Replacement strategy
EVEN for a pedestrian a decision as trading in an old car that is too often in the repair shop, there is a replacement strategy based on need and costs. An alternative will involve either a brandnew car, if one can afford it, or a “previously owned” one with low mileage. Or just keeping the headache another few months.
Institutions too are confronted with a replacement decision, sometimes triggered by the death of an incumbent leader. These include the monarchy in some countries, and even a religious organization. Government positions have term limits which end unless a dictatorship is imposed. There are still many democratic countries that mandate a popular vote in designating a successor.
Even listed companies in the United States, including one with a market cap of over $2.7 trillion like Apple, are vacated by their founders to turn over the helm of their ships to a designated successor. Microsoft and Amazon too are good examples.
One of the lowest priorities for many CEOs seems to be planning a replacement strategy. Even those of advanced age beyond mandated retirement may not prioritize the search for a successor. Maybe, a replacement exercise is akin to writing out one’s last will and testament which is premised on not being around when its contents are announced.
What are the possible responses to talks on a succession plan from inquisitive stockholders or business media? There are steps that can be taken to evidence some effort in finding a replacement.
Form a search committee. This can be assigned to some directors of the board who are understood to have no designs (or qualifications) for the position being discussed. Some guidelines can be given to the group in determining a worthy candidate — must be able to leap tall buildings in a single bound. (A cape will be provided.)
Create a new position for a clear Number Two. This vacancy is then filled by an executive from within who will be designated with an appropriate title like Chief Operating Officer (COO) with an appropriate jump in his Guaranteed Annual Cash Compensation (GACC). This is a signal that the appointee is at the head of the line for the top job.
Give a timeline for effecting a succession plan. This timeline need not be a specific date. It can be expressed in external phenomena, like “the next solar eclipse” after the recent one.
While the above moves may be construed as delaying tactics, they present an action plan that is subject to monitoring. The intended time horizon may be accelerated by events or moves by the board. The clear candidate may already be in place as COO, someone the incumbent CEO has personally picked, maybe even mentored. Other events like loss of market share or health issues may move the replacement earlier.
Even after a new successor has taken over, the appointment is in a “probationary” stage. The new leader is being constantly evaluated. He is compared with his predecessor, especially by those who were close to the previous leader and may have lost their influence.
The predecessor who may still be sitting on the board may be queried on how his successor is faring. He usually refrains from any form of criticism — it’s too early to tell.
The temptation to knock a successor down is absent when the predecessor has retired from the corporate scene and merely wants to enjoy his retirement. He can extol the joy of living in a farm — you can hear the cocks crowing.
The CEO position, especially of a large, listed company is both a source of significant revenues and a raiser of profile and status. Willingly stepping down from such a high perch can be difficult. The mandatory retirement age of any company is supposed to take out the uncertainty of designating a replacement. But this rule is not always followed for the top position.
The certainty of a leadership position and the power it holds over the company and its stakeholders supports what behavioral economists call the “status quo bias.” Why change what seems to be working well?
More uncertain perhaps for a CEO’s exit is the prospect of not having meetings one after another and holding sway over a large organization, maybe even a country. Still, the anonymity of leaving the scene has its own attractions. One walks into a room and conversation does not stop — he gained a lot of weight.