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Contents

Cover

Praise for Inside CEO Succession

Title Page

Copyright

Acknowledgments

Foreword

Introduction

Part I: Why CEO Succession Is More Critical than Ever

Chapter 1: From Checkers to 3-D Chess

A Simple, More Predictable World

Capture the King

Decline in Confidence at the Top

3-D Chess: More Levels of Play—Less Certainty of Outcome

Far More Than the Transitioning of the Top Leader

Chapter 2: Success or Failure—The Cause and Cost

A Reoccurring Pattern

Focusing on the Symptoms

Pinpointing the Cause and Cost

The Benefits of Success

The Cost of Failure

What Lies Beneath the Surface

Chapter 3: Whose Job Is It, Anyway?

Best Practice Versus Real Practice

A Force Behind the Inertia

Ineffective in Their Most Critical Role

Changing Times, Changing Minds

Directors Share the Factors that Contribute to Success

Embracing the Third Rail

Chapter 4: RHR's Essential Point of View

Assumptions that Guide Our Perspective

Our 10 Key Dimensions

Learning from History

Part II: The 10 Key Dimensions of Effective Succession

Chapter 5: Establish Board Ownership, Involvement, and Oversight

A Deeper Current of Understanding

Living with the Choice

Restraint of Power

It Goes Beyond Charter

An Integrated Leadership Development Plan

Continuous Development and Appraisal

A Partnership Built on Trust

Skillful Navigation

The Role of the Lead Director

One of the More Sensitive Issues

The Art of Preemptive Communication

A Lesson from Apple

Oversight of Management and of Self

Chapter 6: Set Succession Time Frames

The Consideration of Timing as a Best Practice

Creating the Leader Profile

Sequencing the Succession Process

Working Back

Being Prepared

Need-Based Versus Time-Based

Balancing Timing and Stakeholder Interests

Discussing Timelines with the CEO

Concurrent Succession Decisions

Chapter 7: Prepare for Emergencies

Calm or Crisis?

At Its Most Vulnerable

Compounding the Emergency

Aligned on Purpose

A Name Is Not a Plan

Working through the Emergency

Minimizing the Causes

Chapter 8: Align on Strategy and Profile

In the Absence of Strategy

From Complacence to Consensus

Continuously Aligned with Management

The Critical Role of the Lead Director—Facilitating Consensus

Aligned on the Leader Profile

Getting from Here to There— The Culture Imperative

Chapter 9: Build the Talent Pipeline

It's More than Talent

What Constitutes Success

Moments of Truth

Making the Difficult Decisions

Creating Teachable Moments

Cultures of Development

Chapter 10: Source External Talent and Manage Search Firms

The Outsider Advantage

The Role of the Search Firm

Chapter 11: Select the CEO

Preparing for the Most Important Decision

The Winning Formula

The Interview Protocol

Unearthing the Best References

Once the Selection Is Made

Chapter 12: Proactively Manage the Transition

Stage 1: Transitioning the Organization

Stage 2: Integrating the New CEO

Chapter 13: Measure Performance and Improve Process

Measuring the Performance of the New CEO

Taking Stock in the Critical First Year

Improving the Succession Planning Process

Chapter 14: Manage the Dynamics in CEO Succession

The Upward Spiral of Succession

Epilogue: Perspectives on the Future

Five Perspectives on the Future of CEO Succession Planning

Appendix: Ten Questions a Director Should Ask

About RHR International

References

Index

Praise for Inside CEO Succession

“While Inside CEO Succession contains a very useful analysis of key steps boards can use to create a successful process, what I found to be invaluable were the examples of successful and failed succession programs cited by the authors. These stories illustrated topics that are rarely discussed in this context. Personal emotions, psychological challenges, organizational culture, and the critical partnership between the board and the CEO can all influence the succession process. These insights, based on decades of experience on the part of authors Tom Saporito and Paul Winum, are the book's greatest strength.”

