Failed CEO succession is a killer for companies. Having the wrong leader costs billions of dollars of market capitalization, thousands of jobs and is the ultimate death of companies. HP is the poster child of worst practices for CEO succession, having appointed four outside CEOS in a decade. Three failed and were fired, ultimately costing the company to lose global competitiveness, market capitalization and jobs. The fourth CEO, Meg Whitman, former CEO of eBay, is still too new to declare a success.
Contrast this with Procter & Gamble (P&G) where they had a pipeline of internal candidates, as detailed in a recent article in Harvard Business Review which I co-authored with recently retired CEO, A.G. Lafley. Ultimately, a smooth transition took place with the appointment of Bob McDonald, the new CEO of P&G. We have the best and worst practices to learn from. Unfortunately, HP is not alone with this leadership failure–GM, Citibank, and Royal Bank of Scotland are a few of the global icons who had to go outside for a leader.
Part of the problem is that boards typically don’t get started on succession until the last year or two of sitting CEO’s terms. By then, a board has effectively opted out of the process, as it is presented with only one viable candidate–the incumbent’s anointed heir–leaving no real choice or worse yet, like the examples above, no internal candidate, forcing an external search.
For these reasons, I have spent much of the last decade actively advising CEOs and boards on succession and, more recently, researching global best practices. While there are unfortunately fewer obvious success stories than failures, I have worked with a number of companies starting with Jack Welch at GE where I ran GE’s Crotonville leadership development institute. Companies such as GE, YUM! Brands, led by David Novak, and P&G have rigorously and methodically built leadership pipelines for the CEO position.
P&G, under the leadership of A.G. Lafley, has demonstrated how a company can dramatically revolutionize its approach to succession planning while driving phenomenal double-digit growth. The key lessons I draw from P&G after spending many hours of discussion with Lafley include:
Lesson 1: Succession Planning is the first responsibility of the CEO and board
Lafley referred to himself as an “accidental CEO” because he was appointed abruptly after his predecessor was fired–the first hurried, unscheduled succession that most insiders can recollect. To ensure that this never happened again, Lafley put CEO succession at the top of the board’s responsibilities, dedicating one of their six annual meetings solely to this topic.
Lesson 2: The CEO is the head leadership coach
Lafley said that he assumed the role of “leadership coach” who could help to identify talent, train and evaluate those with the highest potential. His job wasn’t to pick his successor. He wanted to fill the stable with as many horses as possible to run the succession race.
Lesson 3: Make it personal for board directors
P&G routinely brought corporate managers into every board meeting, inviting board members to interact both formally and informally on any topic of their choosing. Additionally, once a year, the directors would meet at a business location for a full day, interacting in pairs with local management to help get to know talent on a personal level.
Lesson 4: Succession and development is done daily, not annually
When Lafley says “we elevated leadership development to the same level of importance as business strategy” he means that every review–whether focused on strategy, innovation, operating budget or otherwise–became an opportunity to evaluate and coach talent.
Lesson 5: Make it multigenerational
P&G’s talent process analyzed several generations of talent with ages ranging from 35 to 55. Each candidate was categorized as ready to go, ready in two to three years, a possible CEO contender with more than three years of development needed, and “future prospects” who were younger leaders that would need several job changes and years of development for their potential to be fulfilled.
Lesson 6: Know what you’re looking for…and be flexible
P&G’s board started with a list of non-negotiable requirements that encompassed both intellectual and emotional capabilities. Rather than pursue a statically defined set of leadership characteristics, they tested their list against potential changes in the industry, economy and competitive landscape. They considered the circumstances under which they would need an evolutionary or revolutionary CEO.
Linkage partnered with Noel and the University of Michigan, Global Business Partnership, this year to create the Talent & Organization Development Institute™ to develop the practitioner’s capacity to manage complexity and drive results. To learn more, click here>>
About the Author:
Noel M. Tichy is a Professor of Management & Organizations, Ross School of Business, University of Michigan. He is also the director of the Global Business Partnership, which for over a decade ran the Global Leadership Program, a 36-company consortium of Japanese, European and North American companies who partnered to develop senior executives and conduct action research on globalization in China, India, Russia and Brazil. He most recent book is Judgment: How Winning Leaders Make Great Calls (with Warren Bennis).