Reminiscences on succession planning.

• Author: Frey, Donald N.

Succession planning is a most important role for a board of directors -- in many cases, the most important role. With a cumulative total of over 80 years of service as an outside director for various Fortune 500 companies, I have seen many styles of succession planning, everything from brilliant to stupid, from successful (say, for the employees and shareholders) to abysmal failure, and from thoughtfully planned to abruptly forced.

I have found the most important factor in succession planning to be the chief executive officer's appointive style with regard to the board members. If over the years an independent-thinking, competent board has been created, the succession process is usually approached both professionally and with good outcome. If the CEO has created a "kept" board, largely populated with buddies with no independence of thought or action, several untoward things can happen.

I have observed cases of CEOs trying to stay on (perhaps better said, "hang on") after normal retirement. Various reasons are offered, one being that his or her successor is not yet ready and needs more mentoring by the CEO. In one case, a hidden reason was that the retiring CEO did not make any money on his stock options. In another case, no logical successor could be identified because the CEO in earlier years systematically destroyed potential successors, so that no one is perceived by the CEO as threatening or perceived by the board to be ready at his normal retirement. (Boards almost never hear both sides of a dismissal or demotion). Lack of self confidence or paranoia are surprisingly not unknown, even with successful CEOs. For whatever reason, the sitting CEO is kept on year to year by a supine board, sometimes until the roof totally caves in.

Another scenario has the CEO appointing, with no board involvement, one of his internal buddies as successor. The chief characteristic of this heir apparent may be loyal service -- to the retiring CEO. Loyal service does not automatically mean leadership. The ultimate result is frequently disaster, with yet another new chief executive to soon follow. This can give birth to the oft-noted strong-weak-strong-weak CEO sequence.

Additionally, the retiring CEO can think that with a loyal servant as successor, control can still be exerted -- particularly if the retired CEO is still on the board, a circumstance which I strongly do not recommend. The former CEO on a board places an enormous burden on the new CEO, who may...