Creative alternatives to classic succession.

• Author: Davis, Robert T.

Everyone seems to agree that a company's strategic vision is a key element in selecting successors at the executive level. It is insufficient to consider leadership skills or a success record without setting them in the context of where the company needs to go in the next decade. However, we have noticed that succession discussions in publicly held companies tend to presume that succession means finding the next senior executive. A seemingly little-considered alternative to grooming an heir to the CEO is grooming an acquirer, a spin-off, or a business redefinition. Creative alternatives to a classic succession can and should span the entire spectrum of corporate activity: merger, sale, divestiture of businesses tangential to the corporate purpose, a leveraged buyout or even acquiring a company with both a complementary product mix and a CEO ready to run the whole show.

Two factors introduced in succession planning make or allow discontinuity in a company's strategic plan, hence create opportunity during an actual succession period:

* First, during the succession period there can be a softening of the emotional blocks which complicate business combinations. It becomes possible to consider dramatic alternatives -- for example, becoming the junior partner in a merger -- without having to deal with ego issues, like today's CEO becoming tomorrow's subordinate. Much as we'd like to think removing these emotional blocks shouldn't be necessary, it remains a key element to opportunistic success.

* Second, succession always combines risk with potential. While there is the opportunity to bring in a new CEO with a sharper focus in critical new areas or with a stronger skillset in a key discipline, there is also the risk that he or she will not have what it takes to run the company. The delicacy of this balance may make a merger or spinoff the right course of action during a succession period -- even, or perhaps especially, in a company that is currently successful and growing. In this case, there is the chance to handpick a suitor and command a premium price, as long as you can withstand the significant momentum to "keep doing what we're doing" -- and the large stable of eager, qualified CEO aspirants wanting to do it.

We raise these options because we've watched two companies take the alternative path, very successfully, and found ourselves asking why this hadn't even been considered in other succession discussions. It strikes us that, if an alternative presents itself and the board has not considered it as a possibility beforehand, it is hard to take advantage of the opening effectively. (Unless otherwise specified, we include the CEO when we talk about the board and, indeed, expect him or her to play a leading role in the processes described.) At the same time, with a good fix on the strategic plan and previous open-minded discussion, a board can be opportunistic if and when a succession issue occurs.

Furthermore, in the unfortunate, but seemingly more...