Why Succession Planning Is So Hard

As the abrupt exit of HP's CEO illustrates, it isn't easy to put the "success" in succession planning.

Earlier this month, Goodyear Tire and Rubber announced that the final stage of its CEO transition was under way. Richard Kramer, a 10-year company veteran and onetime CFO, will add chairman of the board to his duties in October, six months after assuming the CEO position for which he had been groomed.

“This is the next step and a natural evolution of the well-thought-out and orderly succession plan,” said Goodyear’s lead director James C. Boland in the press release announcing the transition. Added former CEO and outgoing chairman Robert Keegan: “I can retire with confidence, knowing that Goodyear is in good hands.” The company’s ailing stock price even bumped up in the days following the announcement, just as it had when Kramer initially became CEO.

If only it were always that easy. Three days after Goodyear’s press release, Hewlett-Packard officials found themselves in the uncomfortable position of announcing the abrupt ouster of CEO Mark Hurd, with no permanent replacement at the ready. Since then, the company — admittedly no stranger to dramatic exits, having lost its last CEO, Carly Fiorina, and board chairman, Patricia Dunn, under similarly rapid-fire circumstances in recent years — has been lambasted for not properly preparing for the future.

“Everything went wrong,” says John Sullivan, former chief talent officer at HP spin-off Agilent Technologies and now a professor of management at San Francisco State University. “It is clear…that no succession plan is in place” at HP, he noted in a recent blog posting.

The Laborers International Union of North America, which has been urging companies to disclose more about their succession plans, just sent a shareholder proposal along those lines to HP following the disaster. What the company currently offers in its Securities and Exchange Commission filings “is kind of minimal,” says Jennifer O’Dell, assistant director of the union’s corporate affairs department. “We don’t want to know who the next person in line is; we just want to know they have a plan.”

But as many experts acknowledge, even companies that have good plans in place to groom the next generation of leaders are not guaranteed that those leaders will emerge at the right time, or even at all. “A good process does not mean you have someone ready to go at every moment in time, because CEOs come and go unexpectedly,” both voluntarily and involuntarily, notes George Davis, a consultant in Egon Zehnder’s CEO succession practice.

Adds J. Michael Cook, former chairman of Deloitte & Touche and a member of several large-company boards in the past decade: “I think boards are working hard on the succession process, but the job is getting more difficult.” Each of two boards Cook has served on “has spent considerable time on succession planning,” putting similar processes in place, but “with very different outcomes,” he says.

In one case, says Cook, the company has a long-serving CEO and multiple candidates “who could step into the CEO position tomorrow if need be.” In the other, the company has had to hire new CEOs externally three times during his tenure, even as it has hired in new and better-qualified executives to report to the CEO. “If you judged bench strength at one company, you would probably give us more credit than we’re due, and at the other company, you would give us pretty low marks. But we gave it the same level of attention and process at each,” he says.

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