There has been a lot of noise in the media lately about the merits of succession planning. With the appointment of two new CEOs to Telstra and Commonwealth Bank – both of which came from other companies – some observers are asking hard questions about the value of succession planning
by Craig Donaldson
There has been a lot of noise in the media lately about the merits of succession planning. With the appointment of new CEOs at Telstra and Commonwealth Bank, some observers are asking hard questions about the value of succession planning. These questions make for interesting reading on a day-by-day basis, but put them in perspective and they begin to lose their relevance.
A recent survey of Australia’s top 20 companies found that 13 of their current CEOs were internally groomed for the role before their rise to the top. Understandably, there’s a lot of work (and money) that goes into external searches for CEOs. This is all well and good, especially if the new CEO has some familiarity with the industry in which they’re going to work. What external CEOs lack, however, is a strong grounding in and understanding of their new company’s culture. While words around the value of culture are not likely to impress hard-nosed CFOs, there has been a good amount of research quantifying the hard value against shareholder returns of late.
It was interesting to note that, upon the appointment of Ralph Norris at CEO of Commonwealth Bank, there were many predictions that a not inconsiderable number of the executive team would also look to move on with David Murray. This is another side-effect of external CEO appointments. This is not necessarily a bad thing if there’s dead wood in the executive team. It can be a great thing, in fact, if this is the case. It’s not such a great thing, however, if members of the executive team are talented, high performing individuals. In such instances, external CEO appointments can be disastrous for the long-term success of a company.
I believe this will be a factor of increasing importance in years to come. One of the notable characteristics of high flying members of Generation X and Y is that they respect and follow good leaders. I have seen and heard of instances whereby entire teams of talented employees within one company will leave to follow their immediate boss to another company. This is not uncommon at the executive level – obviously not to the same degree – but as the younger generations move up through the ranks the leadership quality of CEOs will take on a new level of importance.
