CEO se­crets

Chair­man, ANZ Bank, Coca-Cola Amatil; chan­cel­lor Uni­ver­sity of New South Wales; for­mer chair of the Fu­ture Fund.

The Australian - The Deal - - Front Page -

David Gon­ski on how he chooses the boss

You nom­i­nated CEO in­volve­ment in choos­ing a suc­ces­sor as a risk to smooth CEO suc­ces­sion. Why is that?

The ex­ist­ing CEO is a stake­holder who should be con­sulted but the risk lies in tak­ing that con­sul­ta­tion too far. From my ex­pe­ri­ence, CEOs are of­ten not good judges of who should take over.

Do CEOs want to re­place them­selves with some­one in their own im­age?

That of­ten is the case. But CEO suc­ces­sion is of­ten an op­por­tu­nity for change, so it presents an enor­mous risk if the CEO were al­lowed to choose some­one ei­ther like him or her­self, or some­one who is the an­tithe­sis. Both are wrong. In all of the suc­ces­sions I’ve worked on I have taken the present CEO into my con­fi­dence and through the board’s can­di­date list be­fore we got to the short­list. The CEO’s view is equal to any­body else’s but not ex­tra to it, in­clud­ing their view on in­ter­nal can­di­dates. I ac­cept that they have worked with in­ter­nal can­di­dates and know them well, but the neg­a­tive is that they know them as their boss. They, like all hu­mans, pick favourites. It’s not a pure re­la­tion­ship.

You se­lected start­ing the process too late as the next risk fac­tor.

Tim­ing when the new CEO starts and the old one leaves is of­ten as vi­tal as how good the new per­son is. If you dally too long you can ruin the chance of the next per­son do­ing well, and you can ruin the rep­u­ta­tion of the per­son who is there now. The other as­pect to start­ing too late is the chair­man can get quite close to the CEO. Some of the big­gest dis­as­ters we’ve seen in com­pa­nies may have been where the CEO and the chair­man don’t get on. But it is also prob­lem­atic when they get on too well.

Some­times the CEO suc­ces­sion might be ac­cel­er­ated due to un­ex­pected ex­ter­nal fac­tors.

If, God for­bid, your CEO goes un­der a bus, and you haven’t started think­ing about suc­ces­sion, you are in real trou­ble. You have to con­sider what you will do if you don’t have a CEO and you don’t have a CEO in wait­ing. If, as chair­man, you put your­self in as in­terim CEO, you risk hav­ing to re­sign from the board once you ap­point the new CEO be­cause you are never an in­de­pen­dent chair again. Peo­ple say it’s a fail­ure if you don’t have a suc­ces­sor in the com­pany. I think that’s too sim­plis­tic a state­ment. It could be true in some cir­cum­stances, but some com­pa­nies are in that part of their devel­op­ment that they need a change. They need a new chap­ter. And for that, you want some­body from out­side. Like­wise, there could be times when things are go­ing very well and the suc­ces­sor should be an in­ter­nal can­di­date.

Should the suc­ces­sion process begin within a year of the new CEO start­ing?

The­o­ret­i­cally. How­ever it may not work that way. You have two sit­u­a­tions where you have to re­place the CEO. One is an in­vol­un­tary de­par­ture, and you need to be work­ing on that suc­ces­sion from day one. The sec­ond sit­u­a­tion is the vol­un­tary suc­ces­sion. You have prob­a­bly got more time on that af­ter you have just ap­pointed the next CEO. I truly dis­agree with the view that a long-serv­ing CEO must be bad. But, hav­ing said that, af­ter four or five years you have to start the file. That doesn’t mean you act on it, but you cer­tainly have to be look­ing in­ter­nally at who is there.

There is the risk that in­ter­nal ex­ec­u­tives may leave the or­gan­i­sa­tion if not ap­pointed. Is the in­ter­nal can­di­date more en­cour­aged to stay when the in­com­ing ex­ter­nal can­di­date is clearly su­pe­rior and demon­strates lead­er­ship?

You are on the right track. But let me say – and this is my cyn­i­cism – I don’t think there are too many top ex­ec­u­tives who think any­one is bet­ter than they are. One so­lu­tion, which can be quite dif­fi­cult, is this: when the new CEO is cho­sen, the board makes it clear that suc­cess in this ap­point­ment is con­tin­gent upon en­sur­ing that the un­suc­cess­ful can­di­date stays. That of­ten does the trick. The new CEO goes right down the cor­ri­dor to em­brace this per­son.

Your other risk fac­tor con­cerned re­strict­ing a search to in­ter­nal or ex­ter­nal can­di­dates?

It’s like the sun and the moon. You’ve got to look at both. I once heard that the prob­lem with the in­ter­view process is that peo­ple you know have bruises all over them, and the peo­ple you don’t know have pow­der on their bruises so you don’t see them. Ev­ery time I in­ter­view some­one I think, “Where are this per­son’s bruises?”

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