Practical Succession Management

How to Future-Proof Your Organisation

Andrew Munro

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781351909372
• Topic: Business
• Subtopic: Business General
• Index: Business

Succession management, often little more than an annual form-filling chore and a throwback to 'chess board' charting of 1950s multinationals, needs revitalisation to become a key driver of organisational renewal in the twenty-first century. Whilst recent corporate failings have focused attention on the difficulties of leadership succession, those organisations which have made the transition to greatness have understood the impact of strategic resourcing in renewing their leadership capability and character. The challenge for organisations is reconciling leadership demand and supply. When it may be impossible to say what your organisation will look like in three years time, or what strategy it will be pursuing, demand becomes difficult to predict. And in an era of shifting career realities, supply management needs to be more than an analysis of the age profile of the leadership population. Practical Succession Management is a response to the increasing relevance of proactive succession management but the widespread difficulty of making it happen. The author focuses on the business realities of succession management rather than provide a conceptualisation of how it might work in principle or simply headline a series of corporate 'just so' stories. In a robust evaluation of relevant research and imaginative practice, Andrew Munro maps out the battlegrounds for succession management, with tools and techniques to guide readers from start to finish. The result is a book that will stimulate and challenge your thinking in opening up new options and provide practical methodologies to advance strategic resourcing within your organisation.

CHAPTER

1

An Overview of Succession Management

“Succession has always been the ultimate test of any top management and the ultimate test of any institution.” Peter Drucker

“All in all we’re prepared for the truck.” Warren Buffett

Succession management is moving up the corporate agenda but is proving increasingly difficult to implement. The forces for strong corporate governance, organisational stewardship and continuity of capable leadership are strong, but are competing with complex dynamics which make succession in practice a tough nut to crack. Organisations can either avoid the issue altogether, keep doing what they’re currently doing but do it better and faster, or rethink the fundamentals of what succession in the twenty-first century might require.

New realities and preliminary themes

Succession, or, who moves into the positions of power, has been a “tipping point” throughout human history. It has triggered wars between nations, sparked political divisions, ignited family feuds, and it has led to the downfall of many businesses. Succession management, then, is no trivial affair; it has been and continues to be an important shaper and driver of political, economic, social and business events, affecting us all. But until about 20 years ago organisational succession was pretty much a non-event. Typically the CEO reviewed the potential list of insider candidates, all of whom were personally known, and recommended their choice of successor, which was rubber-stamped by the Board. Occasionally an external candidate would be sought, but this tended to be more the exception than the rule. In the early years of the twenty-first century we seem to be in a different era.

• Succession is now the focus of intensive media speculation and investor attention. Formerly the private domain of the executive suite, succession features daily in the press. Speculation about the position of top management and possible replacements make good media copy. Uncertainty about an organisation’s succession plans is viewed unfavourably by shareholder groups and is likely to impact directly on its share price.

• Forced CEO succession is now the “new norm” and there is greater pressure to appoint an outsider, preferably the charismatic leader who will transform company fortunes. Expectations of leadership performance, no doubt coinciding with the massive increase in executive compensation over the last two decades, are high. Under-performing CEOs are being ruthlessly despatched. And the assumption of succession from within is under attack as external hires are viewed as more likely to improve business performance.

• There is a growing concern, reflected in the drive towards better corporate governance and stewardship, that we have got leadership progression and succession wrong over the last few years. While senior executive compensation has rocketed, there is a growing unease about our business leadership. We feel we are being badly led, and there is a growing suspicion that classic succession, far from being part of the solution, may be part of the problem.

• Succession management isn’t simply the passing of the baton to the next CEO. No doubt the CEO and senior team have a major impact in determining an organisation’s fortunes. Increasingly, however, competitive success is shaped by the organisation’s skill in utilising the talents and know-how of key technical and professional groups and its effectiveness in coordinating employee performance throughout its ranks. Succession management therefore becomes less about a handful of top team appointments and more about how the organisation thinks about and manages its talent. There is a shift in management mind-set, from “filling jobs” to constantly seeking out those individuals who can move the organisation forward. Succession, then, is not simply decisionmaking for top-level appointments. It is about performance management at all levels.

We seem to have arrived at a point where we don’t quite know how to think about succession management or what to do about it. When Enron, the US utility company, could be named by Fortune magazine in 2000 as the top company for “Quality of Management”, two years before its implosion brought on by a combination of arrogance and greed, we must begin to question the way in which we define managerial quality. When one of the UK’s largest banks appoints a CEO who lasts all of one day in the job, and then takes another year to find a new CEO, we must wonder about the processes in which we screen and select our CEOs. And when media group BSkyB named James Murdoch, son of News Corp chairman, Rupert Murdoch, as its CEO after an extensive screening and selection process with a prestigious headhunter firm, we are bemused by the coincidence.

