The delicate matter of the 'Number Two'.

• Author: CAREY, DENNIS C.
• Position: Relationships between corporate boards and potential CEO successors

As a board member, do you fear the loss of top talent? Here are ways to maintain the number two's sense of loyalty and purpose within a board-driven succession process.

THE RELATIONSHIP between the CEO and the board is a tricky one to manage. Equally delicate and critical to the success of succession planning efforts is the relationship between the CEO and potential successors as well as the relationship between potential successors and the board. Companies that tread carefully when it comes to number twos send strong messages to their organizations about how executives are valued and are consequently much more likely to hold on to talent.

A company's ability to retain a talented and experienced number two depends on dealing with several factors that seem to have an impact on an effective CEO-number two relationship, including:

-- the satisfaction of the number two in his or her position;

-- the ability of a number two who had been passed over to come to terms with the improbability of becoming CEO, as well as the ability to forge a constructive relationship with the "winner";

-- clarity around the issue of timing, including when succession will take place, and what assurances (verbal, titular, and financial) the number two expects to receive and when.

These are significant issues that, if handled improperly, may have a negative effect on the company's well-being. They should not be left to the CEO and the number two to sort out; board awareness and involvement are crucial. It is important for directors to examine how they can effectively manage the number two's part in the succession process. The board must determine whether it is being given sufficient opportunity to get to know potential successors and see them in action in order to make an informed decision about succession. Directors must also consider the consequences of various approaches to succession: whether there will be a clear designated successor well before the top slot opens; a horse race among a few top contenders; or a wide-open field where a broad range of candidates are considered, including prospects from outside the company.

What makes for a great 'marriage'?

While he was number two at GE, Lawrence Bossidy is reputed to have described his relationship with CEO Jack Welch in the following way: "Jack gets to do whatever he wants and I get to do whatever is left." This story, related by Kevin Sharer, president and COO of Amgen Inc., who will ascend to CEO in May 2000, illustrates how not to keep the COO happy. Though they were close friends and colleagues -- described by Sharer, who knew both of them while at GE himself, as "the best management team on the planet" -- Bossidy did ultimately leave for the top spot at AlliedSignal (now Honeywell).

While Bossidy clearly had a major operating and strategic role at GE, his lighthearted comment may have been a more accurate reflection of his inner feelings than people imagined. His remark also highlights an important challenge: how to ensure that the number two has a satisfying job -- satisfying enough so that he or she won't be lured away by competitors.

Many number twos would agree that a key element in maintaining their satisfaction is how their territory is defined, if it is defined at all. As with the vice president of the United States -- the ultimate number-two job -- some may wonder if there is a real job or whether the position is purely and simply a CEO-in-waiting. An ill-defined job that is viewed as merely picking up after the CEO, or treading water until the CEO is ready to step down, is a surefire recipe for corporate discontent and larger succession problems down the road.

If they are not satisfied with the scope of their responsibilities, talented and ambitious number twos will likely leave when the right opportunity is dangled in front of them, especially if they are not getting clear and positive signals from the CEO about the timing of a future transition, Sharer says. "COOs have to view their current position as one of professional growth, and there has to be some light at the end of the tunnel indicating when they're going to be the next CEO, otherwise the bodies will fly off the bridge at a pretty good rate."

After having considered what doesn't work, what does make for a good "marriage" between a CEO and a number two? One of the most important factors, according to many number twos we have spoken with, is whether there is a clearly defined job that entails a significant range of responsibilities that he or she can "own," manage, and develop, rather than merely being viewed as a subordinate to the CEO on a daily basis. Successfully managing a sizable portion of a large company brings with it the opportunity for wide recognition. Someone with the drive, ambition, and talent to be CEO needs not only the work but also the visibility and credit that go with doing a big job and doing it well.

Sharer says that in his current position at Amgen "the CEO was smart enough to carve out something day to day where we don't talk and don't have to...