How To Groom The Next Boss
Of all the challenges confronting managers and directors, few are as difficult or as critical as finding and training a chief executive-in-waiting. At Coca-Cola (KO ), Xerox (XRX ), and Procter & Gamble (PG ), CEO successions have been marked by long searches, poor choices, or fumbled transitions. But a company with a well-prepared No. 2 can quell uncertainty, even in the worst emergencies. When McDonald's Corp. (MCD ) CEO James Cantalupo died of a heart attack on Apr. 19, the board named Chief Operating Officer Charles H. Bell to his post within hours.
Kenneth W. Freeman, CEO of Quest Diagnostics Inc. (DGX ), was determined not to leave his company in the lurch. He started grooming his handpicked successor five years ago. When he transfers management of the $4.7 billion medical-testing company to Surya N. Mohapatra at the May 4 annual meeting, it will be the culmination of a meticulous succession process that experts say is a case study in how to choose a future CEO and prepare him for the job. Marc S. Effron, global practice leader for consultants Hewitt Associates Inc. (HEW ), says the careful succession planning at the Teterboro (N.J.)-based company will pay off with a new CEO who can hit the ground running. "It's incredibly unusual," says Effron of Freeman's efforts. "They're going to see the benefits."
Freeman's search for a successor started in 1999. He was on the brink of an acquisition spree that would triple Quest's revenues in five years. But he knew the buying binge couldn't last and that Quest's next CEO would need a science background to exploit advances in medicine and technology to generate internal growth. To identify candidates, he put 200 executives from Quest and a recently acquired rival through an Apprentice-like challenge: daylong case assignments that allowed him to see their leadership skills in action. "This was his legacy," says Audrey B. Smith, a consultant with Development Dimensions International who worked with Freeman. "He felt huge pressure to make the right decision."
Of all the executives, one stood out: his new chief operating officer. Mohapatra came to Quest in February, 1999, from Picker International, a maker of medical imaging systems. He had extensive experience in cardiovascular disease and information technology -- areas that would be crucial to Quest's future. What's more, he was CEO material. Says Freeman: "Here was a guy who was incredibly smart, who could balance a whole bunch of priorities at the same time, who could be incredibly focused, and who did not know the meaning of failure."
Four months after Mohapatra's arrival, Freeman named him president, giving him a clear -- but by no means guaranteed -- shot at the top job. The two men could not be more different. Mohapatra, a scientist with several patents to his name, grew up in India. Freeman, a New Yorker, had a long finance career at Corning Inc. (GLW ). When Corning Clinical Laboratories was spun off as Quest in 1996, Freeman became CEO, a position he says he had no intention of occupying for more than 10 years.
A skilled integrator of acquisitions and a Six Sigma devotee, Freeman believes that when a business outgrows its leader, as Quest has, the CEO should relinquish power. "Being a CEO is not a birthright," he says. "It's a privilege."
So almost immediately Freeman began the process of grooming Mohapatra. Experts say his willingness to give Mohapatra the spotlight reveals a remarkable maturity. "Part of the challenge in becoming successful is you become a little too caught up in your own abilities," says Effron. "If a CEO can look at himself as a caretaker of a firm, it's easier for him to hand it over to someone else." Even though Mohapatra, at 54, is a year older than Freeman, he has come to view his CEO as a mentor. Freeman says the two have built an incredible trust. "We constantly work to make sure the egos stay out of the picture."
STAGE FRIGHT. Front-runner or not, it quickly became clear that if Mohapatra was to be CEO he would need basic leadership skills. During his first week, one of the most glaring deficiencies, poor public speaking skills, became apparent. At a "town meeting" with employees in Baltimore, Mohapatra told the crowd of 800 that he was glad to be there -- then clammed up. Freeman decided the best way to coax Mohapatra out of his shell was trial by fire. In the months that followed, he had Mohapatra make unscripted comments to employees, meet with shareholders, and field questions from analysts on conference calls. He is now a more polished, confident speaker.
As a scientist, Mohapatra had come to Quest with habits that Freeman felt could undermine him as a CEO. A deep thinker, he took weeks to make decisions that should only take days. And he was far more "hands-on" than he needed to be, sometimes reopening interviews for jobs that his subordinates were ready to fill. Freeman challenged Mohapatra to make faster decisions and give his executive team more authority. Every Sunday afternoon for five years, the two engaged in lengthy telephone conversations during which Freeman would analyze Mohapatra's evolving management style and suggest further improvements. It was, Freeman now concedes, "pure browbeating." Perhaps, but it worked. "Am I more ready now than I was four years ago? Absolutely," says Mohapatra.
Fine-tuning Mohapatra's management skills was only part of the challenge. Making him an active board participant was equally important. When he arrived, Mohapatra deferred to Freeman in board debates, contributing little. Freeman forced him to be more assertive -- at first surreptitiously, by leaving the room during discussions, and later by asking him to conduct formal board presentations. Even after joining the board in 2002, Mohapatra continued to strike some directors as aloof. By changing the seating chart, Freeman was able to increase Mohapatra's face time with other directors. "You want someone to be able to speak their mind and participate," says Gail R. Wilensky, an independent director. "It helped."
When his long incubation ends, Mohapatra's success will be far from assured. Maintaining double-digit growth won't be easy as takeover targets become scarce. That's the way it is in business; the future is never assured. But Freeman has done about as much to increase the odds as a CEO can.
By Louis Lavelle in New York