—Freeman A. Hrabowski, III, president, University of Maryland, Baltimore County; named by Time Magazine as one of the Top 100 most influential people in the world for 2012; director, McCormick & Company, Baltimore Equitable Society, and the Alfred P. Sloan Foundation

“Tom Saporito and Paul Winum's new book on CEO succession is a treasure trove of practical advice and is a must-read for any company thinking about building a solid path to its future leadership. The book is richly detailed with solid research and real world examples and it offers a compelling conceptual framework and step by step process for all aspects of CEO succession and transition. Given the importance of this topic and the shortage of literature in this field, there's no doubt that Tom and Paul's groundbreaking book will become the standard reference for all Boards that are grappling with the question of CEO succession.”

—Chip Perry, president and CEO, AutoTrader.com

Inside CEO Succession is chock full of insights on a critical subject for today's boards and executive teams. Tom Saporito and Paul Winum know that succession planning is more than simply a leadership transition. In this book, they capture its essence as a living, breathing, ongoing process which directly impacts corporate success and failure.”

—Paul Charron, chairman of the board, Campbell Soup Company; former CEO, Liz Claiborne Inc.

“Inside CEO Succession provides a unique, nuanced insight into psychological and emotional aspects involved in succession that many boards fail to recognize. Particularly insightful are the authors' emphases on the disciplined process needed during pre- and post-selection transition, succession as a selection of CEO and senior team, and the importance of a board's ability to evaluate leadership attributes required for changing future market and business. The book offers practical steps to a successful CEO transition in an environment of economic uncertainty, regulation complexity, ever-quickening technology shifts, and broadening groups of stakeholders.”

—Deven Sharma, former CEO, Standard and Poors

“Chief executive succession is more art than science, more a board mindset than a process. By clearly demonstrating why CEO succession needs to be more board-driven than CEO-driven, Tom Saporito and Paul Winum make an important contribution toward how companies can better manage this important transition.”

—Fred Hassan, managing director–healthcare, Warburg Pincus; chairman, Bausch and Lomb; former chairman and CEO, Schering Plough; director, Time Warner and Avon

“Choosing a CEO is a unique opportunity for a board to reset a company's compass—to validate, alter or transform both its culture and its business strategy. A collaborative process between a board and a departing CEO who has been successful is indispensable to the process and the guidance provided by Inside CEO Succession should greatly facilitate that effort.”

—John J. Degnan, retired vice chairman and chief operating officer, The Chubb Corporation

Inside CEO Succession does an exemplary job of distinguishing between succession planning in principle and in practice—where it matters. The authors clearly and compellingly provide a ‘cautionary tale’ as to why a robust planning process led by the board is a non-negotiable in terms of the board's obligation to the firm's multiple stakeholders and the long-term success of the company. If a board's not spending meaningful time on succession planning—both the mechanics and dynamics—then the board is wasting its time.”

—Rick Lenny, former chairman and CEO, The Hershey Company; director, McDonalds, ConAgra, and Discover Financial

“With investors beginning to realize—especially given the high-profile CEO departures—that succession planning has become a strategic issue, leaders should welcome Tom Saporito and Paul Winum's book, which offers a practical, no-nonsense path for getting it right.”

—J.P. Donlon, editor in chief, Chief Executive Magazine

“Having worked with RHR for many years and seeing them in action inside our companies, it is no surprise to me that Paul Winum and Tom Saporito have penned an outstanding guide for any director seeking insight into their most important job—ensuring consistent, strong leadership . Management teams and companies are constantly evolving and companies with great management over the long term don't just get lucky, they carefully plan. This book covers the complete life cycle of leadership change and is a must-read for any director who aspires to embody board-level best practices.”

—Mark Jennings, managing partner and founder, Generation Partners; chairman of the board of trustees, Post University; former director, Virtual Radiologic Corporation, inVentiv Health, MedVance Institute, and Agility Recovery Solutions

“Saporito and Winum have written a straightforward, insightful and extremely valuable book that all boards and CEOs should read—and follow. Their collective professional experience and the nearly 70 years of RHR's leadership in the field of executive selection, development and effectiveness make this work the ‘gold standard’ for CEO succession. As they clearly articulate—and as the historical data supports—getting this wrong has significant negative consequences for business and all of the stakeholders.”

