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Issue 9, Fall 2011
Insights is an eNewsletter published by Carlson Search Group.  
From the President

Greetings from Carlson Search Group!

 

The "new normal" continues to play out in the financial markets, with our businesses and on the television in our homes on a daily basis.  The markets are up 3%, down 4%, Greece melting down, the Euro in trouble, stagnant real estate, incredibly low interest rates . . . the list goes on and on.  Some economists believe we are at the precipice of another recession, while others believe we are merely in the midst of a very long and slow recovery.  In spite of the compelling story lines, I'm sure that we would all be better off ignoring the headlines and instead focusing on marching forward.

 

As we take the pulse of our clients, we see a variety of reactions.  Many are warily moving forward, while others are developing contingency plans for another downturn.  Interestingly, this continues to be a better-than-expected year in the executive search business.  In talking with my colleagues in the business, I've learned they have been pleased with the volume and pace of their business and generally believe that their clients see the economy slowly but surely improving.  CSG is having its best year since 2006.  But, with that said, we see some signs of caution; for example, we have had a client put a search on hold as they gain a better sense for M&A activity.  We have also had a client launch a search for a new role that will lead growth for an important business niche.  And we've started our second CEO search of the year.  We're seeing a little bit of everything, and we, too, are curious to see what the future holds.

 

In this issue, we will introduce part one of a two-part discussion on CEO Succession, a topic that is always relevant but has received extra attention lately with the recent increase in CEO turnover.  We will also explore some creative ways to boost revenue and review Daniel Diermeier's book Reputation Rules:  Strategies for Building Your Company's Most Valuable Asset.  We hope you will find these articles timely and useful; as always, we welcome your feedback. 

 

Gregg Carlson

President 

 

CEO Succession, Part 1: 
The Alpha and the Omega
 

Jessica L. J. Phillips  

 

I think we can all agree that having the right leader at the top is critical to the success of any organization.  Creating a plan for identifying the next CEO is also crucial, never more so than in these turbulent times.  CEO succession can truly be the Alpha and the Omega for ensuring long term success for your company.

 

According to the September 1 issue of The Des Moines Business Record, CEO turnover is at its highest since 2005.[1Whether a vacancy is planned or unplanned, by the time a succession plan is needed, it's too late to start building one.  A smooth leadership transition is needed to maintain the confidence of all your constituencies--investors, partners, customers, employees, and others.  And a smooth transition enables the incoming CEO to move the company forward at this critical juncture.  

 

CEO succession planning is a broad topic that applies to boards of directors and companies of all shapes and sizes, including nonprofits.  Whether you're on the board of Exxon or a local Boys and Girls Club, succession planning should be a top priority. 

 

Challenges . . . and More Challenges

 

There's a whole list of reasons why succession plans play only a limited role in executive selection, and why a scarce 40 to 50 percent of companies today have a credible succession plan in place.[2]  Even when companies recognize the importance of succession planning, they often struggle to implement it successfully.  What makes succession planning so difficult?

  • Succession planning requires considerable time and effort, and it's easy to let immediate performance issues distract companies from preparing for succession. 
  • Struggles with organizational dynamics, an underdeveloped leadership pipeline, board alignment, and time constraints can impede the succession planning process.
  • The unique labor market for CEOs provides a challenge, not to mention all the attention paid by a company's many constituencies to the search for a new CEO. 
  • Initiating succession planning could inadvertently send the wrong signals or create confrontation between the board and CEO.
  • Lack of succession planning experience can discourage some leaders from tackling it.
  • The risks involved in making the wrong choice are significant, as the cost in severance packages and the disruption to the organization can result in major opportunity losses. 
  • Board agendas are packed as it is, and finding time to tackle succession planning is difficult.

Yet, in spite of the challenges, succession planning ought to be a primary undertaking for companies today.  Which brings up an important question:  Whose responsibility is it to find the new leader?

