Online Extra: "Being a CEO Is Not a Birthright"

Quest Diagnostics CEO Kenneth Freeman says part of a chief's job is succession planning and discusses his own handover preparations

On May 4, Kenneth W. Freeman will turn over control of Quest Diagnostics (DGX ) to his CEO-in-waiting, Surya N. Mohapatra, at the company's annual shareholder meeting. Freeman has been preparing Mohapatra for this day for five years -- virtually since the day Mohapatra joined the outfit as chief operating officer in 1999.

Quest, a spin-off of Corning (GLW ) that performs medical tests for roughly 500,000 patients a day, has tripled its revenues in the last five years by acquiring competitors, including SmithKline Beecham Clinical Laboratories in 1999. Teterboro (N.J.)-based Quest had $4.7 billion in revenues last year. But future growth will depend on its ability to capitalize on medical and scientific advances to market new tests.

Freeman sat down with BusinessWeek Management Editor Louis Lavelle at Quest's offices in New York on Apr. 19 to discuss his approach to succession planning. Following are edited excerpts of their conversation:

Q: Please explain your ideas about succession.

A:

Part of our job [as CEOs] is to make sure we're thinking about what succession would look like and, if the unexpected were to happen, what might be done. As time moved on, I got into my own thinking that CEOs stay too long, that being a CEO is not a birthright, not an entitlement, it's a privilege. The most important thing a CEO can do is to make sure that when they leave they have an appropriate successor identified, developed, and in place so you've got a smooth and orderly transition.

Q: What was the thought process that led to Mohapatra?

A:

What became pretty darn clear was that there aren't that many larger acquisition candidates left in our industry. It's a very fragmented $37 billion industry. The other thing we saw happening was the importance of science and medicine was accelerating. One of the most rapidly growing areas of our business has been our gene-based and esoteric testing business -- tests that didn't exist 10 years ago. You're going to see an acceleration in growth as it relates to medicine and science.

We're also starting to see significant innovations in information technologies. These are areas that Surya brings to the business on a silver platter.

Q: When Mohapatra joined the company you spent some time working on his public-speaking skills. When was the first time you saw him speak?

A:

We had gone to Baltimore. I had a habit of doing town meetings with employees and chatting with them about their needs and issues. I said: Surya, I'm going to lead this town meeting, you may want to say something when we're done. I'll never forget. He said -- very short -- "I'm glad to be with the company." I said to Surya: If you ever want to be in the big leagues some day, you really gotta lay it out there.

Q: Did he improve?

A:

I signed him up for a communications coach. I feel very positive about the progress that has been made. He used to stay off the investor calls at the end of the quarter. I said: Surya, it's no longer going to be me making the big speech with our CFO. You're going to start making more of the prepared comments. And, by the way, instead of me answering 80% of the questions, I'm going to be silent. You've got to start answering these questions. It's all part of a good transition process.

Q:Besides teaching him communication skills, how else did you coach Mohapatra?

A:

I dedicated an hour, hour-and-a-half, two hours every Sunday for about five years, and we talked about anything and everything -- from family to business. These were teaching opportunities. We've had very healthy discussions on the decision-making process -- what are the decisions you really want to be involved in, what are the ones you can have somebody else decide, and when are you going to make the decision.

Q: Among Mohapatra's habits that you had to break were slow decision-making and a very hands-on management style. How did you get him to change?

A:

Pure browbeating. It's the old water-torture treatment -- you just keep going at it. It's repetition, it's positive reinforcement, and it's challenging -- saying that decision could have been made more effectively or more quickly. He's a good student. He's a good teacher, too. I've learned as much from his as he has learned from me.

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