effectiveness requires an intelligent, cooperative CEO and some talented, experienced directors working together over an extended period of time. If these ingredients are not present, then your board will have to work hard to successfully resolve the problem of management succession-which is all the more reason to start early.
Formerly the CEO of F.&M. Schaefer (1972-1977), Robert W Lear is chairman of CE’s advisory board. He also teaches at