Succession happens. People retire, change jobs, and, sadly, like 172 corporate vice presidents on September 11, 2001, die unexpectedly.
Of course, the terrorist attacks that killed so many employees in the World Trade Center, at the Pentagon and in a a field in Pennsylvania didn’t change the fact that by one means or another, every company will eventually have to replace key personnel. But, the attacks – and the overwhelming and sudden loss of life associated with them – did call attention to the need for succession planning and provided an impetus for what is now referred to as “the succession planning movement”, according to William J. Rothwell, author of Effective Succession Planning.
Rothwell, a professor of workforce education and development at Penn State University, cites another reason for companies to not only get serious with choosing candidates for the chief executive position, but to also develop in-house talent to assume other senior management positions. He notes the “coming of age” of the baby boomer generation, and the gap in management ranks that will result when they retire. Rothwell calls today’s wave of retiring boomers the “quiet crisis of succession”. This “quiet crisis”, now featured in the business section of every newspaper, is sounding its alarm.
Changes in corporate leadership in several large U.S. corporations show what happens when a succession plan is in place, or not. The McDonald’s Corporation was a success story, having prepared well to place Charlie Bell, the company’s president and chief operating officer, in the driver’s seat. While no one anticipated the sudden death of then chairman and chief executive Jim Cantalupo, the corporation had planned for the future, and recognized that identifying a qualified replacement was both crucial and urgent.
Other companies, including Coca-Cola Co. and The Walt Disney Co., have also grappled with the succession issue. Coca-Cola lost its legendary Chairman and CEO Roberto C. Goizueta to cancer only two months after his diagnosis. Coca-Cola’s board of directors quickly appointed Coke’s president and COO, M. Douglas Ivester, to succeed Goizueta. This strategy of immediate replacement by the senior officer next in line, while popular and perhaps seemingly logical, doesn’t always pan out. Three years into the job, Ivester was asked to step down due to his poor handling of a number of crises.
Ivester was replaced by Douglas N. Daft, his successor as president and COO, but Daft, dealing with a company in flux and losing several of his key executives, left Coca-Cola four years later. Daft was replaced by former Coke executive E. Neville Isdell, called back from retirement. The board, realizing that they had no internal candidates with enough experience or tenure, and having sought outside candidates for the first time in the company’s history, offered the job to Isdell. Investors and analysts alike have protested Coca-Cola’s board’s lack of long-range planning. A plan for succession might not only have eased the process of replacing the head of this giant corporation, but also provided an opportunity for the board and senior executives to revisit overall strategies.
Succession issues don’t hit only the company whose chief executive dies or resigns suddenly. The Walt Disney Co. struggled with long-term CEO Michael Eisner on governance issues, management of key relationships, ignoring others’ advice, and stifling creativity company-wide. With the departure of key players Roy Disney and Stanley Gold from the Disney board, directors lost two voices that persistently urged Eisner to name a successor. Eisner has consistently refused to discuss the subject, and the struggle for Disney leadership continues.
It’s an understatement to say that the process in succession planning is not simple.
In contrast, the path to European royal succession in the 1600 or 1700’s appears relatively straightforward, barring any religious strife, revolutions, murders or title disputes. The person carrying the anointed title, designated by the sitting (or recently deceased) monarch, and next in line according to succession guidelines, was crowned. The rules, written and unwritten, governing the process were widely known and understood, and the process was well defined.
In today’s corporations, however, and even in family-owned businesses, little is cut or dried in the process of choosing a successor to the current or just departed CEO. Succession planning involves a myriad of variables including:
- current chief executive, who may or may not cooperate with choosing his successor;
- corporate directors, and their different vested interests, including those of the named company, and their personal investment in director responsibilities;
- current economic trends and analyst opinions of company solvency and future prosperity;
- stock value and price;
- franchisees or others affected by the succession decision;
- internal senior executives viewed as viable candidates;
- internal or external conflicts affecting the corporation;
- top company human resources managers; and
- public opinion.
