Passing the Baton or Dropping It

How the Board Can Help Senior Executive Transitions

By: Raymond P. Harrison, Ph.D. and Molly D. Shepard

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Separation from an organization is always a traumatic event, at any level, but transitions or separations of chief executives or other senior leaders unleash organizational and individual dynamics in a more dramatic and often irrational way than any other type of business activity. What follows are some key issues and remedies for any organization to consider in planning and managing senior executive transitions.

Several volumes could be filled with stories of successions that went sour. The very high profile examples referenced below make for convenient targets. But one cannot read the headlines of these cases without thinking of the probable disruption, lost opportunities, huge direct and indirect costs as well as shattered careers that accompany these botched successions. For every one of these very visible fiascoes, there are many other lower-profile companies that go through similar traumas.

While large scale efforts to find the right person are to be applauded, they also are a testament to the folly of spending huge amounts of time and money trying to find the right person, while paying little or no attention to setting up conditions afterwards that will allow the person the best chance to succeed. Often after all the efforts have been made to find the next heroic leader of the organization, he is largely abandoned by the Board to sink or swim in an almost Darwinian approach to transition planning. There is now a huge literature in executive development that indicates it is ill-advised to have the incumbent CEO solely or even primarily involved in the integration of his replacement, whether the replacement comes from the outside or the inside.


Consider these headlines that tell a story of high hopes for executives that ended in disaster:

CNN Financial Network, OCTOBER 15, 1996:

AT&T announced that it had named John R Walter president and chief operating officer, and the company made it clear that Walter will replace Robert Allen, who steps down in 1998. The choice ended some anxious speculation in the industry.

“I and the AT&T board are convinced he’s the right person for the job.”

— Robert Allen, CEO

president and chief operating officer, and the company made it clear that Walter will replace Robert Allen, who steps down in 1998. The choice ended some anxious speculation in the industry.

“I and the AT&T board are convinced he’s the right person for the job.”

— Robert Allen, CEO

Wall Street Journal, June 27, 1997:
The talks aimed at forming a $50 billion merger of AT&T and SBC Communications are unraveling.

…SBC executives are said to be chafing at the unusual public campaign waged by AT&T Chairman Robert E. Allen who has challenged White House and federal regulators in arguing in favor of a merger he has refused to confirm even seeking. SBC executives were “flabbergasted” said one person familiar with the reaction at the San Antonio-based Bell.

Mr. Allen may yet pull off a deal and his motivations are compelling. He is to hand over the title of chief executive officer in January to AT&T President John R. Walter…Mr. Allen is intent on restoring his reputation before retiring altogether in May…

…Mr. Allen in recent weeks has appeared to undermine his aggressive, ambitious No.2 whom he recruited to AT&T just eight months ago. Mr. Walter has been on the periphery of the SBC negotiations and some people worry he might leave after having endured recent news accounts about his threatened role at the company with nary a sign of public support from Mr. Allen…

“It would be ridiculous to suggest Mr. Walter isn’t involved in everything…he is doing a great job. I have full confidence in him.”

Associated Press, July 16, 1997:

John Walter resigned Wednesday as president of AT&T Corp. after the company backed out of its promise to make him the successor to Chairman and chief executive officer Robert Allen.

“We became increasingly concerned about whether he could provide the intellectual leadership for this company,” said director Walter Elisha, also Chaim1an and CEO of Springs Industries, Inc.

…Walter said his future plans are uncertain. His resignation follows a string of high-profile defections among some of AT&T’s top managers…

Reuters, July 16, 1997:

…Walter will receive about $3.8 million in separation

payments. That is in addition to the compensation package of about $22 million AT&T provides him.

CNN Financial News, July 16, 1997:

…Just one month ago, CEO Robert Allen said AT&T was more certain than ever Walter was the person that would succeed him.

