MANY BOARDS THESE DAYS seem to be failingat their central task—identifying and selecting new chief executiveofficers. That’s partly a reflection of these spectacularly volatiletimes. But it may also be because boards find it an unpleasant,time-consuming process and because sitting CEOs have scant interest inhelping groom someone who may show them to the exit. Boards that doundertake full-fledged processes to identify successors can become toopreoccupied with procedure—and make mistakes about personal character.And it may be that, rather than anointing a new CEO for an indefiniteperiod, boards ought to impose some form of term limits on CEOs.
These issues dominated a panel discussion onsuccession at the Agenda 07 Forum. Throwing down the gauntlet was JimBenson, former CEO of John Hancock Life Insurance and now CEO of ClarkBenson, a unit of Clark Consulting. “I actually don’t think there’smuch seriousness at all, despite the rhetoric about successionplanning,” argued Benson, who also has held top positions at MetLifeand New England Financial. “In each case, I thought there was lipservice paid to the whole idea,” he said. “Frankly, as a CEO, what youwant is to have some very highly competent technicians around you, butslightly flawed, so that there was always something slightly askew withall of the internal candidates and you could not ever be trulyreplaced.”
Tom Plaskett, who is nonexecutive chairman ofNovell and who also serves on the board of RadioShack, both of whichhave had CEO transitions this year, argued that boards simply aren’tspending enough time on succession. “With the average tenure for CEOstoday of 5.3 years, it’s probably a topic that should be on everyboard’s agenda at every meeting,” said Plaskett. “I think it is viewedin many places as a rather simplistic process that you do once a year.A nice book is put together by the CEO, and you look at the pictures ofthe key executives and you talk about perhaps a couple of options. Andthen you revisit it a year later.”
The transition at Novell went smoothly, butPlaskett said directors at RadioShack were surprised. “It began as anorderly transition with an enlightened CEO, who desired to retire earlyand who had been developing a successor for 10 years,” Plaskettrecounted. The succession process was reviewed annually by the boardand updated regularly. Everything seemed to be right.
But then after the new CEO took over, acredibility issue emerged—there was false information on his resume.”When it comes down to a point of a representation to the board thatthis information is accurate and the board takes the position ofstanding behind the CEO, and then the next day we find out that it’snot true, that’s it,” Plaskett said. Process, it seems, does not alwayswork perfectly.
A mistake that some boards make is limiting theresponsibility for CEO succession planning to a single committee, saidTom Clarke, CEO of TheStreet.com. “I think we have to involve the fullboard,” he said. “I think it’s too difficult to lay this on thecompensation committee, which is what typically happens. I think thisis a full board involvement because there are different criteria that alot of board members want to bring to the equation.”
Defining those criteria is the heart of thedilemma. “It’s not as simple as saying ‘Here are the metrics anddeliver on the metrics,’” Clarke said. “It’s important that you get thefull board to opine on the issues.”
The sharpest dispute among panel members revolvedaround term limits for CEOs. Benson and Steve Mader, vice chairman ofthe board practice at Christian & Timbers, both argued that a termlimit of perhaps five years is reasonable. Both Plaskett and Clarkeopposed the notion because it would turn a CEO into a “lame duck” andprevent him or her from being effective. “The lame duck issue is reallya great point,” Mader argued, “but I believe the board should embracethe philosophy that there is an effective length of time, and thatshould be an ongoing discussion at all times with the CEO.” Boards, headded, should time a CEO’s departure to be best for the business, notbest for the individual.
That issue aside, statistics show that fewer than 50 percent of boardsin the Standard & Poor’s 500 are “very confident” about theirsuccession plans, said Fred Steingraber, chairman of Board Advisors.
Steingraber said part of the solution is for theboard to start engaging with high-potential executives when they areyoung. “Processes involving succession planning need to begin withpeople in their 30s,” he said. “And particularly as you get closer tothe transition dates, and the three to five years before that, you wantto begin to give business unit leaders significant cross-corporate orcorporate-type projects and assignments.”
So there are many strategies for fixing the succession crisis. The problem seems to be finding the will to use them.