That's what happened when Merrill Lynch lured CEO John Thain away from NYSE Euronext. A member of the board offers some lessons in emergency succession planning
Governance commentators had a field day criticizing the boards of Merrill Lynch (MER) and Citigroup (C) for their apparent lack of CEO succession planning following the departures of Stan O'Neal and Chuck Prince. But in this round of musical chairs at top financial organizations, there was one company left standing: NYSE Euronext (NYX). The board managed to respond almost immediately to the sudden loss of its CEO. In fact, when Merrill Lynch hired John Thain away from NYSE Euronext, the NYSE Euronext board issued a statement the very same day announcing Duncan Niederauer as its new CEO.
Marshall Carter is deputy chairman of the board of NYSE Euronext as well as the former chairman and CEO of State Street and a former board member of Honeywell. Columnist Beverly Behan spoke with him recently about how the NYSE Euronext board was able to move so quickly in naming a new CEO in the wake of John Thain's resignation.
Here are edited excerpts from their conversation:
How was the NYSE Euronext board able to respond so quickly when Merrill Lynch hired away your former CEO, John Thain?
We hired John as the CEO of the NYSE in January, 2004. By 2006 it was apparent that John's name was on the short list of nearly every major Wall Street firm to be their CEO because of his breadth of experience. The financial services industry is characterized by silos; top people tend to be very specialized in their area but lack breadth. Because of this, we realized we needed to be prepared with a CEO succession plan in case someone hired John away.
So, even though John was only in his early fifties and had only been our CEO since 2004, the board recognized that we had to turn our minds to CEO succession planning.
What steps did you take to address this issue and what, if anything, were you concerned about, given that you had an outstanding CEO who was new to the job and a decade away from retirement age?
In 2006, when we began to address this issue, it was prior to the Euronext merger. As chairman of the NYSE at the time, I was leading this initiative. We looked at our internal talent and determined there was no one currently at the NYSE who could step in as CEO if we lost John.
We had some very talented executives, but if someone hired John away, we were going to have to go outside for his replacement. We wanted to develop a list of potential outside candidates and have that on hand in case we needed to act on it. However, we were extremely concerned about word getting out that we were doing some kind of CEO search. After all, this was a contingency plan: We had a terrific CEO and were only doing this to put ourselves in a position to respond quickly if we lost him. Because of our concerns about confidentiality, we hired a boutique search firm to do a silent search.
What's involved in a silent search?
We called it a silent search because the firm researched and compiled a list of possible CEO candidates using only public information that outlined the credentials and experience of the potential candidates. No calls were made to people in the industry to ask them for names of possible candidates and none of the people on the list were contacted to gauge their interest in the job.
What did you do when the silent search was completed?
The silent search resulted in a list of more than 30 potential CEO candidates. Because this list was extremely confidential, we made only two copies of it. The chairman had one, and our corporate secretary had another. It was locked away for use in an emergency situation.
How was the board able to come to a consensus so quickly about John's replacement?
When John told us that he'd decided to take the offer from Merrill Lynch, we didn't feel that we had to go back and do a search of outside candidates because we'd already done our silent search a year prior. We had hired Duncan as president and co-COO in April, 2007, and had been very pleased with his performance since he came aboard.
Notably, Duncan's name appeared on the list that was created from the silent search. Our board—which has a transatlantic makeup—was therefore able to convene and reach consensus very quickly about naming Duncan as John's replacement. If we hadn't taken the steps we did in conducting the silent search and hiring Duncan into our executive team, however, we certainly wouldn't have been in that position.