Letter from Chairman (Micheal Eisner), December 1995:

…Cosmically speaking, we successfully engineered three stellar events that will affect the future of Disney’s planets. We attracted to the company a new president, Michael Ovitz, a close friend and an extraordinary executive. We attracted chief financial officer, Steve Bollenbach, another all-star executive who comes to us from Host Marriott, where he was CEO.

…For a decade, I had talked to my wife about two situations that would make Disney better and my life easier. One was a merger with ABC, which was announced July 31. The other was to persuade Michael Ovitz to come to work for the company…I have known him, worked with him, vacationed with him and his family. Not only will he be the perfect president for the company, but he is a trusted friend.

New York Times, October 7, 1996:

…In recent years Eisner has suffered a serious heart attack; his No.2 Frank C. Wells died in a helicopter crash; his chief financial officer, Frank Bollenbach, quit after 18 months, and Jeffery Katzenbach, the longtime chairman of Disney Studios, left in an acrimonious fight and is in litigation over his severance package.

“It is essential to the company that Ovitz succeeds because to go back and restructure the senior management, where they have already been through so much change, would be debilitating,” said Emanuel Gerard, a partner at Gerard, Klauer, Mattison, an investment firm.

New York Times Book Review, September 5, 1996:

Ovitz, by Robert Slater, McGraw-Hill

…Ovitz wants out too. Not just out of the conference, but out of the whole damned company. The last few months have been hell for him. Few outside the conference room know just how bad it had been for him. But he knows and he can’t tell from one day to the next whether he’ll be able to take the abuse any longer.

…when he offered the job to his friend, Michael Eisner had promised Ovitz that he himself would carry out only ceremonial functions as Disney Chairman, thereby complying with his wife’s urgent plea that he take it easy.

…by April 1996, six months after he had begun the Disney job, it was clear to Ovitt that he had made a terrible mistake.

…he can’t figure out why Eisner brought him into the company if he knew he was going to treat him with such disdain, promising him the world but delivering nothing.

…one report in the Los Angeles Times suggested that Ovitz would get $50 million in cash and three million shares of stock options worth another $40 million -for a total of $90 million. Other reports put the figure as high as $120 million. As it turned out, the actual figure was even higher: a staggering $128 million!

CNN Financial News, December 12, 1997:

Michael Ovitz, once regarded as the most powerful figure in Hollywood, resigned Thursday from his post as president of Walt Disney Co.

…Disney, in a statement, said the decision was by “mutual agreement,” but Ovitz’s resignation came after much speculation that he and Eisner were at odds…he was widely expected to excel at Disney and succeed Eisner.

…But Ovitz’s enemies soon leaked details of the executive’s struggles to find a powerbase with the Magic Kingdom and his fearsome fights with Eisner.

SkyReport, December 13, 1996:

…this is not the first time Eisner has clashed with a top executive. Jeffery Katzenberg, now a partner in the Dreamworks SKG studio, left Disney in 1994 when he failed to win the president’s position…

Associated Press, December 31, 1996:

…Ovitz’s severance has reopened the national debate about executive pay packages and has angered many Disney employees at a time of generally lower bonuses and reduced perquisites.

…”Looks like it’s out of our hides,” one Disneyland worker grumbled in a Los Angeles Times story Tuesday about a clampdown on free admission privileges for employees of the amusement park.

CNN Financial News, February 25, 1997:

…at least 10,000 shareholders voted on several proposals that have become thorns in the side of Disney management.

…the most controversial of these focus on the amount of money being paid to Disney Chainnan Michael Eisner and former president Michael Ovitz.

…Ovitz is the Hollywood super agent Disney hired in 1995. He left the company after just 14 months with a severance package of $90 million.

“The severance package Michael Ovitz got was upsetting,” one shareholder said. “fhe guy spent 14 months, and to pay all that money, I don’t think that is quite right. ”

WBC News, February 26, 1997:

Disney Chairman Michael Eisner had to fight off a shareholders’ revolt at a rather boisterous annual meeting at “The Pond” in Anaheim, where the company’s Nlll.. team plays. Many shareholders were not pleased with a new contract or the reported $100 million severance package given to ousted president Michael Ovitz.

