Continuity Planning as a Dimension of Corporate Governance

By Werther, William B., Jr. | Human Resource Planning, December 1995 | Go to article overview
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Continuity Planning as a Dimension of Corporate Governance

Werther, William B., Jr., Human Resource Planning

In representing the interests of the owners, the board of directors remains ultimately responsible for hiring and firing the firms's chief executive officer (CEO). (Berle and Means, 1932; Ferry and Cornwall, 1992.) That responsibility is one of the few that the board cannot and should not delegate. As a result, continuity planning for executive succession is a central dimension of every board's governance responsibilities (Goodstein and Boeker, 1991; Zajac, 1990).

The board's responsibility for CEO-level continuity planning is seldom emphasized because historically the replacement of CEOs tended to be an orderly, pre-planned process - with the succession of other key organizational players falling to the CEO (Friedman and Saul, 1991). However, the relatively sudden "replacement" of CEOs at such highly visible companies as American Express, IBM, Kodak, Westinghouse, and others highlights this responsibility (Dobrzynski, 1993; McGee, 1993). As evidenced by this quartet of examples, immediate, permanent successors were not readily available. Lost, as a result, were investor confidence, stockholder value, and a continuity of leadership for these multi-billion dollar international companies. While the financial press may have applauded the activism of these respective boards, the on-again, off-again CEO decision at American Express, the need to hire a pair of executive search firms at IBM, Kodak's slide into uncertainty, and the fumbling at Westinghouse suggest these boards were not proactively involved in the issue of CEO continuity planning. And, if board involvement in continuity planning was low at these long-term poor-performing companies, what lesser degree of involvement is likely in better-run firms?

Admittedly, anecdotal examples do not constitute an indictment of all boards, but these examples do argue for renewed attention to CEO-level continuity planning. In turn, this attention suggests questions that boards and senior human resource executives should consider (Hallagan, 1991). What are the environmental pressures drawing attention to continuity planning at least insofar as they concern the governance responsibilities of boards? Can modifications to traditional, long-range planning processes serve as a leverage point by which boards can monitor CEO continuity planning? How can boards better use third-party consultants to monitor and facilitate the process? How should senior HR management work with the board?

Environmental Pressures for Continuity Planning

The face of global competition has changed during recent years. Many mature industries within the triad - Europe, the United States, and Japan - now seek growth in foreign markets. Concurrently, developing nations increasingly pursue export-led growth, adding to the competitive pressures faced by many industries. As a result, global competition became more intense, demanding greater responsiveness and lower costs among surviving competitors. The intensity of global competition, in turn, led many companies to rethink their corporate strategies, with considerable implications for succession (Tung and Miller, 1990). Though these strategic shifts took many avenues, two common paths to strategic advantage had a significant impact on continuity planning: "speed" and "downsizing."

Speed, particularly in the form of faster "time-to-market" introductions of new products, and faster "just-in-time" throughputs, placed a higher premium on the continuity of technological and executive leadership (Bower and Hout, 1988; Dumaine, 1989; Stalk, 1988). Delays of even a few months could mean the difference between success and failure (Dumaine, 1989). For example, one can only wonder what crucial decisions in new products or technologies were delayed at American Express, IBM, Kodak, or Westinghouse while the search for new leadership took place in the absence of CEO-level continuity planning. The identification of executive talent in the absence of such plans takes time - a resource of growing importance in the face of quick, global competitors.

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