Lesson from BofA: Avoiding a Succession Debacle
With eight new directors and no heir apparent, it would have been impossible for the BofA board to name Lewis' permanent replacement on the heels of his resignation. For this very reason, however, any succession conversation in the BofA boardroom should have involved a discussion of an interim replacement in a crisis—and agreement on who that should be. Had they taken this step, Bank of America's board would have been able to name an interim CEO within 24 hours of Lewis resigning.
Instead, BofA presents an unflattering contrast to the swift decision-making of a board like McDonald's (MCD), which was twice able to announce a CEO successor within 24 hours of an emergency. Notably, Walter Massey, chairman of Bank of America, also serves on the board of McDonald's. Of all people, he should have known firsthand how to get succession right.
Crafting an Emergency Succession Plan So how can you ensure that your board avoids the criticism now plaguing Bank of America's if your CEO tenders a resignation, or if for some other reason you have to pick a successor in an emergency?
When I work with boards on CEO succession planning, I am shocked at how often find that their emergency plan consists of little more than a list of high-potential internal candidates and a telephone tree of "who calls who" if a crisis breaks. While no emergency CEO succession plan should be set in stone, driving the board to a more concrete decision about emergency leadership is an important step, without which most boards will find themselves in the same position as Bank of America's. The real value of an emergency CEO succession-planning exercise is that it enables a board to hash out and come to alignment on thorny succession issues without the media pressure, stockholder concerns, and employee angst that accompany a real emergency.
Earlier this year, I worked with the board of a company whose CEO was about to depart on a vacation that involved extreme sports. This prompted board members to ask, "What would happen if he didn't come back?" While the CEO's initial response was that he had several good people on his team who could step in, his lead director wisely pushed the matter further.
In interviewing all of the board members and the CEO, I found that there was an important succession concern at this company that needed to be factored into the emergency leadership conversation: Many directors feared that a competitor would put the company into play if something happened to the CEO. Few felt that any of the internal candidates were yet ready to assume corporate leadership.
And no one felt that a single individual should be thrust into the position of suddenly having to run the company and simultaneously deal with a takeover bid. Consequently, the board and CEO agreed that one of the directors who had both industry and CEO experience should serve as interim CEO in an emergency while one of the high-potential executives (they discussed which one) should be named COO. Shining Light on Long-Term Plans Fortunately, their CEO returned from vacation without even a broken bone. However, if anything happened to him within the next year, this board is well prepared to act. What a difference it would have made for BofA if their board had been in this position. In addition to readiness for a crisis, the emergency succession-planning exercise exposed gaps in the perceived readiness of internal candidates which are now being addressed through leadership development plans and formal executive assessments to either confirm or provide greater insights into the board's "gut feel" about the candidates.
In another year, the board can revisit the emergency succession plan and potentially make new choices —while moving forward with a long-term succession plan for the CEO's eventual retirement. Indeed, any emergency CEO succession plan should be reviewed at least annually or anytime that a change of key players—either within the executive team or on the board— might cause the plan to be modified.
A comprehensive CEO succession discussion should also force the board to consider whether they would want to look at outside candidates. In some cases, the board may have a strong preference for an internal candidate and believe that one or more members of the executive team is up to the task. As such, they don't see much point in spending the time and money on an outside search. In other cases, board members feel that an external search is worthwhile before finalizing their decision. Just going through this discussion with the board can sometimes dictate whether the emergency succession plan will likely involve appointing a permanent or interim CEO in the wake of a crisis. Boards that want to conduct external searches typically need to name an interim CEO if an emergency occurs.
One device that can short-circuit that process somewhat is a silent search. In an earlier column, Marshall Carter, deputy chair of the NYSE Euronext (NYX) discussed how that board was able to confirm Duncan Niederauer as CEO within 48 hours of John Thain's recruitment to Merrill Lynch (MER). He noted that the use of a "silent search"—a list of outside candidates with the potential to replace Thain, developed only through the use of databases—had been an extremely helpful tool for this board in handling the emergency succession.
A recent Conference Board study on CEO succession planning quoted statistics from Challenger Gray & Christmas that 1,484 CEOs left their positions in 2008. Booz & Co.'s "CEO Succession 2008," a study of 2,500 of the world's largest global public companies, noted that 18% of financial services CEOs turned over last year. Today, any board that has not undertaken a comprehensive CEO succession-planning process deserves to come under fire.