Magazine article New Zealand Management

Getting a New Boss

Magazine article New Zealand Management

Getting a New Boss

Article excerpt

CEO SUCCESSION STRATEGIES Smart companies an for leadership changes with strategies that, if necessary, can be implemented at a moment's notice. Paul Menmuir, Madrid-based vice president with international management consulting firm AT Kearney, talks with James Nelson about best practices in CEO succession strategies.

For public companies, aren't large institutional investors now also exerting substantial influence in governance issues, including CEO selection?

Until recently, institutional investors usually opted for a passive role in the governance of the companies in their portfolios. Influence was exerted tacitly through the potential for disinvestment in improperly governed firms.

Today, governments are putting pressure on institutional investors to be more active in corporate governance matters. Many believe that greater involvement by institutions contributes to the improvement of governance standards, and thereby better protects investors--especially the general public.

Clearly, boards of directors should not allow institutional investors the final say in the appointment, but they certainly should listen to their concerns and ideas. Investor relations is an important element of successful CEO successions.

How has the CEO role evolved in recent years?

In the United Kingdom the separation of the chairperson and CEO roles has become best practice corporate governance and is largely adhered to. Of course, sharing roles may present relationship challenges, especially in an environment often characterised by strong egos. However, it does allow some tailoring of the CEO role and permits another to "coach" the CEO during the initial stages of tenure. This could greatly help some new CEOs and should be considered in the succession process.

In the United States, the standard practice is to appoint the same person as chair and CEO. However, many large US companies appoint a president or chief operating officer (COO) to share the burden. It will be interesting to see whether the current regulatory reviews result in the chairperson's role becoming separate from that of the CEO in the US. Each situation is probably best assessed on its own merits.

Finally, there has been recent academic research--for the most part relying on the experience of the 1990s--which seriously questions the importance and value of celebrity CEOs, and the awards of compensation packages that defy rational analysis. The result is that more importance is being placed on the qualifications of the top executive team as a whole, as opposed to just the leader.

Of course, the swings of opinion must not cause excess adjustment: the CEO will continue to be vitally important. However, it is essential that the new CEO, together with the board of directors, develop a strong executive team that ensures both depth and continuity of leadership. CEO performance will obviously deviate from expectations. If appointment results were highly predictable there would be little reason in attaching premiums to CEOs--or board members.

Fortunately, progress has been made. Over the past 15 years, lessons have been learned and best practices have emerged. Adhering to these should help the CEO succession process and mitigate the downside risks.

What are current best practice standards for CEO succession planning?

The board, or a nominated committee of the board, should review the CEO succession plan at least once a year. The plan should provide for:

* Assessment of the company's leadership needs;

* Assessment of the current CEO's and leadership team's strengths and weaknesses;

* Identification of internal candidates to succeed the CEO;

* Consideration of external candidates; and

* Development of transitional and emergency succession plans.

The process should be based on detailed assessments and candid reporting. …

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