Hiring the CEOs: The Changing Paradigms
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Code :LDS0008
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Region : Global |
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Succession Planning: The Changing Paradigms Bill George was an outsider when he joined Medtronic Inc. as its CEO. He had been the president of the space-and-aviation division at Honeywell, before joiningMedtronic. He says, “Iwent to the board of directors shortly before I took office as CEOin 1991, and proposed that I would stay for 10 years and at the end of that time I’d have a successor not just identified, but ready to go.”5 Justifying his stand he says, “Sometimes strategies take a full 10 years to play out.And unless one sets a date certain for succession, it’s virtually impossible to grooma successor.”6 On taking the charge, George found thatMedtronic had a number of capable operating executives running the company’s divisions, but none of themhad turned out to be the right person to succeed him as CEO. He was looking for an executive who had the capacity to run Medtronic as the $25 billion corporation that it was likely to become by 2010... Internal Succession GE:GE has one of the best succession plans. Executives atGE learn the skill ofmanaging in different situations as they gain experienceworking in different sectors,which are completely different fromeach other.Christopher Bartlett, ofHarvard Business School, who studiedGE’s approach, explains that the company began to build the capacity to train future CEOs in 1958 –1963, when Cordiner was the chief executive. It was in his tenure that the company was split into many decentralised divisions, and hence the need to groom people who could run them. His successor, Fred Borch, set up a central team with the task of developing and organizing the company’s top talent, and later JackWelch linked the whole structure to pay incentives for good performance... Recruiting Outsiders Companies like IBM, Xerox andHewlett-Packard all had succession programmes thatwere admired and benchmarked by others, yet when it was time to appoint a new CEO, they had to go outside to find a leader with the particular strengths called for then. Sometimes, the organization needs a leader who is psychologically removed frompast practices and is not overwhelmed by the organizational culture to bring in the change. Bringing an outsider does not always guarantee success. IBMandAlbertsonswere benifited by the experience of an outsider, but thatwas not the case forAppleComputers and AT&T... |
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Making a Judgment Call Contrary to the trend of recruiting an outsider, statistics have revealed that groomed internal succession ismore effective .A study on CEO succession conducted by Nohria and Khurana of Harvard Business School, in 2002, among the Fortune 500 companies, showed that it was during the time of crisis that the directors weremore likely to appoint an outside candidate. They divided the companies under study into four groups based onwhether the CEOhad been fired or had left for other reasons and whether his successor was an insider. The results showed that when the CEO was replaced by an inside candidate, little change in performance had been noticed even if the previousCEOhad been fired.On the other hand, outsiders replacing a firedCEOtended to improve the company’s performance by improving the return on assets by 3.6%on an average over a three-year period, but those outsiders succeeding in the normalway failedmiserably depleting the returns by 5% on an average over three years where the insiders eked out a 1.5% gain...
