How to Succeed at Executive

I n the royal courts of an earlier time, leadership succession was a simple matter of preserving the bloodline-a system that produced a few bright lights, a lot of I m bulbs, and minimal stress for the monarch. In today’s baronies, modern corpora-

tions, finding new leaders is more complicated-but equally urgent.

Until recently, many organizations’ succession process was almost as automatic as the passing of the crown. But few people today take a complacent view of the issue. One mfference is the sheer numbers of prominent leaders who have left or will be leaving their organizations in the near future. Examine, for example, the Bttsivless Week list of the world’s best executives fi-om 1996. Roberto Goizueta passed away in 1997. Also in 1997, Glaxo-Wellcome’s Sir Richard Sykes relinquished the title of CEO. Chrysler pres- ident Bob Lutz announced his retirement date. Norm Augustine retired from Lock- heed Martin. And the lugh-profde ousters of the late 1980s and early 1990s at blue chp companies like American Express, General Motors, IBM, and Kodak are a fi-esh mem- ory for many of today’s leaders.

Why do some transitions a t the CEO level take place so smoothly while others founder? A year-long analysis of 13 recent CEO transitions, including those at Apple Computer, AT&T, Chrysler, Harley-Davidson, and Hewlett-Packard, suggests a num- ber of lessons about successful leadership transitions. Of the cases we stuled, two in particular-Corning and Glaxo-Wellcome-offer especially rich learning.

Beyond the Family Business

est known for the housewares products it divested this year, today’s Corning offers B a range of high-technology products including optical wave guides for telecom- munications and ceramic substrates for automotive catalytic converters. For years the

Fall 19W 47

company has been led by a member of the Houghton family, which founded the company in the 1800s and is still among its largest shareholders.

Most recently, the chairman and chief executive was James Houghton, who succeeded his brother, Con- gressman Amory Houghton, in the chairman’s job in 1983. As CEO, Jamie Houghton helped Corning cap- italize on its strong research and engineering slulls to radically change its business portfolio. By 1993 more than half of Corning’s profits came from businesses that didn’t exist 10 years before. The company regained its position as a globally competitive enter- prise, with 20,000 employees and revenues of $4 bdhon. Houghton championed ini- tiatives on quality and diversity that helped solidify Corning’s reputation as one of America’s most admired businesses. But Houghton was more than a CEO. He was the patriarch of the Corning family and enjoyed the admiration and respect of the corporate f a d y . He would be a tough act to follow.

Fortunately, Corning’s leaders knew that CEO succession was an issue that required rigorous advance planning. Houghton be- gan the process in the mid-1980s by study- ing “the Green Book,” a demled succession plan laying out the strengths and weak- nesses of the best senior employees and their potential career paths. Houghton &d not appoint a president or COO for several years after becoming CEO. He tried to keep everyone in the boat as long as possible, to avoid driving off strong executives who were not in contention for the top slot. More impor- tant, t h s approach allowed him to make a considered choice of h s final canhdates.

In the early 1980s, Houghton identified candidates for CEO. He used three steps to choose the person he would recommend to the board. First, he spent considerable time one-on-one with each of the candidates to evaluate style, values, and vision. Conceptual abhty or business practices were better observed in day-to-day working situations, where Houghton spent nearly 20 percent of his time working with potential successors. Second, Houghton maintained a dialogue with a trusted consultant who

could challenge h s judgments on each can- didate. Finally, he met annually for dmner with the board’s nonexecutive hectors, with CEO succession as the only agenda item. This allowed him to solicit feedback from men and women who had more &stance and possibly a dlfferent perspective.

Corning’s approach was more disciplined and methodical than most of the companies we studied. Remarkably, Houghton began the succession process more than seven years before he expected to step down. By 1990, Houghton was confident that group president Roger Ackerman would be the company’s next chairman and CEO.

Ackerman’s background differed signifi- cantly from Houghton’s, but their career paths at Corning took them through many of the same assignments. These shared ex- periences-and, more important, a set of shared values-provided a strong bond be-

tween them. “I not only liked Roger as a person, but I recognized I could trust him,” says Houghton. “I was confident we held the same values in life and for the company.” Adds Ackerman, “Jamie and I handed off leadership effectively because we held the same values.”