This list is not all-inclusive. Depending on the company and industry, there are other variables that might be considered.
With so much riding on the decision, directors and corporate executives have good reason to explore new and innovative ways to simplify and enhance the process. Corporations need to tap into the abundance of resources available in the succession consulting world, and a good place to start is with the internal human resources (HR) department. While the board should drive the process, internal HR experts can lend expertise, talent and skill, especially in setting up the framework for succession.
In April, 2004, Jim Kauffman, Senior Consultant, Executive Solutions with Development Dimensions International, Inc.(DDI), presented participants at the 2004 NACS HR Forum in Chicago with the need for careful, considered succession planning, and a workable plan for achieving it. He outlined a method that was, in its concept, simple, but required long-term planning, and ongoing implementation involving employees at all levels. Kauffman’s methods, labeled “succession management”, were not new; they were simply an extension of a well thought out performance management strategy that brought in key players beyond the normal group, and tied performance and its measurement with a strong “promotion from within” concept. The process was geared to identify high potential employees, give them exposure to all facets of the company, ensure that their skill sets were excellent and on track, and help them achieve the next level. Accordingly, “the next level” was not just the CEO or COO position, but other essential senior management slots in the company.
Kauffman encouraged participants to “create a culture of talent management” by continually assessing employees to identify potential management candidates, and to take the process several steps further by cultivating these candidates via training, mentoring, and providing cross-company experience. Statistics from surveys of corporate CEOs continue to show that succession planning/management is very closely tied, and of key importance, to business success, and is a major enabler for business growth.
An article included in Kauffman’s handouts, a supplement to Chief Executive Magazine, CEO Insights (April, 2004), entitled “Succession Management: Filling the Leadership Pipeline”, said it all, and succinctly. Author Peter Haapeniemi, working with DDI, encapsulated the salient points of succession management in four pages, including:
4 KEY STEPS TO GROWING YOUR OWN LEADERS
▪ Identification of high potential leadership candidates;
▪ Diagnosis – assessing candidate strength and weaknesses vis a vis future company needs;
▪ Prescription – providing learning, development and experiences needed to fill any identified gaps;
▪ Monitoring and measuring – ensuring that the process continues to develop leaders over time, and…
THE 6 DON’TS OF SUCCESSION MANAGEMENT
▪ Focusing development on a specific job;
▪ Inaccurate identification of potential leaders;
▪ Poor diagnosis of development needs;
▪ Having a limited range of development solutions;
▪ Development plans are never put into action;
▪ Lack of ongoing support by senior management.
Matthew Paese, Ph.D., vice president of succession management at DDI and co-author of Grow Your Own Leaders, drove home this last point in the article, noting that results from a DDI survey of 1,200 readers of Chief Executive “show a disparity between the importance companies place on succession practices, and the effectiveness of their practices.” He later noted that there is room for improvement in the handling of succession management at many companies, and that there are compelling reasons to improve. “Wall Street is paying more attention to leadership in assessing a company’s potential, and there seems to be significant interest from boards as well.”
But problems persist with developing, implementing and sustaining an effective plan for management succession. Paese notes “Basically, many companies simply don’t have a systematic, disciplined process in place to find and develop leaders.” In setting up such a process, he explains, the key is to move beyond the grooming of individuals for specific jobs and create a talent pool of high-potential candidates. Companies accustomed to only planning for replacement of the chief executive will have to re-think their strategies in light of recent studies and the climate of today’s business world.
So, what would this process look like in a convenience store/petroleum marketing company? A substantial number of these industry companies were founded in the 1960’s or early 1970’s, and thus are, or soon will be, in transition to the next generation of leaders. Several companies responded to inquiries with a variety of methodologies.