—Ned Guillet, former senior vice president, The Gillette Company

“The hallmark of successful CEO succession is to identify the challenges ahead for the corporation—how the operating and competitive environments will change—and choose the right leader who has experience, knowledge and skills to lead the organization in that new environment. Inside CEO Succession provides the unique perspectives and experiences of Tom Saporito and Paul Winum, who have ‘walked the walk’ in this critical area of corporate leadership.”

—C. Manly Molpus, former president and CEO, Grocery Manufacturers Association; director, SPAR Group; CPG advisory board, Procurian

“Tom Saporito and Paul Winum, two of the superlative senior consultants from the legendary RHR International consulting firm, have produced a comprehensive and understandable guide that makes the mysterious, dangerous, and challenging work of transition management possible for boards and leadership teams to do well together. It is full of terrific case material, specific advice about the necessary components of a corporate program, and practical wisdom for leaders and consultants. Succession management is an extraordinarily critical aspect of the work of corporate governance members. It is full of ambiguity, anxiety, and the constant threat of failure. Saporito, Winum, and the RHR methodology would help virtually every firm navigate these processes more successfully.”

—Richard R. Kilburg, Ph.D., author of Executive Coaching, Executive Wisdom, and Virtuous Leaders, among other books and articles on leadership and management

Title Page

Acknowledgments

While one or two persons might have their names printed on the cover, the truth is that legions of people are involved in the publication of a book from concept through distribution. This volume is no exception and we would like to acknowledge their efforts. To name all of the individuals who have touched our careers and our practices would take more pages than reasonable. For that reason, we have taken the liberty of departing from the usual practice and have listed our contributors in groups, thereby ensuring that no one's effort is slighted by omission.

First of all, the concepts in this book would never have been developed without the clients of RHR International. Each and every CEO succession situation is unique, and working with a variety of CEOs, board members, senior teams and candidates in companies of all sizes have given the firm the opportunity to see the process unfold in many different ways. Some were successful, some were not. It was these real life situations that allowed us to constantly refine our own model, applying the best practices of the time, but always modifying and evolving our views of what worked and what did not. It is the culmination of all those years of practical experience with some very unique individuals that fills the following pages. We believe the fact that many of our earliest clients are still with us testifies to the trust they have in us as advisors. Many of these relationships have evolved over the years from business associations into close personal friendships.

With the clients providing the challenges, it was the consultants of RHR International, past and present, who were called on to provide the solutions. Not only did they each have the experience, the business acumen and the training necessary to address CEO succession issues, each generation has had the invaluable ability to draw on the knowledge and wisdom of those who came before. This open melding of the minds in classrooms, offices, restaurants, airports and even the occasional golf course strengthens our practice with each and every conversation. Wherever we are, we talk shop . . . a lot! And gems of knowledge are often uncovered in the most casual of settings. Yes, the discussions can get heated, but it is in the fires of debate that the truth is revealed. While it is never billed back to a client, the consultants of RHR never stop observing, wondering, discussing and evolving our service areas. It has been this way since our founding approximately 70 years ago, and it is our fervent wish that it will always be so.

Throughout the years, RHR International has built a reputation for groundbreaking research on our core service areas—backing up experience, observation and intuition with solid data. Some studies validated what we had come to believe, others challenged us to step back and take another look and purposefully move in a new direction. Without the dedication of our research teams throughout the years, this vital conduit of knowledge and wisdom would have been lost to us. Equally important, if not more so, are the directors, chief executive officers and other senior executives who have given most generously of their most precious commodity—time. They have contributed to the wealth of knowledge on management best practices by granting us interviews and answering the surveys that gave us the raw data for our studies. Without this gift, none of it—the research, the analysis, the creation of new intervention programs, the practical application to the benefit of organizations worldwide—would have been possible.