Business Week, March 13, 1997:

…Get ready for the battle of the lion kings -Walt Disney Chairman Michael Eisner vs. former Disney studio chief Jeffery Katzenberg. The $250 million lawsuit filed against Disney has now been scheduled by an LA judge to go to trial November 18.

…Katzenberg’s lawyer, Bert Fields, intends to use Ovitz’s $93 million severance deal, handed to him after 14 fairly undistinguished months as No.2 at Disney.


 Individual Psychological Issues

When lists of key senior executive responsibilities are created, assuring continuity of executive succession almost invariably makes the top ten. Yet the reality is that many, perhaps most corporations and CEOs pay little attention to this issue until it becomes imminent. For at least the past ten years Merck has been at the top or near top of various business periodicals’ ratings of best-run companies. Its CEO, Ray Vagelos has similarly regularly made various lists as the best CEO. But when he left Merck there was no clear line of succession and the company went through a period of uncertainty which diminished its sterling reputation. There are complex reasons why executives avoid leadership transition issues.

One hallmark of senior executives is that they live the business. It is not uncommon for individuals in senior level positions today to regularly work eighty hour weeks. Often this is at considerable personal cost: divorces, problems with children, health problems and psychological problems are frequent consequences of the overwhelming demands of these jobs. But the jobs have their psychic rewards. In addition to compensation, there is the adulation of others, the power to control large number of people, the ability to “make things happen,” the prestige of sitting on outside boards, the respect one in one’s community and industry.

In all but rare cases individuals in senior executive positions are not there by accident. Almost by definition they are people who have extraordinarily high orientations to achievement, competition and power. Often they possess unusual amounts of energy, supplemented with genuine enthusiasm for their business and a personal ownership for what happens to it not typically found in lower levels within the organization. They also possess what organizational psychologists call an “internal locus of control.” They believe that they alone can affect the outcome of events -not others, not luck, not the whims of the stock market. This is what is known as a functional belief; while it may sometimes be irrational it produces behavior usually very desirable in a senior leader. But it can also make the leader inflexible to input from others, more vulnerable to depression when things don’t go well and more easily threatened when someone emerges who challenges their power and chooses to go in a different direction.

There is also the inevitable issue of mortality. Although most CEOs occasionally joke about this, few really accept it at a gut level. Like buying insurance, filling out an organ donor card, setting up a trust or preparing a will, these activities tend to be intellectual at best. They lack a sense of reality. But meeting the man who will eventually take your job makes things distressingly real. And when this individual decides to bring in his own team, trash your strategy and take your organization in new directions, a particularly bitter pill must be swallowed.

For this reason, the potential disruption created by senior executive transitions is not just confined to situations where outside candidates are being considered. Internal candidates, even “handpicked successors” can easily run into difficulties with their predecessor if these potent psychological factors aren’t acknowledged and aggressively managed.  Internal candidates have a slightly different set of challenges. They may have former colleagues who are now disappointed rivals, preconceived biases about how the organization should be run, and preexisting perceptions of who they are. The most difficult challenge of all is to break free from the shadow of their former boss while still working cooperatively and effectively with him or her during the transition period.

Outside Issues

Another hallmark of senior executives is that they frequently serve as the focal points for an organization’s vision, morale, corporate culture and expectations of the future. There is no more powerful message to an organization about what is important and required than the termination of a senior figure. All of this organizational noise eventually gets vented to the outside world. Just as senior executive terminations and successions send a powerful message inside the organization, they also send signals that can be misinterpreted by an ever more vigilant business community. When john Sculley was brought in as an obvious successor to Steve jobs at Apple Computer, the search was well publicized and the rationale for choosing Sculley, who came from a very different industry (PepsiCo), was widely disseminated. The consequence was that Apple’s stock shot up two points the day after the announcement.