The Wallis Companies, family owned and based in Cuba, MO, took a proactive approach years ago in instituting a new way of reviewing current management processes, and then refining, revising or replacing these with more effective methods. The “balanced scorecard”, a buzzword in management circles in the 1990’s, worked well for Wallis, according to Rachel Wallis Andreasson, Vice President of Organizational Services. Andreasson noted that using the balanced scorecard approach helped company executives and senior managers view the company from a variety of key perspectives, expanding the scope from merely financial to include, among others, customer relationships, employee growth and development, suppliers, technology and innovation. The balanced scorecard process then lead to metric development, followed by the collection and analysis of data relative to these perspectives.
The data analysis helped Wallis’ management in benchmarking current perspectives and company practices, identifying, understanding and adapting outstanding practices from organizations anywhere in the world to help organizations improve their performance. Andreasson and other members of management focused on formulating a leadership development plan based on a revamped performance management system. Linda D. Henman, Ph.D., President of Henman Performance Group, was one of the individuals engaged to guide the roll out and facilitation of this new system, which was a key element in succession planning. This new performance management system will enable Wallis to achieve the following:
- Direct alignment of individual and team goals to the company’s strategy;
- Quarterly discussions on specific behaviors that will help drive performance to reach goals; and
- Assistance in identifying high potential candidates for future leadership positions, using the performance management system along with an assessment tool developed by Psychological Associates.
Henman emphasized the crucial nature of data in performance appraisal and succession management, and noted that assessment data needs to be interpreted by an assessment psychologist or other outside expert well versed in assessment strategies and without ties to any employee, or the company itself. She also stressed that succession planning has plusses for now and for the future. The objective, analytical process implemented by Wallis eliminates most of the emotion associated with the changing of the guard, especially in family-owned businesses. And the bottom line is that when a leadership position needs to be filled, the best person gets the job.
The system now in place for succession management is a tribute to Bill Wallis, founder, and former President and CEO of The Wallis Companies. Wallis implemented the Balanced Scorecard process long before being diagnosed with cancer, which enabled the organization to proactively plan for future leaders and ultimately proved timely following his death in March 2001. In outlining clear future goals, he demonstrated his strong desire for the Wallis Companies to continue moving forward without missing a beat, and for management communications to continue at their already high level. Wallis also wanted senior management positions to be within the range of non-family members, and the promotion of Mark Martinovich to Chief Operating Officer is an excellent example.
Scott Hartman, President of CHR Corporation dba Rutter’s Farm Stores in York, PA, is a third generation family member leading one of three family businesses. Farmland deeded to the Rutter family in 1747 by the descendants of William Penn, recognized today as one of the oldest continually operated family farms in America, was the beginning of Rutter’s Farm Stores. The first enterprise, started in the 1920’s by George and Bud Rutter, with their brother Will (who ran the farm), was a retail dairy business.
Since that time, other family members have joined the business, encouraging new development through expanded product lines, emerging technology, modernized equipment, and innovative ideas. In the late 1960’s the family opened Rutter’s Farm Stores, the first retail outlet for their dairy products. Progress at all levels continued with the opening of a plastic bottle manufacturing plant in the 1990’s, and the addition of gasoline and ATMs to the stores’ offerings. During this period, Hartman joined the Rutter’s team as Vice President of Operations.
Three operating businesses, all under the Rutter’s Inc. management company, have evolved from continued growth since the 1920’s – CHR Corporation (Rutter’s Farm Stores), Rutter’s Dairy, and M&G Realty. The presidents of the three businesses are proud of the company reputations and community contributions, and take particular pride in their management process. Rutter’s Inc. has no CEO, and all management team
decisions are made by concensus. In a recent interview, Hartman noted that company managers and owners have addressed the questions posed in traditional succession planning, and are comfortable with the family succession plan they have. Their goal is to keep Rutter’s Inc. a family-owned and operated company for a very long time.
