Commentary: How To Keep Rising Stars From Straying

The news stunned investors. On Apr. 21, Black & Decker Corp. announced that Joseph Galli, 41, head of the company's $2.9 billion power-tool business, had quit, sending the stock price down nearly 8%. The once struggling company had rebounded in part because of Galli's new-product launches at the division, which brings in 65% of sales. Many investors had viewed Galli as Black & Decker's heir apparent.

Apparently, so had he. Sources close to B&D say Galli's departure came after he had pressed 13-year Chief Executive Nolan D. Archibald, 55, to step aside before 65 so that Galli could fill the CEO job. But Archibald isn't going anywhere soon. He told a reporter at B&D's Apr. 27annual meeting that he found a replacement for Galli because he believed that frustration made the 19-year B&D veteran ready to bolt. "I chose the timing," he proclaimed.

It wasn't the first time the Towson (Md.) company has lost key talent: Three other top executives have quit B&D for CEO posts elsewhere this decade. But if Archibald appears to have problems holding on to rising stars, he is hardly alone. With high-end job-hopping rampant amid a perceived leadership shortage, retaining the best is tougher than ever. That means companies must focus more on the care and feeding of their top brass. "You always have to be sure you have a stable of talent," says Charles M. Elson, a governance expert and professor at Stetson University College of Law. "That isn't an easy job."

TOO BRIGHT. So how to avoid the disruptions and costly searches that occur when the pipeline is suddenly vacant? While there are many things companies can do to motivate high performers, first they must find them. Dennis C. Carey, vice-chairman of Spencer Stuart U.S., says that boards should do regular audits to identify talent. He adds that letting the CEO control the agenda is a bad idea. Too many CEOs undercut successors who shine too brightly.

Once identified, keeping the best and the brightest loyal usually starts with compensation. After the 1997 merger of Bell Atlantic Corp. and Nynex, which could have led to an exodus of top managers, the new board gave special retention bonuses to five top executives including CEO Ivan G. Seidenberg. If they stay at least three years, they earn payouts above $1 million. Not one of them has left.

For some ambitious executives, though, there is no cash substitute for power. That's why carving out the right high-profile role for a talented manager is critical. After Charles O. Holliday Jr., now 51, was named CEO-in-waiting at DuPont Co. in October, 1997, for example, some wondered if DuPont would be able to hang on to Kurt M. Landgraf, now 52, its highly valued executive vice-president and chief financial officer. In April, 1998, Holliday named Landgraf head of the new life-science unit, the centerpiece of DuPont's growth strategy. The unit may also get its own tracking stock. "This creates something that would be more attractive to Kurt," says Merrill Lynch & Co. analyst John E. Roberts.

PASTURES GREEN. Yet even the best-laid succession plans may not be enough to prevent a company from having to make a tough choice when an ambitious underling is itching to move into the corner office. Rather than lose a top-notch heir, for some the answer lies in accelerating the transition. That issue contributed to the decision made by American Express Co. chief Harvey Golub, who had been expected to remain CEO until he was 65. But in April, he announced plans to turn the reins over to President and Chief Operating Officer Kenneth I. Chenault in 2001, when Golub will be 62. Many observers believe the move was an effort to keep the well-regarded Chenault from seeking greener pastures.

Whether that is the best option, of course, depends on many things, not least of which are the ages of the CEO and the heir, as well as their relative managerial strengths. In the case of B&D, the company was unable--or unwilling--to make enough room for both parties. While letting Galli leave may have been the right call, it's hardly an ideal solution. The lesson for any company looking to avoid B&D's troubles: Never forget that keeping your stars motivated is a far tougher job than recruiting them in the first place.

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