By contrast, when john Walter was appointed heir apparent at AT&T, the appointment caught everyone off guard. Even insiders were initially hard-pressed to explain the fit between Walter’s former background (RH. Donnelley) and the demands of his new assignment. A golden opportunity was missed to convey to AT&T’s workers a new direction and optimism about the company at a time when it badly needed it. Also, it must have been perplexing and confusing to the next tier of senior managers, several of whom left shortly thereafter, as to why they were not selected.

The bad press continued when Bob Allen, the CEO, pursued a merger strategy with the telecommunications company SBC, which would have effectively precluded Walter from becoming the CEO. Walter’s personal agony was at least short and profitable; he left after a vote of no confidence by the Board with a $29 million separation package. AT&T’s share price continued to struggle and, fair or unfair, criticism of the Board and the CEO was vitriolic”.

A Blueprint for Effective Senior Executive Transition

1. Begin Transition Planning Before the New Leader Is Selected

Consideration of all of the above factors -individual, organizational and outside -should precede senior executive selection. Often Succession Planning Committees may be uncomfortable in discussing what are such “soft” issues of corporate culture and loyalty, but these issues ultimately affect the bottom line and future health of the organization. Also, as evidenced by some of the examples above, proper execution of the transition process can be a one-time opportunity to convey a powerful message inside and outside of the company about future directions and expectations.

It’s useful to start the discussion of these topics by asking a few basic questions:

  • Does the organization need a growth, maintenance, or turn-around strategy?
  • What would be the profile of the kind of person who could drive that strategy?
  • How is the current CEO viewed? Does the outside world need to be encouraged that a new kind of leader if assuming command or reassured that there is a continuity to the current leadership?
  • Are things going so well that the incumbent CEO will expect to oversee his successor to essentially be a clone of himself? Are things going so badly that the incumbent will feel a need to justify former decisions or create one last grand initiative as his legacy?
  • Is a new direction for the organization likely to represent a threat to the incumbent CEO ‘s legacy?
  • Will the type of personality needed to drive the future strategy be one that is likely to clash with the temperament of the incumbent?
  • What will be the impact on morale, throughout the organization and particularly in the senior executive ranks, if an outside candidate is chosen? An inside candidate?
  • What will be the impact on the perception of the organization by the business community if an outsider if chosen? An insider?

Should the new person report to the CEO? For what period of time? Should there be some sort of ongoing reporting to the Board, either on a straight line or dotted line basis during the transition period?

Some types of organizations like non-profits and universities have traditions of almost always looking outside for their chief executives. The net effect of this approach is that very little executive development or succession planning goes on internally. But in the for- profit sector, the decision becomes more complex. The experience of dozens of corporations is that turn- around situations are almost always best handled by outsiders who will not be hampered by preexisting loyalties or prejudices about what must be done.

Companies with stable patterns of growth who want to assure continuity of that pattern will typically do best with senior executives selected from the existing ranks. Pursuing a growth strategy is the trickiest of all the equations. There are very few management theorists left who believe in the concept of a true general manager who can manage anything, even in the absence of detailed technical knowledge. The experience of AT&T when it brought in John Walter from the Directory business would suggest that there is an advantage to having industry-specific knowledge and perhaps even knowledge of the company.

Some companies, like GE, have solved the problem by bringing in ‘”internal outsiders.” Jack Welch had been a long-time employee of GE, but in its plastics division, not one of its more mainstream businesses. Welch’s great advantage was that he knew the GE culture intimately, as well as its business but not so intimately that he became enmeshed in maintaining the past. Reginald Jones, the incumbent CEO, and the Board determined that the future of the company’s success rested on finding an outside maverick, but not one so unfamiliar with the culture that it would devour him!