 

The Buck Stops Here

 

The short answer is that, ultimately, the Board of Directors is responsible for succession.  "Ensuring that the organization's senior staff person is leading operations with excellence is a critical role of the board. . . . How the board fulfills this role and the direction it gives the current CEO about preparing promising internal candidates are the essence of a CEO succession plan."[3] 

 

Both the Board and the current CEO fulfill specific roles in succession planning--roles that have changed in the last 20 years.  Whereas the CEO once chose the successor, and the board simply ratified that choice, the CEO's current role is more about developing candidates than choosing the next CEO.[4] 

 

What, specifically, do boards of directors need to be doing to manage the succession process and develop a culture of succession?  Five tasks are required:

  1. Develop, review and follow a succession plan.
  2. Schedule times during annual board meetings expressly for focused discussion on succession and management development efforts.
  3. Work alongside the CEO to develop goals related to succession planning and management development.
  4. Get to know your senior management team, since sometimes internal candidates can be the best choice. 
  5. Solicit feedback from the CEO from internal candidates' annual performance reviews, regarding the strengths, weaknesses and leadership abilities of those candidates.
  6. Establish procedures for external CEO search and assessment if needed.

One red flag to watch out for:  a CEO who strictly controls access to the board, limiting top management's exposure to the board, warns Suzanne Hopgood, director of Board Advisory Services for the National Association of Corporate Directors.[5

 

Your Succession Plan in a Nutshell

 

Succession planning begins with--you guessed it--a written plan.  An effective long-term CEO succession plan does more than identify the procedures, roles and responsibilities of all those involved in the succession process.   It requires an open dialogue between the board and the CEO, a timeline for CEO succession, an evaluation of the current leadership pipeline including external benchmarking, an assessment of the company's future business needs, consensus on the attributes and experiences of the next CEO, the board's familiarity with potential CEO candidates and a clear understanding of the transition role of the outgoing CEO.[6]

 

We've heard it said, and we certainly agree:  As soon as your new CEO walks through the door, one of his or her first tasks should be to start working on identifying and developing a successor.  Don't underestimate the importance of CEO succession planning and be caught without a workable plan in place.  Even with more tangible and immediate issues at hand, boards must choose to make succession planning a priority, and give it the time and attention it deserves.  Your company cannot afford to be unprepared for a change at the top.  The stakes are simply too high. 

 

(In Part 2, we will discuss some of the best practices for succession planning, the role of the executive recruiter and the outcomes and benefits you can expect from a well-executed succession plan.)

 


[1] "Study: CEO turnover at highest level since 2005," Des Moines Business Record, 1 September 2011, newspaper on-line, www.businessrecord.com, accessed 29 September 2011.

[2] Nat Stoddard and Claire Wyckoff, The Right Leader:  Selecting Executives Who Fit (Hoboken, New Jersey:  John Wiley & Sons, 2009), 256.

[3] Cathie Leimbach, "CEO Succession Planning," The Effective Board Blog, 10 September 2010, http://boardgovernance.wordpress.com, accessed 29 September 2011.

[4] Jaclyn Jaeger, "Board Directors' Role in Succession Planning," from Compliance Week, 1 January 2010, published by All Business, www.allbusiness.com, accessed 29 September 2011.   

[5] Ibid.

[6] Jeffrey Stein, "The Board's Role in Succession Planning," King & Spalding LLP, 20 January 2010, Harvard Law School Forum on Corporate Governance and Financial Regulation, http://blogs.law.harvard.edu, accessed 29 September 2011. And:  Clarke Murphy, "A Practical Guide to CEO Succession Planning:  Ensuring a Successful Leadership Transition," In Touch With the Board, A Russell Reynolds Associates' Series, Issue 4, 2008, www.russellreynolds.com, accessed 29 September 2011.

 

Boosting Revenue

We've said it before:  In this "New Normal," you can't just do what you've always done and expect the same results.  Right now many companies seem to be doing fairly well and reporting solid earnings, in part because they have cut expenses wherever possible.  But you can only cut expenses for so long.  Sooner or later, something has to give.  Many of these same companies are struggling to develop workable strategies to increase revenue. 

