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How to Deal With the Sudden Loss of a CEO

Mark Hurd's departure from Hewlett-Packard (HPQ) for ethics violations and Brenda Barnes leaving Sara Lee (SLE) because of health problems serve as important reminders that senior executives can—and will—leave at a moment's notice. The sudden and unexpected loss of a CEO (or any top executive) has the potential to throw the best-performing company into a tailspin if emergency succession plans are not in place. Does your company's succession plan provide a blueprint for what will happen in the event that a senior executive dies, is disabled, or is forced from the company on short notice?

The emergency succession plan must include specific provisions for (1) interim leadership, (2) communicating with key stakeholders, and (3) rapidly initiating a search for a new chief executive. A rapid transition to interim leadership is critical to avoid a vacuum at the top. But care must be taken to ensure that the appointment of interim leadership doesn't lead to major problems with the CEO search process. When possible, the interim CEO should not be a contender for the top job, as this will intensify and distort the politics at the top of the company—just when you most need some stability and focus.

The HP board's appointment of Cathie Lesjak as interim CEO is a good example; she stated up front that she did not aspire to be CEO, and this may be one reason why she was appointed. While it could make sense to designate a chain of succession in advance—as in the case with the U.S. government—it often is difficult to anticipate who will be contenders for the top job a year or two down the road as fortunes and ambitions wax and wane. So rather than make specific, rigid personnel commitments in advance, it often makes more sense to have a solid process through which the board can rapidly converge on an interim CEO at the time of an incident.

"Things Are Under Control"

It's also essential that a preset plan be in place to communicate with key stakeholders, including customers, employees, and investors. The specific content of the communication will of course depend on the circumstances, but templates for the most common scenarios (accidental death, health-related, resignation) can be developed in advance, as can plans for how communication (audiences, channels) will be handled. The loss of a senior executive, especially one who has played a pivotal role in shaping the company's performance, is bound to send shock waves through the system (witness the precipitous drop in HP's stock price after Mark Hurd's departure was announced). The interim leadership must have the processes and channels in place to communicate rapidly that (1) things are under control in the business, (2) the company has a deep leadership bench, and (3) plans are in place to manage an orderly succession.

The worst thing that can happen is that key stakeholders perceive interim leadership to be in disarray or, worse, panicking. This is also a time when the board of directors has to step up and play a much more active role in oversight of the company, thereby helping to reassure key stakeholders. Options range from forming a special advisory committee to appointing a board member as interim chairman to work with the interim CEO.

Finally, the emergency plan should include provisions for rapidly initiating the search for a replacement CEO. This is facilitated if the company already has resources prepositioned to support this process, potentially including a contingent retainer agreement with an executive search firm. It's here, too, that the strength of the company's broader senior executive succession plan may make a huge difference. To the extent that the board has a good handle on who the likely successors are (and the successors to the successors), the process can proceed much more expeditiously.

The unexpected departure of a CEO is a blow to any company, but it need to not have damaging long-term consequences. The starting point is to ask yourself: What would we do if we lost our CEO tomorrow?

Watkins is the author of The First 90 Days and is the Chairman of Genesis Advisers and runs a popular discussion group on The First 90 Days on LinkedIn.

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