CEO Succession Lessons Learned
Cliff Locks
Mentor & Strategy Expert | Independent Board Director/Advisor | Best-Selling Author | 3x Founder Each Company Sold | Next Generation Mentor | Family Office & Enterprise Specialist | Podcast Guest | Exec. Ascend Program
The former CEO of Lockheed Martin on the do’s and don’ts of ensuring a fruitful transition between chief executives.
Author: Norman R. Augustine is retired chairman and CEO of Lockheed Martin and former director of ConocoPhillips, Black & Decker, and Procter & Gamble. He earned bachelor’s and master’s degrees in engineering from Princeton University.
Given my aerospace background, the first law of wing-walking seems to apply to the board’s role in transitions between CEOs.
“Never let go of something until you have hold of something else.”?
While changing CEOs need not be a life-changing experience for the board, failure to properly implement such changes certainly can produce that effect. My personal experience — CEO changes, not wing-walking — derives from serving on four Fortune 100 boards while undergoing eight CEO successions (plus two for which I was the successionee).
First of all, the question becomes, whose responsibility is it to manage CEO succession? The answer is the board. Arguably, it is the most important function of a board. The outgoing CEO is of course a valuable source of information, but the ultimate decision and process must be the board’s responsibility. Should the board hire a “head hunter” to help the board carry out its duty, particularly in a case potentially involving a transition to an outsider? Doing so can provide a source of much greater experience in such matters than the board itself is likely to possess. On the other hand, as was decisively stated in the Broadway show The Music Man about the visiting salesman planning to enter the Iowa market, “He doesn’t know the territory!”
The foundational principle underlying CEO succession is to have a plan already in place. In fact, to have two plans already in place: one for an “ordinary” transition and one for an emergency transition. Emergencies do happen. Incumbents have health problems, leave for better jobs, even fail in their current jobs, and the replacement candidates under the various circumstances are likely to be very different, as is the time urgency. In either case, the board should meet periodically without the CEO or other inside members of the board to consider potential candidates and update plans. This, of course, demands a bit of diplomacy so as to not undermine the existing CEO. For the chair or lead director to simply announce “Mary, please leave the boardroom because we want to talk about your replacement” is probably not a prime example of diplomacy.?
One of the first decisions to be made by the board is whether candidates from outside the firm should be considered along with those from inside. Nearly 30% of new CEOs do come from outside or involve employees of the firm with less than three years tenure. On the other hand, some firms have longstanding policies of explicitly not accepting — at almost any level — outsiders. Outsiders, of course, bring fresh ideas and can solve situations where no suitable inside candidate exists. But insiders understand the business, the culture, the people, and bring fewer surprises. That is, they are known quantities (usually … more on that later). My own opinion is that, if there are not two or three strong inside candidates, the existing management probably has not been doing its job. My experience is that bringing outsiders directly into line-management positions is frequently fraught with failure; whereas bringing such individuals into staff roles for a couple of years and then moving such individuals into line management is rich with success.??
An advantage of continual planning is that, at least in the case of inside candidates, job assignments and other developmental actions can be tailored to fill gaps in experience and capabilities. One particularly important gap to fill concerns the candidate’s having hands-on experience in line-management positions in an operating organization (e.g., division). Headquarters experience is, of course, extremely valuable, but usually the less critical of the two if a choice must be made — which it should not have to be.
It is important for the board to know the various candidates through firsthand interactions.? One means to accomplish this is to invite individual future candidates to brief the board from time to time on significant issues within their purview. Another is for the board to visit operating divisions occasionally.
Only one thing is more damaging than a highly public “horse race” to replace the CEO — and that is a highly public “turtle race,” one that goes on and on and on. Perceptive individuals within the firm will form opinions as to whom might be logical survivors and then choose sides. For the board or current CEO to promote such speculation produces divisiveness within management and may cause the losing horses to leave the company in search of greener pastures. This undoubtedly will represent a major loss, since these latter individuals are presumably among the most valuable members of the firm, even though they were not selected. Horse race or no horse race, the board’s transition responsibilities have only begun when the identity of the new CEO is announced. Then there is the task of monitoring how the transition is progressing under the new leadership and of assuring the nonselected candidates of their continuing respect by the board.
Additionally, people can change when they move into a pinnacle position. For the new CEO, there is likely no longer a physically nearby superior to offer day-to-day guidance and advice. Further, power can corrupt and absolute power can corrupt absolutely. I recall one new CEO who had a superb record as he moved up through the management ranks — until he became CEO. At that point, he became dictatorial and had to be replaced within months. People react very differently to newly granted authority. I have even witnessed two CEOs who had to be replaced by their boards at about the same time for absolutely opposite reasons: one because of his “ready-fire-aim” approach to decision-making and the other because of his “ready…aim…aim…aim…” approach.
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Once the successor is decided upon, the change should be implemented quickly. Announce the succession a couple of months before the change is to take place and then get on with it. From the viewpoint of many employees, there is only one thing worse than a CEO — and that is two CEOs!
The above largely addresses the CEO selection process. While very important, the potentially existential issue is that of actually selecting the CEO. What should a board be looking for in a potential CEO? Well, that depends.
Presumably, a board would prefer to select a candidate who would likely stay around for perhaps a decade so as to have time to carry their ideas to fruition and avoid the turbulence of yet another leadership change. Today’s CEOs have far-broader challenges than those generally faced by the CEOs of just a few years past: they now must be adept at simultaneously handling issues with shareholders, employees, boards, politicians, regulators, the media, unions, international operations, the public, suppliers and more. Also, there may be particular matters expected to come before the firm in the years ahead that will demand special skills on the part of the new CEO. Examples might include unusual financial stress, technological change (AI, quantum science) and foreign expansion.
Then there is the “C” word: culture. If the objective is not to change the organization’s culture, how will the potential candidate fit into the existing culture? (Early in my career, I thought that “culture” was just an excuse for not doing new things in new ways. I’m wiser now. Culture can be a powerful lever for good or, sadly, harm.)
Unfortunately, no candidate is likely to check all the boxes. Interestingly, it is usually the candidate’s weakest important quality, not the strongest important quality, that determines the outcome. Much as in doubles tennis, it is usually the team with the stronger weak player that prevails.
But what of personal leadership qualities? By and large, it is what a leader can derive from his or her team that ultimately determines success or failure — not what any one individual does, even the CEO. Some years ago, I undertook an experiment that I found both fascinating and illuminating, and would recommend to those reading this article.? First, I made a list of people I have known (30, as it turned out in my case) whom I considered to be outstanding leaders. Some of them were famous, such as Omar Bradley, Jimmy Doolittle, Sandra Day O’Connor and Warren Buffett; but others were known only to those around them. All were outstanding leaders in their realm. After completing the list, I wrote after each name the qualities that had prompted me to place their name on the list in the first place. A remarkably consistent pattern of a dozen qualities emerged that seem to represent the ingredients of success as a leader, whether as CEO of a giant corporation or CEO of the local PTA. Then came the real challenge: making a list those attributes in priority order! Of course, in selecting a specific CEO for a specific firm, the priorities may vary somewhat — but for better or worse, the list I produced follows, with all 12 attributes being common among those leaders on my list:?
Finally, and importantly, in any CEO succession, there emerges the question of what should become of the old CEO. What seems to work best is for the predecessor to remain on the board for a couple of months, perhaps even as chairman, to provide continuity and help the new CEO implement the transition. But beyond that, Gen. Douglas McArthur, in his retirement speech, could have been speaking of CEOs as well as soldiers when he quoted the old Army aphorism. To paraphrase: “Old soldiers never die; they, like old CEOs, should just fade away.”
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