 

Here's what one company is doing to address this issue.  According to a recent article in American Banker, Susquehanna Bancshares, Inc. is getting creative with its business model.  The corporation has created a new position, Chief Revenue Officer, a novelty in the banking industry.  Because Susquehanna owns so many different business lines that generate revenue, they wanted to establish a position that reached beyond "chief lending officer" or "chief banking officer"--more well-known titles with a narrower focus.  The Chief Revenue Officer's mission will be to bolster cross-selling for this multi-faceted company. 

 

"This approach makes sense to us," says Susquehanna Chairman and CEO William J. Reuter of the new job.  "It gives additional emphasis at the top management level to top-line revenue production."[1]  Susquehanna's organizational chart is not the only thing that's changing in order to increase revenue.  Having grown through several acquisitions, Susquehanna will now split its regions into smaller units in an effort to get closer to customers, dividing the bank's three regions into as many as eighteen. 

 

The pressure on revenue--already an issue following the recession--is increasing as the economy, low interest rates, and increased regulation all bear down on companies.  What is your company doing to address the revenue side of your business?  As companies continue to get creative, figuring out more ways to increase sales and shifting their business models accordingly, we will likely see more of this innovative thinking.  It will be interesting to see how these new strategies play out in the long run, and what other solutions companies employ to address the need for increased revenue in the midst of the economic challenges at hand.

 

[1] Joel Berg, "Title Wave?" American Banker, 1 September 2011 (magazine online), www.americanbanker.com, accessed 29 September 2011. 

  

Recommended Reading

Reputation Rules:  Strategies for Building Your Company's Most Valuable Asset, Daniel Diermeier, Ph.D.

 

A good reputation is not simply a consequence of doing the right thing or serving customers and stakeholders well.  How your company handles a crisis will have a lasting impact on its reputation.  Reputation Rules reveals why existing reputation management approaches generally fall short.  Author Daniel Diermeier's experience serving as an advisor to leading companies including Accenture, Cargill, Johnson & Johnson, Kraft, McDonald's, and Shell, and as a senior advisor to the FBI renders him more than qualified to speak on this important subject. 

 

Companies are increasingly basing their business models on trust, yet the threats that may undermine that trust have grown rapidly, driven by new media technologies, globally operating advocacy organizations, and the relative growth of population segments that care about the moral dimension of business.  Building and maintaining trust is the most important task during a reputational crisis, and trust must be earned through decisive action. 

 

The book covers several key areas, including understanding brand management beyond customers, learning how reputations can be rebuilt, understanding how public perception is shaped, dealing with reputational challenges that have been strategically manufactured by third parties, learning how to integrate reputation management with a company's market strategy, anticipating what issues may arise and how serious they are, and establishing the processes required to build and employ that sixth sense.

 

Diermeier concludes that the two top items consistently on Board of Directors and CEO agendas--people and reputation--must work together.  "In order to manage reputation effectively, the people and the reputation management process need to be inextricably linked," he explains.  "Successful companies insist that their people think and act strategically, as stewards of the company's most important asset." 

 

Diermeier bolsters his recommendations with relevant, recent examples of reputational crises handled well and others handled poorly, across a wide scope of industries and organizations.  He uses these recognizable turning points from actual companies--organizations that readers have recently seen in the headlines--to drive the reader's focus to how each company's leadership approach in handling the crisis directly influenced the outcome, whether positive or negative, thus revealing the "how-to" of successful reputation management in a compellingly logical, persuasive style.  In addition, his thoughtful inclusion of examples of reputational crises directly tied to current events, besides the financially motivated crises of big corporations, broadens the book's focus to show the impact of reputation management on daily life.  Overall, this book is useful for any business owner or leadership team looking to build, manage, or understand their company's reputation.

 

Thank you!
We hope you've enjoyed this issue of Insights.  Your feedback is always welcome.  Let us know how we can be of service to you!

In This Issue
From the President
CEO Succession, Part 1: The Alpha and the Omega
Boosting Revenue
Recommended Reading
Quick Links

Insights
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