Hiring the next CEO

Why companies should consider long-term leadership development before facing a succession decision

September 4, 2012

According to management guru Allan Cox, succession planning is one of the most difficult issues faced by both Fortune 500 companies as well as mom-and-pop family businesses. Starting a business and growing a business are critical competencies, but passing a business on and maintaining its success over time is perhaps the true test of business acumen. 

Until recently, the old rule of thumb suggested that businesses, especially small and family business, rarely made it beyond the third changing of the leadership guard. A classic example of this phenomenon in Chicago was the Schwinn Company. Schwinns were considered the Cadillac of bicycles until the mid-1970s, when bike technology, clever competitors and the third generation of the Schwinn family lost control of the marketplace. A more contemporary succession story is Apple. As of this writing, although Apple’s worth as a company is at an all-time high ($623.5 billion in market capitalization), the real question yet facing the company remains: Can Steve Jobs be successfully replaced?

According to a recent Tribune column by Phil Rosenthal on CEO salaries, there are two basic strategies to succession planning: stay inside or go outside.

Going outside

Sometimes an injection of new energy, new ideas and new leadership style is exactly what a company needs. Sometimes companies become too egocentric and lose objectivity in regard to what they are doing and the demands of the marketplace. When this happens, it is often best to bring in an outsider who can offer a new focus and perspective on how to proceed.

Staying inside

Recently-retired McDonald’s CEO Jim Skinner is a major proponent of replacing leadership from within. Skinner argues that if a successful company with a solid track record cannot develop a series of internal candidates, then something is seriously wrong with the culture at that organization. For Skinner, talent management and leadership development must be a well-integrated component of a company’s overall business plan. Successful companies need to clone their own, suggests Skinner. Training for leadership needs to be part of every job within a company. In Skinner’s case, he spent 33 years doing and learning a lot of jobs at McDonald’s, including flipping burgers and running a fry machine, before his eight-year stint as CEO.

I think Jim Skinner is right: Companies that can’t develop an internal candidate are failing. Good companies need to manage a lot more than money and day-to-day operation. Companies that want to have long-term success know that growing and grooming managers is a big part of the job.

 

Al Gini is a Professor of Business Ethics and Chair of the Management Department in the Quinlan School of Business at Loyola University Chicago.

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