Preparing For Disaster With Succession Plans

By Staff Report

Mar. 31, 2006

Foresight and careful planning made a recent catastrophic event at Kelly Services a bit easier to get through. The Fortune 500 company, which provides temporary staffing services, unexpectedly lost Terence Adderly, its chairman and CEO of almost 20 years, when he was left incapacitated by a cardiac incident in February. But thanks to a succession plan that Adderly and the board of directors had designed in previous years, the company was not left in a panic.

The chaos that typically ensues whenever there is a loss of a leader—massive stock price depreciation, ugly power struggles among upper management and confusion about the company’s direction among employees—did not occur at Kelly Services, according to the company. Its board of directors simply activated the contingency plan that was put in place before Adderly’s health crisis. The torch was passed to Carl Camden, executive vice president and COO, in a timely and efficient manner, says Jim Macintyre, vice president of public affairs for the company, which is based in Troy, Michigan.

Kelly Services’ transition of power, however, is more the exception than the rule, notes Scott Cohen, specialist at Watson Wyatt. Boards of directors often have to scramble during times of crisis because there has been no succession planning. And to make matters worse, finding candidates who can fill senior leadership roles is becoming increasingly difficult. For one thing, the pickings are getting slimmer because many leaders are hitting retirement age and leaving the workforce, Cohen explains. Furthermore, downsizing trends in the workforce have dwindled the pool of potential candidates.

“The middle layer of management has been trimmed down significantly and companies are now wondering what happened to the warming bench,” Cohen says.

The good news is that companies are starting to change—at least in part because of the media attention that leadership succession has received in recent years. “High-profile cases are giving company boards a wake-up call,” Cohen says. One such example is that of McDonald’s. Company CEO Jim Cantalupo died suddenly of a heart attack in 2004, and the following year his successor, Charlie Bell, succumbed to colon cancer. The company averted turmoil by having qualified candidates, such as the current CEO, Jim Skinner, who could take the reins.

Predicting the death or incapacitation of a leader is, of course, impossible. Even identifying potential health risks is tricky because of legal considerations, such as the Americans With Disabilities Act. That is why companies need to take precautions, says David Fowler, vice chairman at WJM Associates, a New York City-based consulting firm. He stresses the importance of continuously fostering potential leaders within a company.

Fowler points to General Electric as a model in succession planning. The company’s leadership took a hands-on role in fostering, training and identifying Jack Welch’s potential successors. Candidates were rotated on various assignments, which deepened their understanding of multiple markets and exposed them to diverse segments of the business.

GE did this not with just one executive, but with many. One of those potential successors, Robert Nardelli, went on to become CEO at Home Depot after Jeffrey Immelt got the top job at GE. It is always a good idea for companies to err on the side of caution by grooming more than one potential successor, Fowler says. “Catastrophes can strike at any time and in multiple ways.”

Gina Ruiz

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