The CEO chal­lenge

How do you choose your next chief ex­ec­u­tive – when there’s still some­one in the job? Australia’s top com­pany chairs open up on suc­ces­sion plan­ning. Glenda Korporaal re­ports.

The Australian - The Deal - - News -

Lead­ing chairs – David Gon­ski, He­len Nu­gent and Belinda Hutchinson – tell how they choose the next CEO

WHEN Gail Kelly handed over as chief ex­ec­u­tive of West­pac to Brian Hartzer ear­lier this year it was re­garded as one of the most seam­less tran­si­tions in Aus­tralian cor­po­rate his­tory. But the re­cent sud­den de­par­tures of Myer chief ex­ec­u­tive Bernie Brookes and Orica's CEO Ian Smith shook in­vestor con­fi­dence. The fall­out showed why man­ag­ing the tran­si­tion to a new CEO is one of the most im­por­tant – and riski­est – pro­cesses fac­ing a board. Aus­tralian CEOs spend fewer than five years on av­er­age in their roles so the pres­sure on boards to ad­dress the is­sue is al­most con­stant. Yet it is rarely dis­cussed openly.

A new re­port, The Risky Busi­ness of CEO Suc­ces­sion by in­ter­na­tional ex­ec­u­tive search firm Korn Ferry, has re­vealed strate­gies adopted by boards in suc­ces­sion plan­ning. Lead­ing com­pany chairs, in­clud­ing David Gon­ski (Coca-Cola Amatil, ANZ Bank), Gor­don Cairns (Ori­gin En­ergy, Quick Ser­vice Restau­rant Group), Dr He­len Nu­gent (Veda Group, Funds SA), Brian Jamieson (Sigma Phar­ma­ceu­ti­cals, Me­soblast), and for­mer QBE chair Belinda Hutchinson (chan­cel­lor of Syd­ney Uni­ver­sity) were in­ter­viewed and their com­ments are ex­tracted here.

Katie Lahey, Korn Ferry’s chief ex­ec­u­tive in Australia, says en­sur­ing a smooth suc­ces­sion is more than good gov­er­nance. It makes sound busi­ness sense, she says. News of a de­part­ing chief ex­ec­u­tive of­ten im­pacts a com­pany’s value. When CEOs change, in­vestors are more than twice as likely to sell shares in the com­pany. One re­cent sur­vey shows that Aus­tralian com­pa­nies with suc­ces­sion plans in place achieved sig­nif­i­cantly greater an­nu­alised share­holder re­turns.

“On the other hand,” Lahey says, “a poorly ex­e­cuted CEO exit, cou­pled with a clumsy re­place­ment process in­vari­ably wreaks col­lat­eral dam­age in­clud­ing the de­par­ture of other ex­ec­u­tive tal­ent, di­min­ished share­holder value, a drop in mar­ket con­fi­dence and last­ing brand dam­age. Share­hold­ers, reg­u­la­tors, fi­nan­cial an­a­lysts and oth­ers with a stake in the com­pany’s lead­er­ship ex­pect boards to ef­fec­tively plan for their CEO’s suc­ces­sion.”

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