Dan Hendrix CEO chairman of Interface Inc
"Ray gave me a lot of responsibility at a pretty young age." -Dan Hendrix, CEO, chairman of Interface Inc.

Succession Planning: An Internal or External Struggle?

Succession planning begins by hiring and developing top-level talent, but don't rule out external candidates.

Before Apple Inc. (IW 500/9) founder Steve Jobs died last year, he handpicked Tim Cook to be his successor as CEO. The move renewed discussions in business circles regarding the importance of succession planning. Judging by Apple’s performance since Jobs’ departure, it appears the IW 50 Best U.S. Manufacturer had a well-established plan in place.

Most companies hope for a similarly seamless transition. So how do they get there?

Companies should begin the succession-planning process three to five years in advance, according to a report published in July by HR consulting firm Mercer LLC. Ideally, a succession-planning program should be a multiphase approach led by the CEO. Two of Mercer’s five key steps include the development of succession candidates and then a “pressure-test” of the prospective leaders.

Dan Hendrix, CEO and chairman of Atlanta-based $1.1 billion textile manufacturer Interface Inc., recalls that his road to the top began in 1983 under the tutelage of the company’s founder, Ray Anderson. Two years after he joined the company, Hendrix, at just 30 years old, became the company’s CFO. “Ray gave me a lot of responsibility at a pretty young age,” Hendrix recalls.

Creating opportunities for top performers is a key part of the succession-planning process, says Patrick Sweeney, president of human-capital management company Caliper Corp. “Let them take the wheel,” Sweeney says. “Do they see a process that needs to be improved? Let them do it for you; they’ll broaden their expertise within the company, grow as a professional, and the company can reap the benefits of their innovation.”

The Selection Process

Companies should assess succession candidates against well-defined position requirements, according to the Mercer report. Although companies may have invested time and resources into internal candidates, that doesn’t mean they should exclude external prospects. This is especially the case when a company is in need of a transformation, Mercer reports. In 2001 Interface’s Anderson, who died in August 2011, wanted to create a CEO position. A succession committee comprising three groups within the company, which included Anderson, and the board of directors narrowed down their search to one internal candidate—Hendrix—and three outside applicants.

Interface enlisted the help of executive search firm Korn/Ferry International to conduct the external search. Hendrix has been involved in two CEO searches as a board member for other companies and says this experience was unique because the company was willing to explore all possibilities. “There was an open-mindedness to see what was out there and what was in the marketplace,” he says. “There truly was a desire to see who the best candidate possible was.”

Internally, Interface had contracted with Mercer to interview candidates’ managers to gain additional insight into their qualifications. The selection committee interviewed two or three people and picked one candidate to develop and compete with the three outside candidates, Hendrix says. It’s important that companies involved in an executive search avoid a “horse race,” Mercer says in its report. “Making candidates compete for the CEO job can cause divisiveness within the company and encourage poaching,” the Mercer report concludes.
 

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