November 29, 2007

The Indispensable Succession Plan

Now that the dust has settled on the recent tumult in the C-suites of Merrill Lynch and Citigroup (BusinessWeek.com, 11/27/07), one thing is clear: Boards need to have a credible, specific, and actionable chief executive officer succession plan in place at all times.

The lack of such a planwhich appears to have been the case at two of the world’s highest-profile financial services firmsdestroys credibility in the capital markets and erodes shareholder value. It also stirs anxiety inside the companies involved, making it difficult for people to stay focused and maintain momentum. Boards that fail to have a decisive succession plan at all times, whether it’s for an emergency or planned retirement, run the serious risk of being judged negligent in the court of public opinion.

The problems at Merrill Lynch (MER), which had to scramble to find a successor to Stanley O’Neal, and at Citi (C), which is still searching for a new chief executive, make the point. But you can easily find other examples. Kmart (SHLD) and Apple (AAPL) (before Steve Jobs returned) each had four consecutive CEOs who failed. Harder, but not impossible, to find are examples of boards being prepared. (When health tragedies struck two consecutive CEOs of McDonald’s (MCD) in 2004, the board’s robust succession plan came through.)

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