By the time of its collapse, in 2008, Lehman Brothers reportedly had one of the strongest cultures of teamwork and loyalty on Wall Street. Yet Lehman’s board of directors had become too agreeable and too loyal, happy to follow Dick Fuld even when they knew better. This loyalty led Lehman executives to an almost wilful blindness, as nobody wanted to disrupt the peace; (Joni and Beyer, 2009, p.48-49).
Yet there is a fine line between supporting your CEO and challenging the status quo. Marshall Goldsmith (2009) reminds us that “in 1978 many observers considered Ford Motor president Lee Iacocca the obvious candidate for the new CEO position that Henry Ford II would shortly vacate. Iacocca, of course, not only didn’t get the position but was fired. In explaining why he cut Iacocca loose, Ford famously remarked – sometimes you just don’t like somebody,” (p.74).
So how does CEO succession, and even just the thought of it, effect individual performance; and who is responsible for ensuring that the organisations future comes before individual aspirations that may negatively impact board performance and organisational growth.
As Goldsmith (2009) mentions, “much of what has been written about CEO succession ignores the personal drama that unfolds when it’s time to pass the torch of leadership. CEO succession isn’t an entirely rational process. In practice, succession decisions may be influenced as much by stakeholders’ gut feelings and emotions as they are by business logic. Strains in relationships between stakeholders and their heir apparent can emerge and quickly scuttle succession plans, and faulty assumptions can cause decision makers to suddenly change their minds about who should lead the company next,” (p.74).
The stakeholders that influence CEO succession, aren’t just the board of directors and the shareholders, but also include the current CEO, the peers of the potential successor, the direct reports of the potential successor, the organisation’s key customers, and influential external business analysts, (Goldsmith, 2009, 74).
In the end, the most influential decision maker on CEO succession is the board of directors; yet there is often a lack of evidence to prove that the board themselves have the knowledge, skills and experience to make the best decision for the organisations future. That the board members focus solely on the organisations future strategic and operational needs, rather than their personal likes and dislikes. There are mechanisms for boards to measure and evaluate their individual and group effectiveness, yet these business tools are seldom used appropriately (if used at all).
As Kazanjian (2000) notes, “every year the Toronto Stock Exchange requires listed companies to disclose how they stack up against a set of 14 corporate governance ‘best practice’ guidelines. Scores were encouragingly high (80 percent or more) for guidelines dealing with control of board size and participation in strategic planning. Fewer than 20 percent of the respondents had any formal process in place for assessing the effectiveness of the board and even fewer had any process for assessing the contribution of individual directors” (p.46); and it’s worth noting that the New York Stock Exchange also requires board evaluations (Nadler, 2004). “The concept of board evaluation has met with particular resistance; directors remain either unprepared or unconvinced of the benefits gained from evaluation. Potential benefits such as improved leadership and teamwork, clarity of roles and responsibilities, improved accountability, decision making and delegation, and enhanced communication and operations are countered by fears concerning operational disruption, board dysfunction, and individual humiliation and exposure” (Long, 2006, p.551).
Without effective board evaluation how can we be sure that the best decisions are being made for the future of our organisations, especially when it comes to CEO succession?
References
Goldsmith, M. (2009). How not to Lose the Top Job. Harvard Business Review, Vol. 87, Issue 1, p.72-80.
Joni, S.A. and Beyer, D. (2009). How to Pick a Good Fight. Harvard Business Review, Vol. 87, Issue 12, p.48-57.
Kazanjian, J. (2000). Assessing boards and individual directors. Ivey Business Journal, May/June, p.45-50.
Long, T. (2006). This year’s model: Influences on board and director evaluation. Corporate Governance, Vol.14, No.6, p.547-557.
Nadler, D.A. (2004). Building better boards. Harvard Business Review, May, p.102-111.
Yet there is a fine line between supporting your CEO and challenging the status quo. Marshall Goldsmith (2009) reminds us that “in 1978 many observers considered Ford Motor president Lee Iacocca the obvious candidate for the new CEO position that Henry Ford II would shortly vacate. Iacocca, of course, not only didn’t get the position but was fired. In explaining why he cut Iacocca loose, Ford famously remarked – sometimes you just don’t like somebody,” (p.74).
So how does CEO succession, and even just the thought of it, effect individual performance; and who is responsible for ensuring that the organisations future comes before individual aspirations that may negatively impact board performance and organisational growth.
As Goldsmith (2009) mentions, “much of what has been written about CEO succession ignores the personal drama that unfolds when it’s time to pass the torch of leadership. CEO succession isn’t an entirely rational process. In practice, succession decisions may be influenced as much by stakeholders’ gut feelings and emotions as they are by business logic. Strains in relationships between stakeholders and their heir apparent can emerge and quickly scuttle succession plans, and faulty assumptions can cause decision makers to suddenly change their minds about who should lead the company next,” (p.74).
The stakeholders that influence CEO succession, aren’t just the board of directors and the shareholders, but also include the current CEO, the peers of the potential successor, the direct reports of the potential successor, the organisation’s key customers, and influential external business analysts, (Goldsmith, 2009, 74).
In the end, the most influential decision maker on CEO succession is the board of directors; yet there is often a lack of evidence to prove that the board themselves have the knowledge, skills and experience to make the best decision for the organisations future. That the board members focus solely on the organisations future strategic and operational needs, rather than their personal likes and dislikes. There are mechanisms for boards to measure and evaluate their individual and group effectiveness, yet these business tools are seldom used appropriately (if used at all).
As Kazanjian (2000) notes, “every year the Toronto Stock Exchange requires listed companies to disclose how they stack up against a set of 14 corporate governance ‘best practice’ guidelines. Scores were encouragingly high (80 percent or more) for guidelines dealing with control of board size and participation in strategic planning. Fewer than 20 percent of the respondents had any formal process in place for assessing the effectiveness of the board and even fewer had any process for assessing the contribution of individual directors” (p.46); and it’s worth noting that the New York Stock Exchange also requires board evaluations (Nadler, 2004). “The concept of board evaluation has met with particular resistance; directors remain either unprepared or unconvinced of the benefits gained from evaluation. Potential benefits such as improved leadership and teamwork, clarity of roles and responsibilities, improved accountability, decision making and delegation, and enhanced communication and operations are countered by fears concerning operational disruption, board dysfunction, and individual humiliation and exposure” (Long, 2006, p.551).
Without effective board evaluation how can we be sure that the best decisions are being made for the future of our organisations, especially when it comes to CEO succession?
References
Goldsmith, M. (2009). How not to Lose the Top Job. Harvard Business Review, Vol. 87, Issue 1, p.72-80.
Joni, S.A. and Beyer, D. (2009). How to Pick a Good Fight. Harvard Business Review, Vol. 87, Issue 12, p.48-57.
Kazanjian, J. (2000). Assessing boards and individual directors. Ivey Business Journal, May/June, p.45-50.
Long, T. (2006). This year’s model: Influences on board and director evaluation. Corporate Governance, Vol.14, No.6, p.547-557.
Nadler, D.A. (2004). Building better boards. Harvard Business Review, May, p.102-111.
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