Weigel’s Stores, Inc., based in Powell, TN, has identified the need for a succession plan, the necessary first step in process development. Mike Corum, Weigel’s Human Resource Director, noted that performance evaluations are an excellent tool in pinpointing key potential candidates. He also recommends hiring an independent consultant (who brings needed objectivity) with job analysis skills to assist in defining essential core competencies, and in defining clear, concise job requirements for all positions. Corum stressed the need for HR professionals in the c-store industry to be knowledgeable in all company functions, from operations to IT to finance, in order to adequately address employment challenges in all areas. Additionally, he emphasized the crucial nature of the succession planning strategy, and indicated a keen interest in moving the Weigel’s process forward.
While most articles have focused on succession planning in the for-profit sector, other organizations must also address the issue. Currently, the topic is top of mind for the board of the National Association of Convenience Stores (NACS). Several directors have begun the search for a successor to Kerley LeBoeuf, NACS’ President for 24 years. LeBoeuf announced his intent to retire in the summer of 2005 from the trade association that represents the convenience store and petroleum marketing industry. Stan Sheetz, Chairman and CEO of Sheetz, Inc., Chairman of the NACS board of directors, and Chairman of the NACS search committee, outlined the committee’s mandate and activities:
- NACS board appoints three-person search committee: Sheetz, Hartman, and Bill Douglass, Chairman and CEO, Douglass Distributing;
- search committee is authorized by NACS board to hire executive search firm if needed
- Executive committee members of board have signed confidentiality agreement regarding search
- Committee decided to use president’s current position description plus incumbent’s views on what position requires to set parameters for candidate qualifications
- public announcement has generated a number of good candidates;
- search committee has a full year to select a replacement.
Sheetz added that networking is proving to be a key ingredient of the process by getting the word out and attracting candidates, and he cited press coverage in generating interest and bringing candidates forward. He also noted that the search committee is considering current NACS staff leaders as well as outside candidates for the position. Sheetz made special note that LeBoeuf’s long and successful tenure with NACS presents the committee with both responsibilities and challenges larger than and different from other executive searches.
Planning for the succession of a chief executive, or other key senior manager, is a process that deserves time, effort, interest, research, commitment and plain hard work on the part of many players. Who those players are depends on the company, but the process still remains crucial. However, many companies delay the process, saying they’ll get to it later. As William Rothwell said “Succession is one of those things that everyone wants to do but is too busy right now to do it. It’s sort of like writing your will.” Sadly, far too many companies do not engage in even minimal planning for replacing their key executives.
While McDonald’s was heralded for doing everything right, most companies can’t or won’t be quite as prepared. If the board, however, takes a hard look at what the company needs, where it is going, what characteristics are desired in company leaders, and works with management staff to strategize and install a viable system, the foundation is laid. The next steps of identifying and grooming potential candidates in concert with internal human resources staff follows. A principal element of the succession process is communication with employees at all levels, outlining and explaining steps to be taken, and how decisions will be made. Even those employees not chosen for the “fast track” will know the elements needed to be management material, and may strive to be in the next round of candidate determinations.
A strong succession strategy starts with a firm base of board and officer commitment and support. Having a succession strategy in place, even if it changes later, is a lot better than waiting for disaster to happen. Public opinion, stock values, productivity, employee morale, and the bottom line are all at stake. Better to take the advice of Winston Churchill, who said “Let our advance worrying become advance thinking and planning.”
(Published in NAC Magazine, October, 2004)
Guest Article By: Bettie Biehn is President and Founder of Career Change Central, LLC, an excellent source for customized, well-written and attractive resumes and cover letters that focus on the client’s skills, experience, knowledge and background and also pay attention to what the prospective employer needs and wants. Bettie also provides career coaching to her clients.
Bettie’s background includes many years as a senior HR professional, nonprofit director, trainer, hiring manage, in-house recruiter and writer. She is a published author, for three years contributing a monthly column to a nationally distributed, award-winning trade journal.
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