2. Retain a Strong, Activist and Evaluative Approach by the Board

Because of all the potent dynamics unleashed by senior executive transition, the Board cannot completely hand over the responsibility for new leader assimilation to the current CEO, if he or she is going to be continuing for a period of time. And if they are not going to be continuing, then there is no other choice.

In many situations, it eventually becomes clear that things are not going to work out.  But if the Board has not retained an active and ongoing evaluative role, it will be almost impossible to assign culpability for the failure. In the AT&T example, the Board ultimately took responsibility for John Walter’s forced departure, but there were at least some indications that he had early difficulties with Bob Allen, the departing leader. Correctly or incorrectly, the business press concluded hat Allen’s desperate effort at a merger was an attempt at a last hurrah before leaving, which emasculated and diminished Walter’s leadership role at a time when he vas still struggling to learn about the company.

3. Create a “Transition Charter”

Related to #2 above is the issue of making the key objectives, roles and tasks of the transition period crystal clear to everyone involved. This can help avoid lots of bruised feelings on the part of all the participants. Specifying time lines and tasks can avoid the Incumbent CEO feeling like he’s being rushed out the door or the incoming executive feeling like he’s not being properly welcomed or left out of important decisions.

Perhaps the greatest benefit of a charter is that it serves as a living, breathing, ongoing agenda to regularly be discussed, evaluated and perhaps modified. It allows for early course corrections before things go so far off track that they become irretrievably doomed.

When john Walter suffered a vote of no confidence, the Board gave as its reason that they had reservations about his ability to provide “intellectual leadership.”

What that would look like and whether it had ever been clearly and explicitly articulated to Mr. Walter remains unclear. Michael Ovitt appears to have had no clear charter from the very beginning. He started off by being a double-shooter for Michael Eisner in a business he was unfamiliar with, reporting to a boss who already had a strong reputation for not being able to yield power and with enemies waiting for him from the start. With the benefit of hindsight, his ultimate derailment was entirely predictable.

Transition charters differ from other kinds of charters in that they should specify not only what the incoming executive should do but also what the incumbent, the Board and other key players should do. Each charter will need to be different, but the typical questions a charter should try to answer include:

  • When will the announcement be made about the incoming executive’s appointment?
  • Who will make the announcement?
  • What are the key messages we want to embed in the announcement (e.g. change of strategy, continuity, aggressive recovery efforts, etc.)?
  • What is the timetable for the incoming executive to formally assume the new role?
  • What are the key relationships that must be established, inside and outside the corporation in order to assure a successful transition?
  • How will we handle those individuals who cannot fully commit to the new executive structure?
  • Who is going to be responsible for helping the new executive navigate these new relationships?
  • What are the three critical objectives that must be accomplished by the executive in the first 100 days and who is supposed to assist him or her in their accomplishment?
  • What are the critical objectives for the first six months? First year? Longer-term?
  • How, how often and by whom will these objectives be reevaluated as to their appropriateness?
  • To whom does the incoming executive primarily report?

This last point is not a trivial one. Almost certainly the day-to-day reporting relationship will be through the current CEO, but Boards are well advised to have someone on the Board designated as the primary contact for the new executive. Delicate matters of inclusion or exclusion, changes in strategy or outright conflicts with the incumbent can more easily be resolved by someone at the Board level.

4. Use Consultants Judiciously but Make Sure They Don’t Have Any Preexisting Allegiances

The bad news about these recommendations is that they take valuable time to implement, and for most Board members, time is a precious commodity. While consultants can’t replace the role of a Board member, they can do a lot of the legwork and save valuable time. This is particularly true if the consultant has specific past experience in dealing with the intricacies of senior executive transition.

An effective consultant can act as a confidant and ongoing advisor for the executive. He or she can do things like interview key others in the company on a confidential basis. Consultants can advise all parties as to how the transition period is proceeding in the eyes of the organization at lower levels.