After Houghton promoted Ackerman to president and COO in 1990, the two worked more closely than ever,

48 Leader to Leader

allowing Houghton to confirm his decision firsthand. In 1996, Houghton retired, turning over the helm to Ackerman, the first non-family member to run Corn- ing in decades.

The Power of Style ondon-based Glaxo-Wellcome, the second-largest

L P harmaceutical company in the world, &tilers fiom Corning in nearly every respect. With 53,000 employees and revenues of more than $13 billion, it is many times larger. Glaxo-Wellcome operates in an industry with a unique and ever-changing economic model. Its culture is in flux as Glaxo melds with Burroughs-Wellcome, the company it took over nearly three years ago. It is a giant business in a &fficult industry with an ex- ceptional chairman: Sir Rxhard Sykes.

Sykes made the rare transition from the role of world-class scientist to world-class executive; Business Week in 1996 named him one of the world’s 25 best business leaders. He saw the requirement for sigmf- icant consolidation in the industry years before his colleagues a t other companies, and engineered the takeover of Burroughs- Wellcome.

Sykes, now in his mid-SOs, was ready to move fiom an operating role to one of corporate gov- ernance where his focus could be primarily strategic. Sykes waited until the Glaxo-Wellcome consolidation was complete and the patent for Zantac, the drug that powered Glaxo-Wellcome’s growth and profitability, had expired. As he noted,“I didn’t feel it was fair to force my successor to confront these major issues as his first order of business upon assuming the role of CEO.”

Sykes faced another issue not found in North Amer- ica. The Cadbury Commission on corporate gover- nance stipulated that in U.K. companies, the roles of chairman and chief executive must be held by differ- ent individuals. The ruling meant that Sykes, as an executive chairman, would be working closely with the new CEO well into the future. (Sykes did hold the position of chairman and CEO for an interim period.)

Over several years, Sykes narrowed his list of candidates to two individuals: Sean Lance, the South African-born head of his international operations, and Bob Ingram, the American head of Glaxo-Wellcome Americas. Recognizing his strong person- &ty and influence on the Glaxo-Wellcome culture, Sykes wanted his successor to pos- sess different but complementary skills to his. In this way, he explained, he was less likely to create unhealthy competition be- tween the two or set up the new CEO for invidious comparisons with Sykes. As he put it, “in the leadership team I was look- ing to create a blend. I need to know my strengths and weaknesses and play to my own strengths while the new CEO plays to different, complementary strengths.”

Early in the selection process, Sykes was confionted with an apparently insurmount- able problem. Ingram, the American, was

interested in the position but made it clear that he would not relocate to London. In a time Sykes described as one of “high anxiety” with the Zantac patent expiration already having a huge impact on Glaxo-Wellcome’s growth, it was hard to see how longdstance leadership could work. So the early nod went to Sean Lance.

Lance is a charismatic figure who gained celebrity in South Africa as a sportsman and a military leader. His

Fall 1998 49

strong commercial background complemented Sykes’s strong scientific background. His style was more stud- ied than Sykes’s, but both men were decisive. Lance’s weakness, as he recognized, was his lack of experience in North America, the world’s most important pharma- ceutical market. Nonetheless, Sykes believed that Lance could fill in the gaps in his background and, in 1996, nominated Lance as his probable successor.

As Houghton did with Ackerman, Sykes put Lance in the chief operating officer role to confirm his judg- ment. During 1997, Sykes began to have misgivings about his choice. Sykes makes clear that concerns were not about values: “Sean is a tremen- dously principled individual. I

reverse his decision and announce that Sean Lance would be leaving the company.

With the issue of succession again at the forefront, Sykes surprised both his company and the business world by appointing one-time contender Bob Ingram as CEO designate. This decision was possible only be- cause of two moves on Sykes’s part.

The first was the enormous effort Sykes put into his rela- tionshp with Ingram when Lance was orignally named his successor. As Sykes put it, “Bob is an invaluable asset

to our company, and it was criti- cal that I reassure him that he would remain a major part of the top management team.”The sec-

# have never heard anyone ques- ond was Sykes’s management of tion his integrity.” The prob- lems were predominantly ones of style. Because the chairman

A clash of styles confuses employees

the Zantac patent expiration. Sykes’s candor with the financial community helped set clear in- vestor expectations, and Ingram and CEO must operate as a

team in the British approach to positioned Zantac in the over- corporate governance, a clash relationships. the-counter market by, among

and disrupts investor

of styles will confuse employ- ees and severely disrupt rela- tionships with the investment community.

