Monday, January 19, 2009

Where Have All the CEOs Gone? The Succession Crisis of 2009

Following on the heels of the SEC’s devastating options backdating scandal, which caused as many as 200 CEOs, general counsels, and CFOs to lose their jobs, we enter into another, even more frantic period of CEO departures. Economic events are accelerating the timetable for CEO departure. When the news gets bad and stays bad, it’s the CEO who receives extra scrutiny and a shorter lease on the executive suite. The trusted strategic advisor needs to be plugged into the succession strategy or have a fundamental understanding of the succession process. The CEO’s sudden departure can be overwhelming.

The important news for most staff functions, including communications, is that a change in CEO is less likely to cause a change in senior staff functions, at least at first. The CEO’s departure does present two significant opportunities to the trusted advisor—whether internal expert or external resource. The first is assisting in a graceful, prompt, and relatively painless exit for the current CEO. The second is developing a strategy for the successor’s first 100-to-900 days. The roughest part is managing through the politics, competing personalities, and posturing during the period of departure and accession.

There are recognizable patterns in CEO and successor behaviors during departure scenarios that the skilled advisor can anticipate and then be extremely helpful to both the departing CEO and the successor. Here are the most interesting patterns in the CEO departure scenario.

Weirdness

Everything becomes strange and sort of fuzzy as the organization enters a period of succession. This begins, of course, with the more or less formal announcement that, at some point in the near future (hopefully sooner rather than later), the existing CEO will depart, and a process has been initiated to find a replacement or a replacement is about to be named. Succession is one of the highest stakes games in corporate management. Lots of senior people are jockeying to be considered and/or at least included in the process and the new power structure.

Only a few people get to play, and most power centers become unstable for the period of time it takes to complete the cycle from announcement to search, to selection to CEO departure. It just gets really weird. For the potential successors, they are moving into a world that is beyond real and beyond belief, and sometimes petty and silly all at the same time. This is the successor’s weird world. Every individual I’ve coached through these circumstances has told me that, no matter how clearly I forecast the weirdness, it was even weirder in real life.

The Five Phases of Departure

Phase One: Posturing

The posturing of possible internal successors is evident, as is the development of internal centers of influence, in the search to determine just how the succession decision will be made. Every organization handles this process differently, every time. The person generally driving the succession scenario is the departing CEO.

Phase Two: Plotting and Placating

The longer it takes to announce a successor, whether from the inside or the outside of the organization, the more time the organization wastes getting ready. Statistics show that the insider or outsider faces the greatest risk of failure in the first 18 months. Once the new CEO is on board, there is an expectation of immediate performance, even before they have found the bathroom.

The odds of real success favor the insider over the outsider almost every time. The key is the current CEO’s departure date. If that date is longer than 12 months, there’s going to be an enormous amount of individual and collective agony as the process proceeds. Individuals fall in and out of favor, in and out of contention. The air is thick with politics. The organization holds its breath the entire time.

Phase Three: Legacy

The departing CEO begins to put in place or favor programs, projects, and ideas that he or she would like to see live well beyond his or her stewardship. The CEO usually begins talking about accomplishments and what he or she hopes to see survive over the long haul. This behavior is quite natural. While it drives all potential successors to the brink of distraction, so long as the boss is the boss, he or she gets to say these things and to build his or her legacy, which is a major preoccupation during the remaining weeks and days of his or her term.

Phase Four: Immortality

In scenarios where the current CEO’s departure date is greater than 12 months, the CEO has time to make some very extraordinary moves that cement in place the company they created, and to prevent the successor from changing or altering what has been done. The most powerful gambit is to sell all or part of the company before or, some times, after naming a successor. Another way to assure that an organization will keep the departing CEO's stamp is for the departing CEO to reshape the organization in a way that makes it difficult to reformat once he or she leaves. Immortality behaviors extend until the moment the CEO walks out the door, longer if he or she can reach in and keep in and keep tweaking it, as a Board member, for example.

Phase Five: Slow Motion

Will he or she ever leave? The CEO, as the date of departure approaches, begins to have second thoughts as to whether the company can function, even with a hand-picked successor. If that successor is named more than 12 months prior to the exit of the CEO, the odds of that individual remaining a successor diminish by month. The existing CEO may begin to torpedo the successor at every turn.

My advice to departing CEOs: announce your departure time up to 12 months ahead and surprise everyone by leaving three months early. As soon as the successor arrives, leave the building and go tour the provinces. Come back only occasionally for sentimental visits—to be honored for your service, achievements, accomplishments; and to recognize those who helped you complete your service, supported your achievements, and helped you to have a career of accomplishment. If the former CEO is going to hang around a while, at least for the first year or so, establish a separate office in another building or some distance away.

Keep in Mind

Four powerful process success ingredients to keep in mind as the “play” of succession proceeds:
  1. Any potential successor needs to maintain their relationships with everyone on as an even a keel as possible, especially the departing CEO. Making this happen is part of the senior advisor’s key role in succession. CEO and successor must stay in regular communication throughout the entire process. It’s the CEO who generally cuts off communication fairly quickly.
  2. Most successor candidates must control their frustration, and resist and control the urge to make or suggest changes before getting the mantle of leadership. There is only one CEO at a time. It hacks off the boss. Steps may be taken to prevent changes from taking place, and pushing change can prevent succession. The senior advisor counsels patience, a focus on exceptional performance, and assisting the CEO wherever possible in achieving his or her objectives until their departure, and to be kind and in contact afterwards.
  3. Anything the boss did during his or her tenure can be undone, redone, or reconstructed once a new CEO is in position, but only after the mantle of power is transferred. The senior advisor needs to be extremely cautious about making plans and engineering changes before the power to accomplish things has transferred to the new leader. Once the mantle of power is assumed, the world changes dramatically and permanently for the person in charge. Be ready for the mental and emotional transformation. When there is failure to perform, former CEOs now frequently return to manage organizations where their successors failed to work out.
  4. The average tenure of a new CEO has declined to 41 months—1,890 days. The first 600 days are the hardest and the most challenging for the trusted strategic advisor. Get your new CEO a countdown clock and make it prominent and visible in their office. As the time to his or her exit is counted down, a productive sense of urgency will permeate every meeting, conversation, and decision.

The one thing almost all CEOs will tell you once they get the job, even some with extraordinary experience, is that when they walk in their new office for the first time, close the door, look out the window, the first question they ask themselves is, “Now what do I do?” Have answers ready.

In a future post, I’ll talk about how the trusted strategic advisor helps the new CEO structure those first 300-to-600 days. It’s a fascinating strategic opportunity and one in which the advisor can have extraordinary influence.

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