The Hindu Business Line : The importance of succession planning

The CEO is in good health, and is not due to retire for the next five years, with a possible three-year extension. The company is performing well financially and appears in secure hands. The board is not thinking of a successor to the CEO, though it is building a leadership pipeline. A grave illness, an accident or, worse, death can leave the leader of the company incapacitated. Such a situation may find the board on the back-foot, and strained to find a suitable replacement at the earliest.

Companies such as McDonalds have successfully managed this problem with a well-planned succession structure Indeed, that is what helped McDonalds weather the death and illness of two of its CEOs and still remain at the top of the fast-food business. How does a board ensure that the company runs smoothly in the event of a tragedy and that the vacant position thus created is swiftly filled? It must design an emergency succession plan.

Leadership Team

The board should identify a leadership team from among the top executives. This team would immediately take over in the event of incapacitation or death of the CEO. The team would be responsible for the operations till the board appoints a CEO. All immediate needs are to be addressed by the team that is also to handle the internal communications. Within 24 hours of the event, the board should call for an emergency meeting to ensure stability, provide direction and announce the event to the world. Next, the board should determine the need for an interim CEO, if

There is no suitable internal candidate. Then, an executive director should become the mentor and a CEO should be recruited and trained under the mentor for one year before he assumes full charge.

The internal pipeline is not yet fully developed. The company may have a suitable candidate but who currently lacks experience. If such a candidate enjoys the confidence of the board, he can be appointed interim CEO and gain further exposure under the guidance of the mentor. Ideally, the succession, interim or permanent, should happen within a week of the incumbent being incapacitated. Once an interim CEO is appointed, the board should initiate the headhunting process to search for an outsider to fill the position.

Board in charge

And even as the recruitment process is going on, the board should take control of the company, its records and accounts as also all communications, internal and external. Once the new CEO is appointed, the board can hand over charge and concentrate on its oversight role.

At the erstwhile automobile major Dana Corp., when the chairman and CEO Joseph Magliochetti died suddenly of complications from pancreatitis in September 2003, the board named former Owens Corning chief Glen Hiner the acting chairman and Bill Carroll, head of automotive systems, the acting president. In March 2004, after several months of searching, Dana's board finally named a new president and CEO, Michael J. Burns, who was a former GM executive while Hiner remained chairman.

Succession planning for all key senior management roles, including the CEO, is imperative for the sustenance of the value maximisation of the stakeholders of an enterprise — a key governance objective.

(The author is CEO, Nirvana Advisory Group.)