Lance was anxious to show that he was a leader in his own right, that he would not simply be a mouthpiece for kchard Sykes. While Sykes supported those goals, Lance proceeded in a way described by many in Glaxo-Wellcorne as “confrontational.” With increasing frequency, he aggressively challenged Sykes’s views in company meetings. His style became, in the judgment of others in Glaxo-Wellcome leadership, adversarial to a degree that had not existed before in his relationship with Sykes. By late 1997 the Glaxo-Wellcome board shared Sykes’s doubts that these two talented men could work as a team. In October Sykes felt compelled to

other dungs, aggressively market- ing to Glaxo-Wellcome’s dstri- bution network. This stabhzed a rocky business environment for Glaxo-Wellcome, which meant

that having a U.S.-based CEO who spent considerable time in the United Kingdom was now feasible.

Ingram, for his part, was a perfect fit. Like Lance, he complemented Sykes’s experience with a commercial background. His prior North American role and regu- latory experience were added strengths. Most impor- tant, there was a compatibility of style that was missing between Sykes and Lance. As Ingram put it, “You have to be who you are. 1 can’t be Richard. I’m not nearly as smart as he is, but, of course, very few people are. I am, however, a good team builder. I surround myself with

people who are smarter than me. I take more time than Richard to analyze a situation, but I work very hard to be prepared. I may take Merent positions than Fbchard, and he d severely test me. But I know that if my logic is solid, he will move to my position, and if I make a mistake, he won’t hold it against me.” Ingram is an ac- knowledged industry leader in his own right, and has had many opportunities to lead competitive companies. He is also a condator who seeks common ground and assiduously avoids confi-ontation or adversarial positions. His successful leadershp transition reminds us that, espe- cially in times of change, style matters.

The failed Glaxo-Wellcome, SmithKline Beecham merger earlier this year provides a rele- vant postscript to this story. The proposed marriage was a good

felt a sense of urgency about moving forward. For Smith-

merger attempt in a month. But in their haste to close the deal, both companies failed to think through key issues of culture, governance, and, again, leader- ship style. It’s one thng to estab- lish formal titles and management structures; it is another to reconcile conflicting values, assumptions, and work- ing roles. In the end, these issues proved insurmountable.

strategic fit, and both companies

Kline, it was the second major

Especi times qj

style ti

Lessons for Succession

orning and Glaxo-Wellcome are worlds apart in C &stance and the circumstances surrounding lead- ership succession. The other cases of succession we studied were h l l of their own anomalies. Collectively, these cases reveal seven important lessons for managing this issue.

1. Grow your own. As Sir Richard Sykes observed, “I t is a terrible indictment of an organization’s manage- ment if it cannot grow its own leadership.” In a time of job fluidity, it is easy to conclude the best market for future CEOs is in other organizations. Poaching exec- utive talent is good for executive recruiters, but is not the best way to find new chief executives. Where the transition has been smoothest, the new leader has been grown from within. Not surprisingly, Business Week’s 1998 list of the world’s 25 best business leaders is over- whelmingly populated by home-grown talent. Maybe more compelling, Fortune’s five most admired compa-

nies for 1998--GE, Microsoft, Coca-Cola, Intel, and Hewlett- Packard-are all led by people who began their careers with that company!

dZy in change, utters.

2. Start thinking about succession the moment a new CEO is ap- pointed. Without the proper groundwork, an organization will be iIl equipped to locate the right successor when its CEO is ready to step down. Succession is doubly difficult if no effort has been made to groom fbture ex- ecutive leadership. Surprisingly

many orgarmations push the issue of CEO succession to the back burner until the last possible moment. This often forces the organization into expensive searches, a bias for outside canmdates, and periods of“interim lead- ership.” Long-term thinlung about succession allowed Houghton and Sykes to have excellent candidates at hand when they needed them. Ths was especially use- fid for Sykes, who was able to put in a strong successor immedately when his initial choice faltered. The atten- tion Coca-Cola paid over the years to CEO succession allowed the company to address the trauma of losing icon Roberto Goizueta to cancer without worrylng about

Fdl 1998 51

whom to put at the helm: long-time Coke executive Doug Ivester’s slulls had been put to the test for years.

