Choking Corporate America's Heir Supply
By Diane Brady
The deadline has passed for 69-year-old Sanford Weill of Citigroup (C ). When co-CEO John Reed stepped down in April, 2000, Weill promised to bring a succession plan to the board within two years. Although he made insider Robert B. Willumstad president earlier this year, there's still no obvious successor in sight. Willumstad isn't seen as a likely contender, say analysts and insiders, because he lacks global and investment-banking experience. But Weill. who refuses to discuss the issue publicly, says he has no plans to retire anytime soon. As one longtime peer quips: "Sandy will still be working two years after he's dead."
For shareholders increasingly worried about corporate governance, poor succession planning is no joke. The question of who's in line to replace the chief has become a hot issue. At companies ranging from Tyco International (TYC ) to WorldCom (WCOM ), leaders once hailed as visionaries have been struggling to inspire confidence or deliver returns. More than a few who haven't left may soon be pressured to go.
The skeptical investor climate and tough economy may explain why so many companies are facing an exodus of top talent. Take Sun Microsystems (SUNW ), where five top execs recently retired for a myriad of personal reasons in a single week.
At some companies, a leadership vacuum has been created by other forces. John W. Creighton, a UAL Corp. (UAL ) board member who was convinced in the fall of 2001 to become the airline's fourth CEO in less than a decade, is all too aware that being an interim chief has its limitations. Says Creighton: "Although I'm adding value, at a certain point this year, I'm going to be subtracting value because I cannot or I don't want to make those long-term decisions."
One key reason why succession is a problem is that weak boards still operate in fear of dominant leaders, even as investors demand more action. Michael Eisner's hand-picked board at Walt Disney Co. (DIS ) has frequently raised the subject of succession but hasn't pressured the 60-year-old chief to do much about it -- even though many top execs have recently departed and Eisner is a veteran of emergency heart-bypass surgery. When asked about his succession plan in an interview with BusinessWeek late last year, Eisner dodged the issue. "It's not my decision," he said. "It's a board decision. You'd have to ask them."
Meanwhile, aging heavyweights like Weill and 77-year-old Maurice Greenberg of American International Group (AIG ) are finding it tougher to dodge the issue with investors disillusioned by a tough economy and clamoring for more clarity from management.
Even Charles Watson, who founded Dynegy (DYN ) in 1985, was asked by the board to leave the company this week, amid an investigation into the practices of energy-trading companies. Faced with irate shareholders and the prospect of lawsuits, the board had to act. But, as with so many companies, the absence of a well-defined backup plan meant it appointed interim leaders until a full-time chief can be found.
Under the most ideal circumstances, the succession issue is never easy. Look at General Electric (GE ) and IBM (IBM ), where carefully chosen internal candidates face very public growing pains and skepticism from the market. At GE, apparently unfounded allegations about the company's accounting on how it funds acquisitions have sent the stock tumbling in recent months. Investors run scared at the hint of bad news, and they're no longer enamored with blue-chip icons.
Granted, the new leaders at GE and IBM seem to be coping with the climate of crisis. But at many other companies, the reluctance of leaders to groom well-rounded successors means the prospects for clear-cut transitions are uncertain. UAL's search is impeded by a history of battling its unions, which own a controlling interest in the airline and can veto power CEO picks.
At Tyco, where angry investors have dumped stock over what analysts say is a rudderless strategy, CEO Dennis Kozlowski shows every sign of refusing to leave his ship. Kozlowski, who last month conceded his earlier plan to break up the company was "a mistake," insists he remains qualified to lead Tyco out of its present woes.
Meanwhile, after years of needling from investors, AIG's Greenberg finally named two co-chief operating officers and created a seven-member office of the chairman on May 1. That doesn't mean the feisty CEO plans to step down soon. Citing a great-grandmother who worked until she was 108, he warned that he could easily spend another decade at the helm.
What is it with these guys? Even the youngest and freshest CEOs need to set the stage for a smooth transition that can be put in place at a moment's notice. At General Motors (GM ), CEO G. Richard Wagoner Jr. has already recruited a score of outsiders and built a deep management bench.
Meanwhile, when CEO Jacques Nasser abruptly left Ford Motor (F ) last fall, the board had no ready successor and pressed a less-than-eager Chairman William Clay Ford Jr., now 45, into service. While insiders blame Nasser for allegedly alienating and driving away top talent, his predecessors share responsibility for centralizing its global operations in the mid-1990s, sapping the far-flung outposts that had been such potent training grounds for general managers. In effect, it "dismantled the system for grooming future management leaders," says veteran auto analyst Maryann Keller.
The fact is the bench is looking pretty thin at a number of U.S. companies these days, largely because many CEOs still hate to plan for -- or even think about -- the day when they might be gone. "It's the No.1 failure of most leaders," says management guru Noel Tichy. That's especially troubling at a time when investors are clamoring for more accountability and are increasingly inclined to jettison poor performers. As recruiter Peter D. Crist, vice-chairman of Korn/Ferry International notes: "There's a lot of action at the high end right now."
It's also all the more reason for every leader to put succession planning at the top of the agenda. Yet many refuse to even acknowledge the issue, preferring to keep their shareholders in the dark. By ignoring or mishandling succession, these CEOs may be destined to tarnish their legacy -- or worse.
Brady is an associate editor for BusinessWeek in New York
Edited by Beth Belton