In the last three years, we have compiled the latest information gathered from and by the groups listed above. The result is this book. We believe it is the state-of-the-art resource for those organizations that could benefit from a grounding in the most up to date information on CEO succession possible. Is it the Bible on the topic? Of course not: each business is unique, each past and future chief executive will have behaviors and abilities that must be assessed and evaluated in light of the organization's current needs and strategic goals. However, thanks to the dedication and efforts of RHR International's clients, consultants, researchers and study participants, you are unlikely to find a more comprehensive work on the topic of CEO succession on bookshelves today.

We deeply appreciate all the efforts of our fellow contributors, even if there was no room on the cover for your names.

Foreword

CEO succession planning is arguably the most important responsibility of a board of directors. A wise succession choice can lead to a meaningful value creation story for all stakeholders, while a poor choice can render just the opposite effect. Given the relative importance of this board responsibility, I have found it surprising that there is a paucity of consistent best practice on this front.

For the better part of two decades, I have experienced every facet of succession planning in my capacity as student, participant, and practitioner. I have been a candidate for succession who has not been chosen and one who has been selected to succeed. I have been responsible for shepherding the CEO succession process for four boards of directors—one corporate and three, large not-for-profit organizations. And I have culminated my experience administering to my own succession, identifying and preparing my successor, and transitioning my leadership to the incoming CEO.

Through all of my succession experiences and that of my colleagues, I have observed that the opportunities for improvement in the process have been more pronounced than the elements that have been well managed.

Fortunately, Tom Saporito and Paul Winum of RHR International have crafted this important guide to effective leadership transition. I have known Tom and Paul for over a decade, during which time they have ably assisted the organizations that I have been associated with on this front in both the corporate and not-for-profit sectors. In particular, they capably supported the leadership development and transition process as I managed within and retired from Campbell Soup Company as president and CEO.

Through a powerful combination of deep study of this space, vast experience in helping organizations navigate the challenges resident in the succession process, and years of practice and training in the field of psychology, the RHR team has developed a compelling perspective—a precise collection of best practices in succession planning as a partnership between the board and the CEO.

Leveraging many of the elements of these practices at Campbell, we were able to advance a quality succession process that enabled us to retain and develop our key talent, maintain and, in fact, enhance our strategic heading, and sustain a world class, high employee engagement culture.

More specifically, in this work, Tom and Paul advance a thoughtfully compelling case around the importance of getting the CEO succession formula right—a case anchored in solid thinking and brought to life with real-world examples. Once the essence of the challenge is made crystal clear at the onset of this book, a rich dialogue ensues over the 10 key dimensions of effective succession planning, providing a very helpful, end-to-end view of the entire process.

The authors establish a clear articulation of board ownership, involvement, and oversight and define the essentials of a well-orchestrated planning approach between board and CEO— elements that lead to the ultimate selection of a CEO and culminate in a process for proactively managing the post-selection transition.

In my study and experience, the knowledge and wisdom captured in the pages of this work is second-to-none on the subject of CEO succession. The approach advanced by Tom and Paul takes the mystery out of the process, creates a common platform around which directors can find consensus, and brings a refreshing clarity to the subject.

Leveraging this guide as a tool, any board can materially improve the productivity of its leadership transition process. I heartily recommend it.

Douglas R. Conant
Retired President, CEO, and Director
Campbell Soup Company

Introduction

The business environment has undergone significant transformation over the past several decades—progressing from the relative simplicity of commerce in the mid-twentieth century, to the market expansions and consolidations of the 1980s and 1990s, to the global interconnectedness of our current era.

These volatile and chaotic times are demanding more from boards and company leaders than at any other time in history and, to ensure the continuity of business, the selection and transitioning of a company's CEO has been elevated to the most important undertaking an organization can engage in.

With the complexities involved in selecting and transitioning the chief executive increasing with each passing decade, the mindset of the past and the methods used then are, in many ways, inadequate for ensuring success in today's business climate. We have all seen the results of this insufficiency played out too often in the business press with news of companies struggling to survive failed leadership.

