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