Leaving Allstate in Good Hands

At the end of April, Edward M. Liddy will step down from his role as chairman of insurance giant Allstate, leaving the publicly traded insurance company on solid footing and—forgive the phrase—in good hands. Liddy’s retirement and the plan for Thomas J. Wilson to succeed him as chief executive is a textbook case of orderliness. Liddy got his start in business at ADT and then moved to G.D. Searle & Co., where he became CFO, working under then-CEO (and now former secretary of defense) Donald Rumsfeld. After Searle was sold to Monsanto, Liddy joined Sears, Roebuck & Co. in 1988, ultimately leading its Allstate unit through a spinoff and, as CFO, through its subsequent IPO in 1993. Liddy was elected to the board of 3M in 2000 and joined the Goldman Sachs board in 2003, where he serves as audit committee chair. Last year, he was named to the board at Boeing; he serves on a number of non-profit boards as well. Directorship recently had the opportunity to speak with this extraordinary executive and share his observations on business, CEOs, boards, and what makes our capitalist system tick.

Will you continue to serve on Allstate’s board after you retire as chair?

I believe that when your time is up, your time is up. I can’t tell you how many times CEOs who are also chairmen make a fatal mistake of staying too long or staying partially once they are no longer in the CEO’s chair. It’s not fair to your successors, your board, or your former management team members who are trying to advance the organization.

You’ve had an extraordinary career and your succession plan seems to have been orchestrated brilliantly. So many CEOs seem to struggle with this; how did you do it?

When I became CEO, I determined that 10 years would be a long enough run and I wanted to retire at 60 or 61. I have focused on succession seriously over the last three or four years. I’m delighted that Thomas Wilson will take over. He’s been at Allstate for 14 years and we know each other so well and work together so well that his ramp up to the CEO job and my ramp down have coincided nicely.

Because of the way things played out, you didn’t have to host a beauty contest to find a successor.

I’m not a fan of the beauty contest approach. I think it can polarize or paralyze an organization because everyone wants to know who is going to get the nod. I’m more of a fan of doing things internally on a low-key basis as opposed to setting up the horse race where one person wins, but the entire organization can lose.

During the recent period when you were non-CEO chairman, did you gain insight into whether a company should separate the two roles?

I am old school on this one. I like the U.S. model, in which we combine the chairman and CEO roles, rather than the U.K. model, where they tend to be separate. I think when you are going through a transition like a succession it is a good time to split the roles because there’s so much you have to absorb when you’re a new CEO. But people inside companies get confused when you permanently separate the chairman and CEO.

How have your views changed in terms of the type of board members that add value to a company?

The changes in the boardroom are profound. For one, attitudes about who is in charge have clearly changed. As CEO, on one hand you lead the board, and on the other hand you work for the board. In days gone by, there were a lot of people who didn’t understand that. Today, the attitude is very clear that the board is the CEO’s boss, and CEOs understand that they are accountable and answerable. Also, and correctly, boards today are more probing.

What’s wrong with the CEO compensation picture?

Frankly, I think the way most CEOs are compensated is spot on. There are some awful examples that make the headlines, yet on balance, the CEOs I know are hard-working individuals who earn every cent of the compensation they get. I think where it goes awry is that many folks in the media want it to be simple. They don’t want to work at understanding the nuances and the complexities.

Part of your legacy certainly is that you put Allstate on the map. What personally was your career high point?

That’s a good question. Probably the number-one high point was the IPO. That was a big change from heading a large division of Sears Roebuck & Co. Culture is another area where, frankly, I am a proud father: ours is an ethical company, and that delights me as much as business performance does. We do the right thing the right way. So when Eliot Spitzer— ironically— was doing a number on the insurance industry, you did not see our name in that fray. I think I leave our organization with the belief that it can be very successful. There’s a can-do spirit and a willingness to take on hard tasks at Allstate that I think will serve this company very well.