THE FAILED INSIDER COUP

In May 2000, Sir Rick Greenbury, chairman and chief executive of Marks & Spencer – the highly profitable UK food and fashion retailer – flew to India to meet suppliers. Although he was acutely aware of the challenges facing him and the organisation, he didn’t appreciate the full force of those difficulties, for him personally and for M & S, until he heard the news of a boardroom coup to oust him, led by one of his “loyal” lieutenants. Less than two years before, M & S was the UK’s favourite retailer, posting record tax profits of more than £1 billion. This was no one-off. For decades M & S had been a classic account of a well-run business with good management and a commitment to progression from within. Such consistent performance had made M & S feature in three Harvard Business School case studies.

The same year, things began to unravel. Profits fell, and M & S was accused of complacency and arrogance and losing touch with its customers; it became the target of intensive press criticism. By late 2000, the company was in trouble and Greenbury, formerly acclaimed as the most admired businessperson within his peer group, was under personal attack. The man who in 1998 had said “We thought we were geniuses” was now seen as overseeing a series of poor business decisions: the expensive purchase of Littlewoods stores, European expansion, and in the eyes of loyal M & S customers, committing the cardinal sin of getting its fashion range wrong. One insider commented, “The problem came when under years of success the company began to operate to please Rick [Greenbury], not the customer.”

Having twice deferred his retirement, and faced with indecision from the non-executive Board, Greenbury embarked on a succession strategy which came back to haunt him. The plan was to create four new Managing Director roles for the potential succession candidates, and let them fight it out. Given new powers and responsibilities, whoever proved themselves most capable in their new roles would emerge as the successor. The reality was that this strategy forged tension and acrimony between the four, “distracting them from the primary purpose of running the business”. The outcome was intense infighting and lobbying for position. Keith Oates, as deputy chairman, felt he was the heir apparent, and began a campaign of internal politicking and press briefings to promote himself as Greenbury’s successor. But Oates, unable to command sufficient support, failed in his boardroom coup and departed. Greenbury agreed to split his position and gave Peter Salsbury, another of the contenders in the succession tournament, the CEO role, describing him as the “ideal man to lead M & S into the twenty-first century”.

One non-executive director commented, “Peter changed dramatically from the day he was made chief executive. None of us were prepared for his behaviour.” Despite the initial support of Greenbury, Salsbury, once appointed, made his contempt for his former boss clear. Embarking on a series of restructuring manoeuvres to cull the old guard, he distanced Greenbury from any strategic decision-making and influence. Isolated, Greenbury resigned. But Salsbury had his own business pressures. Profits were down, the share price was plummeting, customer satisfaction falling, and competitors such as Next, Gap and Matalan were in ascendance. Then came the unthinkable: stories of a hostile takeover. Although it didn’t materialise, the Board appointed the Belgian Luc Vandevelde, who had steered the merger of French rivals, Promodes and Carrefour, as executive chairman in 2000; this was the first truly external appointment in M & S’s history. Several months later Vandevelde had seen enough of Salsbury’s leadership approach. A misjudged advertising campaign was the final blow and Salsbury left in September, eventually to be replaced by Roger Holmes of the Kingfisher group.

Three years later Marks & Spencer is still recovering from its succession bungle. It is showing few signs of regaining its momentum to be the major force in UK retailing; for many investment analysts the jury is still out.¹

THE OUTSIDER REJECTED BY THE CULTURE

In the late 1990s Xerox looked like an organisation with a bright future. It had shown tremendous levels of corporate resilience in its response to both the expiry of its patents in the early 1970s and market share falling from 95 per cent to 13 per cent with the onslaught of cut-price Japanese competitors. It is true that it had failed to exploit the sensational innovations coming from its Palo Alto Research Centre, most notably the personal computer. It is also true that it had underestimated the impact of the inkjet printer and lost out heavily to Hewlett Packard. But throughout the 1980s its CEO, David Kearns, a former IBM marketing executive, had driven through a series of change initiatives to improve product quality and reduce manufacturing costs. By 1999 earnings were rising and its share price hit a record high of $64.

This was a textbook example of corporate recovery, of an organisation reinventing itself to respond to new challenges. Moreover, Xerox was hailed as one of the “best-in-class” organisations that understood succession and knew how to manage its processes. “Every one of our upper level managers is supposed to be able to name two or three replacements on the spot. It comes with the territory.” The appointment of Paul Allaire, a Xerox insider who had worked his way through the Xerox ranks to CEO in 1990, confirmed this was an organisation with the breadth and depth of talent to provide continuity from within. By 2000 Xerox posted a loss of $198 million and was struggling under a mountain of debt and investors were “deserting in droves”. The loss of $38 billion in shareholder value qualified Xerox as “a catastrophe of the first order”.

