Denise Kingsmill: How to pass the baton

Firms should be aware of replacing one leader with another from the same mould.

by Denise Kingsmill
Last Updated: 10 Mar 2015

The King is dead. Long live the King. Royalty has succession sorted. Primogeniture means no arguments, no leaks, no public controversy, and no waiting for the white smoke. The lucky gene kicks in and there is a new monarch. Of course, this isn't a failsafe method. It occasionally throws up a dud and there is an embarrassing abdication. Or, as in the Swedish case, the law changes and the heir apparent has to give way to his older sister. Republican sensibilities notwithstanding, I suppose it is as good as any other method for choosing someone whose role is largely symbolic or ceremonial.

However, I can't see it catching on in the FTSE, where people have real jobs. Most companies prefer more merit-based methods involving succession planning, talent management and leadership development. Even so, it is not easy to make a success of passing on the baton. It can be difficult to plan objectively for the replacement of a charismatic leader whose personality may have become intertwined with the success of the company. Rarely do powerful leaders recognise when their time is up and equally rarely do boards find the foresight and resolve to make a change.

Tesco demonstrated just how to do it last month when, without fuss or fanfare, it announced the impending exit of its uber- successful CEO, Sir Terry Leahy, and the appointment of his successor, Philip Clarke. With characteristic decisiveness, the company also moved to counter any disappointment that other internal candidates may have felt about a contemporary and rival moving up to the top job by giving them new or enhanced roles. The extensive and almost adulatory press coverage of this departure demonstrated not only an appreciation of Sir Terry's achievements but also the rarity of a CEO resigning at the top of his game.

The smoothness of this transition contrasted starkly with the messiness of Sir Stuart Rose's prolonged swan song at M&S, where distracting speculation about executive succession seems to have been going on for years now. The absence of a strong but supportive chairman to give the gentle nudge to help him on his way has meant the career of a brilliant retailer has been overshadowed by the controversy surrounding his leaving. It also, incidentally, provides an excellent example of why combining the role of CEO and chairman is a bad idea.

Most CEOs do not leave of their own accord, regardless of what the press release may say about 'new challenges and other interests'. Events - in business as in politics - determine the fate of most. Tony Hayward of BP, caught up in the maelstrom of the environmental catastrophe playing out in the Gulf of Mexico - 'spill' just doesn't seem like a big enough word to convey the scale of the disaster - will be lucky to survive the relentless onslaught of the press and politicians determined to find a scapegoat.

The future of Prudential chief Tidjane Thiam looks uncertain too as the failure of his AIG deal, meant to transform the company, now risks turning it into a takeover target. On the other hand, Eric Daniels, the quietly effective boss of Lloyds Banking Group, at one point looked like becoming the victim of over-zealous succession planning because of press leaks about his chairman sounding out candidates for the CEO role.

One of the downsides of succession planning is the danger that a single leadership type will prevail. Studies have shown the unconscious instinct of us all to favour those who remind us of ourselves. In a corporate context, the tendency of CEOs to recruit in their own image can be a risk. Yet it's inevitable that an organisational culture that centres on the leader develops. Leahy stamped his style on Tesco over his 14 years as boss and it is no coincidence that his successor is a man in the same mould - a Tesco lifer and a fellow Liverpudlian. It may be a good thing at this stage for Tesco to ensure continuity but it could also lead to stagnation. I know of one company that used psychometric testing to determine the ideal characteristics of a successful leader and ruthlessly set about recruiting and rejecting people accordingly. This was a successful method for a time, but when an unexpected crisis hit, the flexibility and diversity of thinking just wasn't there, and the company floundered.

A long-term commitment to talent development that encourages a mix of styles, capabilities and approaches can help to ensure that an organisation is responsive to change as well as resilient to crisis. I am personally not a fan of 'fast-track' or 'top-gun' schemes, which tend to lionise certain individuals and discourage the majority. It does no good to anoint future leaders too soon, although successful succession planning does require that those with the potential to lead are identified and developed. This is where a trusted external advisor can be useful in providing necessary objectivity and avoiding the emergence of a cadre of corporate clones out of the HR department.

The truth is that, unlike royalty, leaders are not born, nor, contrary to the blandishments of consultants, can they be taught leadership. Rather, they are created by an environment that values and encourages their skills and talents and gives positive support to the development of their potential. Leahy was a shelf stacker who failed in his initial attempt to become a Tesco manager but, through a combination of luck, hard work and opportunity, grew into a world-class leader who could determine the manner of his leaving and help to identify his successor. A rare achievement in today's corporate world.

Baroness Kingsmill CBE has been a non-executive director of various private and public boards. She is a non-executive director of British Airways and Korn/Ferry International

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