The Succession Game: Star Execs Don't Want To Wait Around Forever
PITTSBURGH — Time was when chief executives carefully groomed their successors for the time they would take over. But competition has become faster and fiercer. Today's corporate chieftains are fortunate if they can find heirs apparent and give them a few licks of the comb.
It's just tough finding - and keeping - a corporation's No. 2.
"Picking No. 1 is pretty doggone hard," says Idalene Kesner, a professor at Indiana University's business school in Bloomington, Ind. But "picking No. 2 is pretty hard too." And it's just as important, she adds, as several of America's best-known corporations, including Ford Motor Company and General Electric Company, search for the right successor.
Consider the ups and downs of AT&T, which yesterday announced a new No. 2. A year ago, its stock was flying high. Traders believed it could move forcefully into a soon to be deregulated local-telephone market. But slow earnings growth, plus doubts about its plans to break itself into three companies, caused the stock to slump.
Then, AT&T's No. 2 man, Alex Mandl, stunned Wall Street by jumping ship to head a much smaller and riskier start-up company for an astounding $20 million signing package.
One big reason for his August departure, analysts speculate, is that he got tired of waiting around to take over the No. 1 post. AT&T's current chairman, Bob Allen, had never designated a successor or publicly given a timetable for his departure. That's one huge problem in recruiting No. 2s: They have to be great leaders willing to play second fiddle, sometimes indefinitely.
The long wait
"Most ... No. 2s - 95 to 99 percent - believe they will be No. 1 someday," says Greg Klein, managing director of the Chicago office of A.T. Kearney Executive Search. "They're preparing themselves for a CEO role. You can only prepare for so long." After five years, they become susceptible to overtures from other companies, he adds.
Yesterday, AT&T put an end to the uncertainty by announcing it had picked a new No. 2: John Walter, the chief executive officer of the publishing company R.R. Donnelley & Sons in Chicago. And this time, Mr. Allen is leaving no doubt about the future. "The board and I have every expectation that John will become chairman and CEO of AT&T," he stated. Allen said he expects to share the roles of CEO and board chairman with Mr. Walter starting in January 1998, and that Walter would succeed him at the company's annual meeting later that year.
The appointment is an unusual one, because Walter comes from outside the telecommunications industry, while Allen rose up through the AT&T ranks. It also comes at a difficult time, because the telecommunications industry is exploding with new technologies vying to take over markets that are no longer guarded by heavy government regulation. The two men will now have to work together to forge a strategy for AT&T to compete in the new environment.
And that's another challenge for the incoming No. 2. "Those people not only have to fall in love, they have to stay in love," says Mr. Klein of A.T. Kearney.
Steven Cody thought he had found the perfect match when the head of a New York advertising and public-relations firm asked him to come in as the No. 2 man.
"The chemistry seemed terrific," recalls the public-relations executive. "The first three to six months was very much a honeymoon. [But] after six to seven months, it really became clear that whatever suggestions [I had] would not be acted on." After 15 months, Mr. Cody left to form his own firm.
Get it in writing
He says the prospective No. 2 should always get promises on paper, including the scope of his or her activities and a timetable for succession, and also find out if the current No. 1 is the type of manager who can let go of the reins when the time comes.
The problem affects companies of all sizes. A recent survey found that 47 percent of major US corporations don't have a plan of succession, says Richard W. Oliver, management professor at Vanderbilt University's management school in Nashville and a director at a half-dozen companies. And it may even be worse at small companies. When Ray Silverstein, founder of a small-business group in Chicago, surveyed his members earlier this year, he found that about 70 percent of the chief executives had not picked their successors.
How companies choose successors varies greatly. Three major approaches include grooming one candidate from inside, an internal horse race, or the last-minute choice of an outsider.
In February, the Boeing Company named Phil Condit chief executive after four years of grooming in the president's spot.
General Electric, meanwhile, appears in no hurry to choose who will take over from the legendary Jack Welch. At least six and possibly 10 executives within the organization are vying for the post, which Mr. Welch plans to vacate in four years. How will it choose? By giving them important responsibilities and then testing to see how well they respond.
The horse-race strategy gives the CEO and the board maximum flexibility while they see how the prospects perform, Professor Kesner says. The downside is that the careful grooming - the contact with board members, the trust-building between the No. 2 and the employees - doesn't get done, she adds.
Whichever strategy a company picks, the prospective No. 2s who are passed over are very likely to try to find jobs at other companies, management experts say.
On balance, management experts and even several executive-search leaders suggest that grooming from within is still the best policy. But "you can't control it," says search-expert Klein. The industry changes focus, executives move on, and companies get consolidated. "You could make a brilliant succession plan and have all your boxes empty when it's time" to make the change.