Finding A NEW CEO.

What's the first thing you do after taking the helm at a struggling firm? Find a new you.

Adapted from CEO Sucession

In April 1994, six weeks into his tenure as CEO of SmithKline Beecham, Jan Leschly was already planning for his successor. Prior to his first meeting with the board, he'd worked closely with his senior VP of human resources to develop a structure for succession that reached way down into the organization and also designated a replacement for the CEO.

For a CEO taking office after the abrupt departure of a predecessor, lining up a successor might seem the least important item on a formidable list of must-dos. The replacement CEO must get control of the situation that caused the demise of the previous CEO, win over demoralized employees and unhappy investors, and put a plan into place. He or she must build a team to tackle the problems and take action. Yet planning for a successor can go a long way toward reassuring employees and investors and steadying the company. And if the new CEO isn't interested in the task, the board should be.

After all, it's human nature to avoid dealing with things that entail planning for your own demise. Yet, no CEO is ever completely safe from an abrupt end to a career, whether through illness, poor performance, or other reasons. No one is immortal and there is no guarantee that a CEO will remain with the company until retirement. Ronald Bittner, CEO of Frontier, died in office of a brain tumor. Michael Walsh, CEO of Tenneco, suffered the same fate. Furthermore, succession planning is not a phenomenon that occurs only at the top of the organization. It's an integral part of organizational development that continually identifies high-potential executives and provides them with opportunities to grow and develop. Succession planning is part of the essential team-building that any CEO performs at the beginning of his or her tenure, and it becomes part of what inspires the team to make the choices and take the actions that get the company back on track.

Companies that are truly successful at succession are those that focus on building strength and leadership at every level. If done continuously and properly, this "succession culture" becomes an integral part of the fabric of the company. A fabric or matrix is, in fact, a good way of conceptualizing "succession culture," fostering strong relationships and interdependency of individuals at all levels.

Succession planning is a process closely linked to other corporate processes, particularly the determination of strategy. Well-planned successions, in fact, start with a delineation of business strategy. The CEO who concentrates on fixing problems to the exclusion of succession planning is creating a new crisis by failing to develop the human capital that will carry a company forward.

Surprisingly, there is only a handful of companies (perhaps eight to 10 worldwide) that are successful at developing cadres of good general managers--that is, executives who can be groomed to take on a CEO's responsibilities. While companies have devised sophisticated, scientific techniques and made quantum leaps in many areas--whether in technology, in creating sophisticated alliances, in marketing, or in financial engineering--when it comes to developing leaders, everyone still points to the same companies: General Electric, Pepsico, Motorola, and Emerson Electric.

Why? Because although many companies make it a priority to hire the right CEO, few recognize the importance of shaping an ongoing process that will train and retain talented managers today who can fix immediate problems, become excellent executives tomorrow, and potential CEO candidates who can provide leadership in the future. Those who do focus on the ongoing process consistently, in both good and less-good times. Even when these leaders may be experiencing problems internally or in the marketplace, as the replacement CEO certainly does, they continue to place great emphasis on management development and the succession process.

In fact, the thriving executive recruiting sector is one indication of how unsuccessful companies have been at developing their own management talent. Many companies rely too heavily on executive search firms to compensate for their own inability to grow leaders internally. Based on our experience, there's clearly something dysfunctional in a company that has not developed capable replacement leadership, particularly at the very top. Excluding personal misconduct, the problems of the previous CEO were probably not entirely of his or her own making. The senior executives that supported the previous CEO are likely still in place and partial contributors to the business situation that caused the CEO's demise. Proper succession planning can enable the replacement CEO to quickly assess the talent that is in place and also the talent that might be needed to turn the situation around.

Why do so many companies fail to achieve a succession culture? Perhaps because so many immediate issues that have visible impact on revenue, costs, and share value prevent succession from reaching the top of the agenda. That's why the board must create a management development succession agenda. These processes are too vital to the health and continued existence of the organization to be left solely in the hands of the CEO, who may be willing or unwilling, or who, with the best intentions, may procrastinate when it comes to leadership development. Succession is a critical part of the board's primary fiduciary responsibility. Making sure that this responsibility is not ignored requires discipline and commitment on the part of the board and CEO.

Dennis C. Carey is vice chairman, U.S. of Spencer Stuart and Dayton Ogden is co-chairman of Spencer Stuart.