The Fuss Over CEO-Succession Plans
With the recent departures of top execs at Citigroup (C) and Merrill Lynch (mer), the topic of CEO-succession plans has gotten a lot of press. Journalists and experts are bemoaning the fact that those firms, and many others, fail to have a plan for managing succession after the top dog walks out the door. Merrill Lynch replaced its CEO quickly, while Citigroup is relying on temporary leadership for a while. That has arguably hurt Citigroup’s stock, though both are down more than 20% in the last month. I don’t understand all the hand-wringing (for example, here in the WSJ and here in a Harvard Business School discussion forum) on this issue. If anything, the recent crisis shows the futility of planning ahead too much. Both Citigroup and Merrill Lynch’s execs left after disastrous, unexpected losses on risky debt. Their boards probably did have a rough plan — or at least a short list of internal candidates — if their CEOs unexpectedly left. But this fall the boards suddenly found themselves facing an entirely new set of circumstances. Many were looking for an outsider who could change course and mop up the mess. I agree with the experts that, when times are good, succession plans are appropriate, because they’re a way of maintaining the status quo and retaining the management team’s expertise. But when times are bad, the plans do, and usually should, get pushed out the door along with that fired CEO.