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The Art of CEO Succession


Pulling off a CEO transition is never easy. DuPont's smooth baton-passing early this year underscores the importance of having a solid plan

This is not an easy time to nurture a new generation of corporate leaders. Training budgets are being slashed while a depressed housing market has made it harder to move around for better job opportunities. And yet the need for top talent is growing. A record 1,484 U.S.-based chief executives left their jobs in 2008, according to outplacement firm Challenger, Gray & Christmas. Many more could step down this year as losses mount and executive angst runs high. "The CEO job today is more stressful and draining than at any time in history," says Tom Stemberg, the founder and former CEO of Staples (SPLS). "People have just run out of gas."

At a time when corporations worldwide are crying out for new thinking, BusinessWeek (MHP) decided to take a look at some of the CEOs of tomorrow. These are senior executives who are not yet in the corner office but who have won the attention of headhunters, peers, and their own bosses. Some of the 20 leaders profiled in the next few pages are company veterans. Others have eclectic résumés that cite experience in different industries and jobs. What unites them is an understanding of the global marketplace as well as a knack for sensing and seizing new opportunities.

What's striking about many of these candidates is that they were identified as promising early on and given opportunities to prove themselves. Their careers highlight the critical importance of an oft-ignored management priority: succession. While the median CEO tenure today is just six years, according to Booz & Co., few boards and managers carefully nurture a stable of successors. Last year, the National Association of Corporate Directors found that 42.4% of companies had no succession plan at all.

The economic crisis has exacerbated this problem as resources have diminished. Guy Beaudin, an executive coach at RHR International in Toronto, has seen a 25% reduction over the past year in work helping clients groom future leaders. Veteran coach Marshall Goldsmith, who just wrote a book on succession, compares such moves to cutting back on research and development: "There's a short-term benefit but a long-term cost."

For a sense of how to do it well, look at the seamless CEO transition at DuPont (DD) earlier this year. Chief Executive Charles O. Holliday Jr. had spotted top lieutenant Ellen J. Kullman as a potential successor more than a decade ago. Holliday, a gregarious Tennessean and DuPont lifer who became CEO in early 1998, had mentored Kullman since they met in the early 1990s in Tokyo. He was running the Asia-Pacific operations, and she was visiting as a senior manager in the electronic imaging unit. He was impressed with Kullman's willingness to learn. "There goes a future leader," Holliday recalls saying to himself. Kullman remembers being peppered with questions. "He scared me," she says.

Kullman joined DuPont as a marketing manager in 1988 and was quickly promoted, distinguishing herself by improving troubled units. She was tapped in 1995 to run DuPont's $2 billion titanium technologies business and later turned a newly formed safety-products division into what became the company's highest-earning segment during the time she ran it. "We had to change our business model three times before we found the right one," Kullman recalls. "There were times when I questioned whether we could get there or not."

Kullman was executive vice-president when Holliday told her last September that she would soon replace him in running DuPont. While her appointment came a bit sooner than Wall Street analysts expected, no one was surprised to see her taking over as CEO at the start of this year. (Holliday, 60, has stayed on as chairman.)

Within DuPont, a 206-year-old Wilmington (Del.) conglomerate, executives appreciate the importance of cultivating the next generation of leaders. Their predecessors learned the hard way: President Henry du Pont's death in 1889 left the company without a strong hand on the helm since the family patriarch had designated no obvious successor. In the aftermath, DuPont was nearly sold to a competitor before three du Pont cousins bought the business for $12 million in 1902.

Although family members continued to run DuPont well into the 20th century, there was a clear recognition that the company's long-term survival depended on its ability to groom competent, professional managers. The $32 billion-a-year outfit has since become what's known as an academy company, alongside General Electric (GE), Procter & Gamble (PG), IBM (IBM), and ExxonMobil (XOM). Such giants rarely have to look outside their own borders to find their next chief, and their emphasis on giving executives broad experience across functions and geographies has made them prime targets for CEO headhunters.

Holliday himself had a lot of help in getting to the top job. He came to the company on a summer internship and says he was mentored all through his career, even after he got the CEO job. Former DuPont chief Irving Shapiro, who ran the company during the 1970s, critiqued Holliday's performance after shareholder meetings, and outside executive coach Bill Morin taught him to be more up front with his staff.

Holliday says he began talking about succession "immediately" on becoming CEO. In addition to the usual "truck list"—a roster of people who could run the show if he were hit by the proverbial 18-wheeler—he tried to imagine who would be best suited to lead DuPont in the 21st century. In his mind, Kullman was an obvious possibility. Although the mother of three's gender and marketing background made her an unusual CEO candidate for DuPont, Holliday felt the aggressive and sometimes sharp-tongued Kullman had a keen ability to see around corners. While many colleagues—including Kullman's husband, who also works at DuPont—counseled her against taking over the nascent safety-products unit, Holliday says Kullman "was able to grasp the image of what it could be." For instance, she came up with new uses for Kevlar synthetic fibers, a brand made famous in bulletproof vests. Among the more popular innovations: $7,000 tornado-proof storm rooms.

When the time came for Holliday to leave, he knew who was ready to replace him. Along with helping Kullman join the General Motors (GM) board in 2004 to broaden her management perspective, he encouraged her to work with a coach to modify her impatient nature. "If I made a statement before, I was just one of the group. Now, it's law," says Kullman. "I have to make sure I am getting everyone's input."

That's especially crucial in a fast-changing environment. Many boards are wondering whether their current CEOs can get them through this crisis. "Overnight, companies that were stable are now in a turnaround situation," says David Bliss, CEO of consultancy Oliver Wyman Delta. "A lot of boards are saying, 'Do we have in our current leader what's required for the future?' " Gerry Roche, senior chairman of search firm Heidrick & Struggles, notes that recessions typically prompt boards to have a "quicker trigger" when it comes to jettisoning leaders. And, the veteran headhunter adds, they're more likely to favor outsiders in filling those vacancies.

The decisions Kullman makes today may translate into a very different DuPont in the future. With almost one-quarter of sales tied to the auto industry, she'll need to look elsewhere for growth. Kullman knows that her biggest decision, though, is not which businesses to invest in, but which people.

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

Measuring Decision-Making

In a paper to be included in an upcoming book titled CEO Succession: 2020, Noel Tichy, a professor at the University of Michigan's Ross School of Business, along with leadership consultant Chris DeRose, presents a way to analyze an executive's past decisions in order to forecast his or her ability to make good calls in the future.

To read the paper, go to http://bx.businessweek.com/leadership/reference/


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