3. Define a process. The best organizations have a defined process for managing the issue of CEO succession. The process may be elaborate, as in the case of Corning, or less structured, as in the case of Glaxo-Wellcome. But uniformly, it can be clearly articulated. Unfortunately, in too many organizations we know, either the process is not widely understood or it is an idiosyncratic part of the current CEO’s list of issues. If the top team can- not all spell out this process, the likelihood of succes- sion problems is high.

4. Involve the board. Too often the boards involvement in CEO

requires not just nurturing but honesty. As Sykes put it, ‘‘Call it for what it is.” Houghton even arranged a relo- cation for one runner-up so he could continue to grow in a fresh environment. Whether it is HP’s David Packard building finalist Dick Hackborn’s role and influence after Lew Platt became CEO or Chrysler Chairman Bob Eaton’s willingness to share the stage with President Bob Lutz, good organizations do not concede the loss of the second-place finisher in the CEO race.

6 . Test-drive the winner. Evaluation processes can be flawed-but flaws in succession to the top job can be deadly. For this reason, most, though not all, of the organizations we

succession does not occur until the issue is imminent. Only then is a search committee formed. In the worst instances, the board’s

studied briefly placed the heir apparent in a chief operating role prior to his succession. Ths worked well for both Corning

In every smooth transition, the board

sition went smoothly, the board was involved early and actively. Both Houghton and Sykes re- lied on their boards throughout the selection process for feed- back and perspective. Nonprofit boards can play a gen- uine role in organizational governance, not just in fundraising. Strong board involvement in a well- structured, well-articulated succession process not only dramatically increases the chances of a smooth and suc- cessful handover of power, but also produces a better board where members see a meaninghl role to play.

and Glaxo-Wellcome, allowing them to validate assumptions they had made about leadership

was involved early role is simply to confirm a choice made elsewhere. In every case we stumed where the tran- and actively.

style, values, and strategic apti- tude. Some organizations fash- ion a different role as the last stepping-stone to CEO. This role can be CFO or head of a

major unit, but it is understood that the assignment is meant to assess the candidate’s fit for the top job. This may work against outsiders unwilling to move when they know there will be an evaluation period prior to their assumption of CEO duties.

5. Keep them in the boat. Neither Sykes nor Houghton prematurely narrowed their field of candidates, and when they did make their selections, they made great efforts to maintain the loyalty of the runners-up. This

7. Respect the softer aspects o f the decision. When a new CEO is announced, the person is usually extolled for an outstanding track record, broad experience, and demonstrated leadership. These are important consid- erations, but in the companies we studied they were rarely the deciding factors. What drove the decisions at

52 Leader to Leader

Corning, Glaxo-Wellcome, and every other company on our list were issues such as style, values, or vision. At Chrysler, for instance, insiders say that it was stylistic df- ferences that doomed Bob Lutz’s candidacy as a succes-

boardroom coup. Even then, many of the lessons we’ve offered s d apply. An organization in trouble may require a fresh start and can ill afford a trial period. Similarly, the board may want to remove senior executives who

sor to the showman Lee Iacocca, even though Lutz’s background,

were affiliated with the deposed CEO. When this happens, how-

experience, and leadership are ever, the board should recogmze among the best in the industry. Style, values, and strategic vision

that it shares responsibility for the CEO’s performance, and for Do not

are fbndamental to an organiza- tional culture and its success, and therefore must be guarded vig-

concede the loss of the second-place

an effective long-term succession process. Among the board’s most important obligations is to assure

ilantly. For this reason many CEOs we studied used an out-

jinisher. that there are always managers on hand capable of quickly and

side adviser to help them assess the canddates’ ‘‘sotier” quahties, while assuring that the current CEO’s personal feelings dld not overwhelm the decision process.

competently fihng the top job.

Primogeniture had its faults as a system, but at least the rules were simple. Position was an accident of birth. In today’s world, it can finally be said that leaders are made, not born. Wise leaders and effective organizations know that they must prepare others to lead, and must manage the succession process with care. In more ways than one, a leader’s success rests on those who will follow.

So Passes the Glory of Organizations

EO succession is too often an ugly affair where the C CEO of a stumbling enterprise is ousted in a

Fall 1998 53