Succession Screw-ups

It matters how companies pick -- or don't pick -- their next boss

The death or illness of a chief executive is a crisis most companies rarely face. But McDonald's Corp. (MCD ) did so twice in just seven months in what was widely viewed as a model of succession planning. When James R. Cantalupo died of a heart attack in April, the board within hours appointed his second-in-command, Charles H. Bell, who had been groomed for the job. And when Bell resigned on Nov. 22, after being diagnosed with colon cancer, the board named Vice-Chairman James A. Skinner to the job. Leaving nothing to chance, it promoted U.S. operations chief Michael J. Roberts to president and chief operating officer, in line to succeed Skinner, 60.

Unfortunately, McDonald's is the exception. Last year brought several pointed reminders of how few top execs prepare for an orderly transition -- and how many lack qualified successors (DIS ). At Walt Disney Co. (DIS ), for example, the board has only one internal candidate to succeed Michael D. Eisner -- and has gone outside to find others. And at Charles Schwab Corp., the transition from CEO Charles R. Schwab to David S. Pottruck ended with all the grace of an 18-car pileup.

But on the subject of succession, those two look like role models compared with insurance giant American International Group Inc. (AIG ), whose aging CEO has no plans to retire. Maurice R. "Hank" Greenberg, who turns 80 in May, groomed two sons to be successors, but both have since left AIG.

Greenberg Sr. then created an office of the chairman in 2002, which includes co-COOs Martin J. Sullivan and Donald P. Kanak. Both are considered possible successors, but the board won't know Greenberg's preference until his departure, when it opens a sealed letter. Robert E. Hallagan, vice-chairman at search firm Heidrick & Struggles International Inc., argues the board should be managing the process, not Greenberg. Says Hallagan: "That's breaking just about every rule in the book."

Succession woes also continued to dog Coca-Cola Co. (KO ). Former CEO Douglas N. Daft has said he told the board in 1999 that he planned to serve five years -- yet the board had no successor in place. The only internal candidate, President Steven J. Heyer, lost board support and later left to become CEO of Starwood Hotels & Resorts Worldwide Inc. (HOT ). The search for outsiders was marred by press leaks that prompted several candidates to drop out. In the end, the board chose retired Coke executive E. Neville Isdell. As executive recruiter Joseph D. Goodwin said at the time: "If I were associated with that search, I would be embarrassed."

Harsh words. But when it comes to botched succession, Coke can take consolation in one thing: It's not alone.

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