So what had happened? Allaire, following the Xerox model, had reviewed succession options with the Board since the early 1990s and, faced with the belief that Xerox needed to undergo another corporate reinvention to face the digital age, looked externally for the next CEO. Richard Thoman, the chief financial officer of IBM, looked the perfect match. With a business career spanning American Express, RJR Nabisco and the heavyweight consultancy firm of McKinsey & Co, and an armful of academic qualifications, his profile looked exactly right to embark on another round of corporate realignment and change. Joining the company as heir apparent in 1997, Thoman began to shake things up by pushing for more fundamental shifts in Xerox’s strategy. The future lay in helping organisations find new ways to manage documentation more efficiently and imaginatively; it lay in moving the salesforce from “box sellers into systems consultants”. Thoman embarked on a reorganisation of Xerox’s vaunted salesforce, until that point the jewel in its business crown, rethinking how it was structured and compensated. He also began to question Xerox’s financial controls and business metrics to ask difficult questions of its fundamental structure. Critics said that he was moving too quickly, taking on too much, too soon.

Thirteen months later Thoman received the news from Allaire that he had lost the confidence of the Board and would have to resign. In Thoman’s version of events he argued that he never had the authority to impose his own leadership agenda because of the continued presence of Allaire. Allaire’s account is that Thoman forced a pace of change that the Xerox culture, known for its bureaucracy as “Burox”, couldn’t accept. In addition, Thoman’s leadership style was seen as intellectually blunt and abrasive and he found it difficult to connect with the Xerox staff. He couldn’t “get a feel for what was going on in the company and what was and wasn’t possible. To be successful at Xerox, you have to be liked.” “The lesson of Xerox is that halfway measures don’t work. If you bring in a change agent then let him make change or don’t start,” said one insider. Xerox’s stock dropped by 72 per cent over a 12-month period and it was overwhelmed with rumours of bankruptcy.

What initial conclusions can we draw from these two organisations?

• Poorly managed succession can stall, if not completely derail, an organisation permanently. But “brilliance” in the formalities of succession management is no guarantee of business success either. Both Marks & Spencer and Xerox had a commitment to progression from within. Ed Lawler, analysing the succession problems of AT & T and IBM in the late 1990s, said that, despite these companies’ considerable investment in management development, “They prepared a wonderful group of executives for yesterday’s business. By being so good at narrowing the gene pool, they replicated people who would have been good leaders in the past but not the future.”

• Succession one way or another will happen. It is an inevitable part of organisational life. It may happen after delay and disruption. It may result in the appointment of the wrong candidate who will trigger an irreversible decline in business fortunes. But it will happen. Rick Greenbury was not immortal. Marks & Spencer had to find a successor eventually. The issue then is not so much whether succession should be managed, but how it should happen to enhance and strengthen the organisation’s competitive position. It is not just who is chosen as successor that makes a difference, but how the process operates.

• Bringing in a heavy-hitting player from outside with an impressive track record, breadth of business experience and intellectual prowess is not enough. Richard Thoman was not only incredibly intelligent; he had operated effectively as a leader at many extremely successful firms. He understood marketing, finance and manufacturing; he also knew from operating as number two at IBM how to turn around businesses in decline and reinvent a massive technology firm. Leadership succession, then, is more than individual capability. Succession needs to look beyond personal effectiveness to identify the fit between the individual and the organisation, its strategy, culture, and its politics.

• Succession management is not like other business processes, where a combination of rational analysis and process efficiency can deliver ongoing incremental improvements. Succession decisions and how they are arrived at generate an intensity of emotion, driven no doubt by personal ambition as well as fuelled by those very human feelings of envy and jealousy, which makes objective and cool-headed evaluation difficult. When personal reputations are at stake and management egos are on the line, succession has the potential to become a political struggle in pursuit of personal and factional interests rather than a mechanism to ensure long-term business success.

At first sight succession management should be a simple and straightforward affair. Business logic dictates that organisations should look ahead into the future and review their requirements for leadership and professional talent and expertise. It is an obvious discipline to anticipate and plan for the loss of key personnel and evaluate the effectiveness and impact of the current executive population. And of course firms should be proactive in developing those talented managers to prepare them for positions of greater responsibility. The...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Figures
• Preface
• 1 An Overview of Succession Management
• Part I: The Context for Succession Management
• Part II: Formulating a Succession Game-plan
• Part III: Implementing Sustainable Succession Management
• Bibliography
• Index