On occasion an effective consultant can give direct feedback to all the participants that they would be unable to give to one another directly. The participants don’t have to live with the consultant forever, but they have to live with one another for a long time. Outside consultants, therefore, can hear and say things that would be nearly impossible for insiders. Moreover, an expert consultant in executive transition issues will have a repertoire of techniques for clarifying issues, resolving conflicts, handling communications, developing new executive skills and moving the transition process along. They can serve as an early warning system to avoid problems.

If an outside consultant is used, it is important to make sure they have no preexisting allegiances, perceived or actual, to any of the participants. Many executives have their own executive coaches whom they’ve used for extended periods of time and would like to use in this process.  The danger here is that the consultant may at best be perceived as having a biased loyalty and at worst may in fact have his or her judgment clouded by earlier knowledge or relationships. In order to be effective in their work, consultants need to be able to have fully confidential conversations with all of the players. But it also should be made clear that they report to the Board and ultimately have to make recommendations to the Board which they believe will be best for the organization.

5. Handle Termination Decisions Decisively

Boards should not be actively involved in the day-to- day running of a corporation. Terminations, particularly of key executives, are not things Boards like to get intimately involved in. But the peculiar dynamics of senior executive transitions may mandate more involvement than usual.

Every senior executive transition has someone who can’t or won’t “get with the program.” It may be someone who thinks they should have been offered the job. It may be someone who resents an outsider getting the plum position or who resents a former colleague who is now going to be his boss. They may feel, often with legitimate justification, that they were unfairly evaluated. Personal considerations aside, there may also be substantive reasons why someone can’t embrace the incoming executive’s authority and leadership. They may have real issues with the new directions being taken or the decisions about staffing which are being made.

Both the incumbent and the incoming senior executive are in a difficult position to deal with problem underlings. The incumbent may feel loyalty to his long standing subordinate, and in many instances, guilt for not having developed that person more effectively. At some unconscious level he may even agree with the subordinate and covertly reinforce resistance to the new leader.

The incoming executive has another set of issues to deal with. There are very few senior executives left who still believe that the way to establish your authority in a new job is to fire a few people early on. More commonly the executive may feel a certain awkwardness with other executives who were former candidates for their job. They certainly don’t want to be seen as the hatchet man to an organization while they are still trying to establish their executive identity. Also, because they are still on a steep learning curve about the job, they may be reluctant to come to early conclusions about subordinates.

For these reasons, the Board must remain closer to issues related to termination than might typically be the case. Failure to deal with these issues early and decisively can result in lost impact for the incoming executive and perhaps ultimate failure. Many organizations, particularly those with strong cultures, have a history of rejecting and defeating outsiders almost like the human body develops an autoimmune response to foreign bodies.

The Board needs to be hypervigilant about such issues. Accurate information in this arena is hard to get, but consultant input along with frequent checks with both incumbent and incoming executives will provide valuable indicators. If there are indications of insubordination or even just lack of full commitment, the Board should act quickly either directly or indirectly.

Often the first line of defense is to work through the incumbent. He or she can be exhorted to talk to his or her people about the need to give the incoming executive support. If this proves inadequate, the incumbent may have to be the one who delivers the termination notice. If this proves unfeasible, the incoming executive will have to perform the task, but should make it clear that he does so after full consultation with the Board. In some instances long-time senior executives of a corporation may have relationships with Board members based on years of working together. As such it might in some instances be appropriate for them to have access to the Board or some portion of it to plead their case. But the Board must remain resolute in its decision. Any waffling at this point is tantamount to conspiring to have the executive fail.

7. Orchestrate the Departure of Senior Executives Carefully

Senior executive terminations always need to be handled carefully, but at no time more than during periods of leadership transition. First of all, during such times very good people can suddenly, through no fault of their own, become poor fits for the new organization. But beyond the issue of fairness is the very real business necessity of messages such events send to the outside world, particularly the financial community.

