On Management

Dec. 21, 2004
Avoiding succession snafus

Recently Chicago-based Challenger, Gray & Christmas Inc., an executive-search firm, identified that 451 CEOs had departed from their jobs during the period from August 1999 to February 2000. The firm tracks job cuts daily. Certainly, not all of the 451 departures were prompted by poor management performance. Although the study did not specify the causes, you can bet that a lot of the farewells were triggered by the company's failure to meet Wall Street expectations. One noteworthy departure was that of Jill Barad, CEO at Mattel Inc. It was notable not merely because of her mercurial rise in the company, nor because of Mattel's precipitous decline after buying the troubled Learning Company Inc., but because she was one of the country's highest-profile female CEOs. Surely, there is more to this parting of the ways than meets the eye. A primary cause of CEO departures is the failure of corporate boards to adequately screen candidates before selecting a new CEO. Some boards rely on search firms to handle the screening. That's a bad idea, considering what's at stake. The board's job is to protect the shareholders' investment; the search firm's job is to recruit a new CEO. The motivations are quite different. Conclusion: Many CEO failures are actually board failures. During the search to replace Robert Allen at AT&T, one failed candidate (whose name is best forgotten) was selected after a couple of brief dinners with board members -- or so a reliable source tells me. I suspect that the board became more serious when they considered C. Michael Armstrong, who eventually became the new CEO. Another high-profile fizzle occurred in the soda industry. One would think a legendary company like Coca-Cola would handle it better, but CEO Doug Ivester, the hand-picked successor to Roberto Goizueta, lasted only one year. Was that because Ivester was not talented or knowledgeable enough? I doubt it. He had worked side by side with Goizueta as Coke's performance reached record levels. The problem here, most likely, was a common one in succession planning: The traits, skills, and personal styles that make a person an effective chief operating officer are widely different from those that make a great CEO. The COO's job is to make the sales and profit numbers -- quarter after quarter. Because the time horizon is shorter, the COO's manner of doing things is usually more directive. In contrast, CEOs must be big-picture visionaries who can imagine new and better directions and then sell them to all constituencies -- from investors and customers to suppliers and employees. CEOs must take the long view. COOs generally must take the short view. The two jobs are quite different, yet the COO is typically the successor to the CEO in many companies. But often this proves to be a mistake. Sure, some COOs are CEOs-in-training and possess the requisite leadership and statesmanship skills. But many do not. Smart companies (and boards) separate the two. Performance and loyalty can be rewarded in ways other than forcing a bad fit. The same thing often happens with entrepreneurs who found companies and then try to run them. That's why they frequently fail. The smart ones have advisors who encourage them to find a professional manager to run the place -- someone the founder can feel good about and trust. This person needs to understand how to migrate from an etrepreneurial culture to one that retains a creative flair, while operating with a semblance of control. There are numerous other reasons for CEO turnover, but companies and boards that manage to avoid CEO-succession snafus can spare their employees an enormous amount of turmoil, while protecting their shareholders from potential earnings disasters. John Mariotti, a former manufacturing CEO, is the author of Smart Things to Know About Brands (1999, Capstone Ltd.).

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