In an earlier instalment of this column we discussed the need for an organisation to have the right people on the bus in the right seats.
One of the impediments to sustainability for organisations is the leadership succession issue. We can all note by taking a quick look at organisations that there is a tendency of leaders hanging onto positions for dear life.
Quite a number of organisations at the World Trade Centre in New York were left with sudden vacancies; if not voids of talent for key roles in the aftermath of the 9/11 terrorist attacks in which many intellectuals perished; may their souls rest in peace.
The attacks and the overwhelming sudden loss of talent did call attention to the need to re-emphasise succession planning providing 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 a reason for companies to not only just get serious with choosing candidates for an organisation’s key executive positions, but to also develop in-house talent to assume other positions to those they are incumbent in.
Rothwell notes the “coming of age” of the baby boomer generation, and the gap in management ranks that will result when they retire. He calls today’s wave of retiring boomers the “quiet crisis of succession”. Our economy in Zimbabwe is not spared of baby boomers who are in key roles were they have been for ages.
In the international business sphere, changes in corporate leadership in large corporations show what happens when a succession plan is not in place, or not.
McDonald’s Corporation has an example of a success story, the company prepared in good time to place the late Charlie Bell, who was the company’s president and chief operating officer, in the driver’s seat.
The departure of the then chairman and chief executive Jim Cantalupo was sudden death; the corporation had planned for the future, in full recognition that identifying a qualified replacement was crucial.
Some international examples of the disasters resulting from poor succession planning are Coca-Cola Company and the Walt Disney Co. Coca-Cola lost its legendary chairman and CEO Roberto C. Goizueta to cancer barely two months after his diagnosis.
The Coca-Cola’s board of directors quickly appointed Coke’s president and COO, M Douglas Ivester, to succeed Goizueta.
The thinking of the Coca-Cola board of directors was obviously the strategy of making use of the immediate replacement by a senior officer next in line.
This is the thinking of a good number of organisations; assuming that the one next in seniority will be good for the bigger job. Unfortunately that is not always the truth.
The practice is popular and is seemingly logical yet it precipitates a disaster if the one who then takes over would not have been prepared for the higher role.
There was a disaster at Coca–Cola because of this next-in-line-takes-over practice, for just three years into the job, Ivester was asked to step down due to his poor handling of a number of crises.
The Coca-Cola board was at their old thinking yet again when they replaced Ivester with Douglas Daft, who had been Ivestor’s successor as president and COO.
Disaster stuck yet again and Daft was overwhelmed with dealing with a company that was in flux and was continually losing several of its key executives, he left Coca-Cola after four years later. The Coca–Cola board then decided to change their strategy and they replaced Daft by appointing former executive Neville Isdell whom they called back from retirement.
Succession issues do not only become hot potatoes when the incumbent dies or resigns suddenly.
In 2004 Walt Disney Co. (WDC) struggled with long-term CEO Michael Eisner on governance issues, his management of key relationships, and his seemingly stifling of creativity across the company.
On March 4, 2004, Michael Eisner, who was then chairman and CEO of WDC, faced a revolt when 43% of WDC shareholders withheld their votes for his re-election to the board. To get past the impasse, the WDC board of directors split the roles of Chairman and CEO.
The chairman role was given to former US Senator George Mitchell and Eisner continued as the CEO. Eisner indicated that he had plans to carry on as WDC’s chief executive till his contract expired in 2006. He was hanging on despite the resistance against him.
Eisner was blamed for a repressive management style which had apparently led to loss of employee morale, triggering the exit of talented executives. He was also blamed for not having groomed an ideal successor for his role. In the market there was damage to WDC’s brand image and investor confidence.
Let us bring this discussion closer home. A look at several major corporations will reveal that the veteran leaders who have been at the helm for many years keeps the organisations running.
However, the discussions about who would take over in the event of a senior leader leaving the organisation are avoided like a plague. It is true that bringing up the matter of succession within ear-shot of the to-be-succeeded leader brings the reaction similar to the uneasiness of an old woman when dry bones are mentioned in her presence.
Organisations are seemingly allowing themselves to be held at ransom by leaders who do not want anyone near them who can have the potential of taking over their roles. Whilst one would think that the fear of tackling the succession discussion could be common among legislators, it however seems true of individuals at the helm of business organisations.
It is a corporate governance responsibility of the governing board/board of directors to ensure that there is proper succession planning for the key roles in the organisation. But we seem to be encountering countless instances of organisations that get into leadership succession crises.
The question then is why then do the governing boards allow such scenarios that are perpetuating succession risk in organisations. To answer that question, there is a school of thought that advances the argument that the extended tenures of both the organisation’s leadership and the governing boards are the source of problems.
The resultant familiarity between the parties erodes the governing board’s ability to call to book the organisation’s leadership to put appropriate governance structures in place; which include succession planning for key roles among other issues.
The other side of the argument is that there are instances where the governing board members are changed often whilst the organisation’s leadership remains in place; mostly true for public enterprises whose boards are changed on party-political partisan and factional alliance whims of legislators.
The always “new board” is forever a team that is trying to understand the organisation; under the tutorage of the incumbent organisational leadership. Such a governing board would certainly need time to come around to understand the key issues at hand before they can raise their heads to question issues.
The answer to the succession risk issues in leadership could be to enforce term limits on key leadership roles. We know the argument about limiting leadership terms is still a raging debate in corporate governance circles.
If such terms were in place, they would be help in forcing the corporate organisations to seriously look at succession planning; for there would a known timeframe within which successor leadership incumbents would be required.
Then the business world would not have to swallow unpalatable news of veteran chiefs of corporates whose contracts are extended by boards into age ranges where the incumbents would qualify for “senior citizens special discounts” on Wednesday afternoons at the local supermarket.
At that point of retirement of incumbent leaders, governing boards are surprisingly waking up to the need to keep the incumbent “to maintain stability within the organisation”, seriously are these recommendations genuine? Wonder if the speech at an aged incumbent’s funeral would be something like “we have decided to extend the deceased’s tenure …”
The Securities and Exchange Commission in the US has over time shown support for shareholder proposals demanding information about and greater transparency over key organisational leadership succession policies.
One can only hope that the agenda on leadership succession will in the near future become more than a moral persuasion matter, thus graduating into a mandatory compliance issue and be embraced by more governing authorities globally.
Dear organisational leader, who is in line to succeed you? Are you ready to leave when your retirement date comes? Are you lobbying directors to extend your term beyond retirement age?
Hlabati is a Senior Professional in Human Resources (SPHR®), a Certified Compensation Professional (CCP®) and a Global Remuneration Professional (GRP®). E-mail: email@example.com; Twitter handle: @samhlabati