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.
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.”