Unfortunately, these events often unleash emotions that contribute to acrimonious and often very public separations. While some situations are impossible to settle on a completely amicable basis, below are some guidelines that can help to minimize or even eliminate the hostilities.

Frame the need for the separation in business terms, not personal ones. When AT&T’s Board member felt compelled to explain John Walter’s departure as necessitated by their concern of his “1ack of intellectual leadership” he framed the discussion in unnecessarily personal and negative terms. One could easily have imagined a more graceful and perhaps even more accurate announcement like, “It was the consensus of the Board that Mr. Walter was not yet fully ready to assume the role of CEO. He felt he was ready and was not prepared to wait any longer for an unqualified endorsement from the Board. Although we were greatly encouraged as to his progress in assimilating into the company, we could not give an unqualified endorsement at this time. In response he chose to exercise his option to leave. We regret his departure and wish him well in whatever he next undertakes.”

8. Do Everything Possible to Retain the Existing Team of People Who Are “Keepers”

It’s not uncommon for a high performance team of executives to disintegrate after the arrival of a new leader. Often these individuals are not disgruntled about not getting the job. If they remain they will not be mal- contents or saboteurs. They may even understand the reasons why they weren’t chosen. But they may also feel like there is no future for them in the new regime and no hope for further challenge if they remain. When Jack Welch became CEO of GE, several key leaders in the organization left to take other top spots at companies like Allied Signal and Rubbermaid. While their success at the new companies was good for the new organizations, their leaving was a loss of significant talent for GE.

“Keepers” are valuable contributors with deep knowledge of the organization whom the incoming CEO will badly need to take charge of the new organizations. The best way to retain them is to focus on their career needs. If they were close contenders for the top job, they need coaching and counseling to understand why they didn’t get it. If they weren’t in the running but someday could be, they need developmental coaching about the areas in which they need to continue to grow.

The peculiar dynamics of CEO succession mitigate against the incumbent being able to provide this kind of guidance. But the incoming CEO will gain a lot of points with his new team if he shows interest in them this way. Often this kind of attention will be more important than financial incentives to stay

9. Have a Pool of Talent on Hand at all Times, but Make Sure It Is a Diverse Pool of Candidates

When one looks at companies like AT&T or IBM that have traditions of devoting huge amounts of effort to executive development programs, only to look outside when the CEO job becomes available, one might question the usefulness of such programs. The problem with many of these programs is that they do a very good job of grooming executives for past leadership challenges, not for future challenges. They also often tend to homogenize the senior leadership team, making it hard to differentiate them from one another and contributing to rivalry.

The truth is that executive development programs do serve useful purposes. They sometimes produce superior leaders who can ascend to the top job. The prospect of development also allows the organization to attract a higher caliber of talent, particularly from business schools and younger executive ranks. They also improve current performance of executives, even if they are not always adequately prepared for future challenges.

The future is always impossible to predict completely and the best insurance an organization can have for leadership depth is to have a variety of seasoned executives, with varied experiences and different leadership styles. Even then, circumstances may dictate that an outsider is the best choice.

10. Limit the Pool of Inside Contenders and Make Sure They Have Adequate Exposure to the Board

The best time to look for a new CEO, or other senior leader, is when you don’t need to. Exposure to the pool of potential candidates over a period of years, on a variety of issues and preferably in a variety of settings will give Board members the best opportunity to fairly evaluate the internal pool of candidates.

But the best evaluations will occur if the Board has had the foresight to give candidates special projects or assignments to test their mettle. In the conduct of regular business, it is the job of the CEO’s direct reports to support their boss. Often this means parroting the party line or working on tactical objectives, which don’t fairly test an individual’s strategic or leadership capabilities. Special projects allow executives to get out from under the incumbent CEO’s shadow and demonstrate what they can do. They can also serve as powerful developmental experiences in that they often push executives into zones of discomfort that allow them to grow.