Public scrutiny of business and management has certainly accentuated the issue and shareholders have become acutely aware of the need for greater discipline in CEO succession planning. Change in a company's management is now one of the most important areas for investors to follow. Shareholders are also beginning to realize—especially given the high-profile departures and dismissals of CEOs—a greater need for corporate governance and that CEO succession planning depends, in large part, on an established process originating at the board level.

Many boards today are quite conscious of the growing demand and their obligation. They are a) more keenly aware of the need for CEO succession planning than their predecessors, and b) more prepared, with succession plans and processes firmly in place. However, even with all this awareness and preparedness, directors are still beleaguered, to varying degrees, by the relational dynamics and personal emotions that attend every step of the succession planning process—from candidate development, to final selection, to the transfer of power, to the integration of the new CEO.

In our years of experience, we have concluded that addressing and managing the psychological forces and organizational dynamics are what truly defines best practice and success in CEO succession planning. Yet, there is very little support and insight offered to companies on how to best undertake succession planning and navigate the emotions that attend every step of the process.

Inside CEO Succession offers that very guidance. We take you inside the essential steps required to establish a best practice in succession planning, inside the relational dynamics among board members and between the board and the CEO, and inside the personal emotions that sway and influence even the most experienced executives—an often-overlooked aspect of the success or failure of the succession process.

Another critical distinction of our practice, illustrated throughout this book, is our belief that CEO succession is more than a board's responsibility. Although the board is accountable for the process, we strongly believe that there must be a partnership between board and CEO—a partnership built on personal authenticity and trust. Best practice can only be achieved when board and CEO reach an understanding of involvement—a division of labor orchestrated by the board and adhered to by both parties.

Inside CEO Succession is the culmination of approximately 70 years of providing expert counsel to boards and management on how to best manage the succession planning process and ensure the substance and effectiveness of its leadership. We have gained as much as we have given. Fundamental to our experience is the invaluable education we have received from our clients over the years—from board members, to CEOs, to future leaders—insightful lessons shared within these chapters.

Over the past five years, our firm RHR International has undertaken an extensive program of primary research, annually surveying hundreds of board members of top companies across a variety of industries on their views on succession planning. We have conducted in-depth interviews with board chairs and lead directors to understand their approach to succession planning and what factors contribute to both good and poor outcomes—also shared in the pages that follow.

Additionally, and as a finger on the pulse of contemporary business, we present examples of high-profile companies, pulled directly out of today's business press, illustrating both success and failure in the succession and transitioning of leadership.

Inside CEO Succession is a unique mixture of business experience and educational training: a blend of process and perception. While our 10 Key Dimensions of Succession Planning provide an essential guide for establishing a best practice in succession planning, our experiences as doctoral-level psychologists grounds us in assessing and addressing the social-psychological factors of ego, role-relationships, power, and emotion associated with relinquishing leadership, preparing successors, and ceding power and authority to others.

If properly attended to and thoughtfully executed, CEO succession can offer a company far more than the transitioning of its top leader. CEO succession can enable companies to envision new opportunities for growth, to realign and strengthen processes and systems throughout the enterprise, and propel companies to greater results in the service of their missions.

Thomas J. Saporito
Paul Winum

Part I

Why CEO Succession Is More Critical than Ever

CEO succession is more than an important issue; it is fundamental to a company's sustained success. The disconnect between how important this issue is and the willingness of boards to tackle it can be attributed to the fact that it is a time-consuming process and many board members are ill-prepared to manage it.

Moreover, the psychological forces and organizational dynamics involving such issues as power, ego, legacy, and personal agendas have as much influence on the process as objective data, procedures, and timelines.

For the sake of business continuity and a company's sustained effectiveness, there are no reasons to ignore or give brief and inconsiderate attention to the selection and transitioning of a company's leadership. History has shown that a firm's capital and assets are not the ultimate determinants of its success or failure, but rather the firm's individuals who govern, lead, manage, and deploy those resources.