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Succession Planning: Still Broken

Why many companies aren’t getting it right.

Two recent cases speak volumes about the failures of CEO succession planning. When Boe-ing’s Phil Condit was forced out, did the company go with a younger, well-groomed candidate to replace him? No, it chose an older board member. And in the case of Motorola, when Chris Galvin was obliged to step down, the board chose not to replace him with the long-identified internal candidate, Michael Zafirovski, but instead went for a complete outsider.

All of which suggests that despite the enormous amount of attention devoted to succession planning, little has changed. It’s increasingly obvious that there is a dearth of corporate “bench strength.”

Whenever we undertake an assessment of a board’s effectiveness, one of the main issues is the company’s inadequate succession planning. There are very few companies, with notable exceptions such as General Electric and Procter & Gamble, that devote the necessary time to make sure the top two or three levels of management are being fully developed for the future.

Frustrated boards are recognizing that the time has come when they must take a more active role in succession. The board can’t run the process, but they can make sure it’s in motion.

The days are long gone when boards assumed that CEOs should choose their own successors. These days, boards are asking heads of human resources to build up their bench strength through management development programs as well as through benchmarking talent outside the company.

Increasingly, boards expect HR leaders to introduce them to young up-and-comers. They want to learn about people through a variety of exposures, not just through typical board presentations. This is being accomplished through longer social interactions with directors, but even better means need to be found. One possibility would be to invite more executives to attend the dinners that typically precede a board meeting.

The decision to “go to search” for a new CEO is an overwhelming recognition of failure on everyone’s part. It’s painful-but when necessary, it must be done quickly. Many searches get underway far too late. Compaq was a perfect example of this-the company no longer exists partly because it failed to find leadership fast enough.

When a CEO search is launched, it pays to do a thorough review inside the company. When we engaged in a CEO search for Snap-On Tools, based in Kenosha, Wis., the board insisted we meet seven inside candidates. We began to sense there was talent buried in the organization. So we dug a little and uncovered someone-current CEO Dale Elliott-who had what the company was looking for. Had we limited our assessments to the typical one or two favorites, we never would have found the ideal solution. The directors were ecstatic at not having to run the risk of selecting an outsider.

Even though boards want to see more evidence of a stronger bench, they recognize that companies can’t necessarily groom enough talent within their ranks. A certain percentage of executives will have to be brought in at fairly high levels. That will not only add to the board’s comfort level, but it will also strengthen the governance process by continually improving the team so that there are fewer surprises. As a result, management and boards won’t be left scrambling to find the right leader in haste.

Lastly, new alternatives to the typical CEO searches are needed. So-called “star-quality players” from such companies as General Electric, AT&T and IBM just don’t seem to make it when they leave their comfortable environments. Search firms need to develop stronger consultative skills. “VIP” candidate lists are tired, worn and frequently require large guarantees irrespective of performance-and boards today simply aren’t going to accept that. This succession process is still broken and must be fixed. s

Roger M. Kenny is managing partner of Boardroom Consultants, in New York.

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