11. If an Outsider Is Selected, Take Special Care Outsiders are often recruited specifically to shake up an existing culture. But realistically one person cannot change an entire company’s way of doing things, at least not overnight. The trick is to learn the culture, without being absorbed into it so much that one becomes enmeshed in it, and yet somehow also make change and survive. This is no small accomplishment, and the executive probably has a short window of opportunity to signal change.

A consultant who is an expert in organizational dynamics can be of critical help here. The consultant can help the executive pick what are the two or three things he wants to change about it that won’t cut so deeply into ingrained values that will trigger a rejection. Michael Ovitz’s hardball style of negotiating immediately ran afoul of the Disney culture and added to the list of enemies he already had waiting for him.

But an outside consultant, even one who has worked in the organization before, can never take the place of the Board. It needs to help the new executive create a “learning plan” which will typically focus on issues like:

  • the history of the company
  • the ways decisions are made
  • the way time is handled (e.g., punctuality at meetings, expected work week, etc.)
  • who has formal power and influence by virtue of their position and who has it informally by virtue of their relationships
  • how outsiders (customers, vendors, strategic partners, consultants, etc.) are handled
  • what key business processes are critical to know in depth
  • what are the rules of order for participating or presenting in meetings
  • what is appropriate level of participation for the executive’s spouse or family in company affairs
  • how are non-performers handled
  • what are people really rewarded for – growth, profit, innovation, etc.

No one likes to deal with these “soft” issues, but early attention to them can help the executive assimilate more easily. Also, candid discussion of these item often helps to illuminate cultural impediments and focus the senior group on what needs to be changed.

 12. Once a Successor Is Chosen, Eliminate Any Further Ambiguity About It

Several months after john Walter was apparently anointed as the next CEO, a new Vice-Chairman was selected, immediately fueling speculation that Walter’s ascension was in jeopardy. This kind of ambiguity only ensures ongoing divisiveness, politics and unhealthy competition. As difficult as the assimilation process is, without unqualified support of the incumbent and the Board, it becomes even harder. The fact that Amelio, Ovitz and Walter all endured extended periods of speculation that they weren’t going to make it, is a testament to how poorly this issue is often handled. In the end, it ensures failure, prolongs the agony of the individual and doesn’t particularly portray the Board or current CEO in a favorable light.

13. Give the Incumbent CEO Something to Look Forward to

Without belaboring the psychological aspects of handing over leadership to someone else, retiring or being retired from a CEO job is like bringing a freight train traveling eighty miles per hour to a full stop. The energy that builds up is going to be channeled somewhere, either the train will keep going unstoppable, it will divert to a side rail, or it will crash.

Senior executives have more options available to them than any other group, but they often don’t realize it. Board memberships, consultancies, non-profit involvement, entrepreneurial options, university appointments, think tank positions, ambassadorships are just a few of the options available. To the extent that the outgoing executive can begin to focus on the future, the true desire to make the succession succeed will be increased. Outgoing CEOs will often have extensive financial counseling months, even years before they are ready to leave, all with the focus of creating a comfort- able financial situation for them. But it is rare for these individuals, who have the most options and are the most focused of all on how they spend their worklife, to receive any kind of career counseling. An activist Board who wants to increase the chances for successful succession will begin raising this issue with the executive well in advance of the need. Most likely it will be resisted, but the Board should insist that the executive begin, if just tentatively, thinking about life after the company.

Summary

We have argued in this article that active Board participation in executive succession is as important after the executive is selected as before. But the aftermath issues have usually been neglected in American business, often with disastrous results. While no two situations are ever completely alike, there are enough commonalities to apply some guidelines to increase the chances for success.

Considering the disruption to the company, disruptions to individuals and the extreme costs failures of executive succession create, Boards need to take a more activist role. There is already evidence that shareholders’ groups are becoming increasingly disenchanted with their failures.

 

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