The Boardroom October 6, 2009, 1:08PM EST

Lesson from BofA: Avoiding a Succession Debacle

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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.

Beverly Behan has worked with more than 85 boards of directors over the past decade on issues including CEO succession planning, board engagement in strategy, board and director evaluation and general consulting to boards and CEOs on maximizing board effectiveness. She can be reached through her website: www.boardadvisor.net.