Corporate Succession Planning Is Key to Smooth Transitions

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McCormick President and CEO Lawrence E. Kurzius, left, and Executive Chairman Alan Wilson, at the company's Technical Innovation Center in Hunt Valley, Md., on May 25. Both men have long tenures with the world's largest spice maker and Mr. Wilson preceded Mr. Kurzius as CEO. ENLARGE
McCormick President and CEO Lawrence E. Kurzius, left, and Executive Chairman Alan Wilson, at the company’s Technical Innovation Center in Hunt Valley, Md., on May 25. Both men have long tenures with the world’s largest spice maker and Mr. Wilson preceded Mr. Kurzius as CEO. Photo: Jeff Lautenberger For The Wall Street Journal

SPARKS, Md.— Lawrence E. Kurzius laid out plans to replace himself as chief executive of McCormick & Co. when he met with the company’s board in late January at its headquarters here.

The timing was unusual: It was the week before the 58-year-old had even started the top job at the world’s largest spice maker.

Succession planning gets discussed early and often at the 127-year-old manufacturer, a lesson learned in part by the unexpected death of a previous CEO and heart problems that forced the subsequent chief’s premature exit. “I didn’t want to go face down in my cereal my last day of work,’’ says Alan Wilson, who on Feb. 1 handed the reins to Mr. Kurzius, a boyish-looking executive just three months younger.

McCormick uses many of the same tools that other companies do: a long-term strategic outlook, regular assessments and job rotations for senior executives, in addition to hiring an outside leadership-development firm.

But McCormick directors’ early involvement and a corporate culture focused on cultivating insiders for the top job have kept transitions smoother than elsewhere in recent years. “The process works,’’ says Michael Mangan, lead independent director.

Many corporate boards fumble the changing of the guard, widely considered their most important duty. Power transfers recently have tripped up Walt Disney Co. DIS -0.32 % , home builder PulteGroup Inc. PHM 1.70 % and teen retailer Abercrombie & Fitch Co. ANF -0.89 %

ENLARGE

Stock-market returns suffer when large public companies force out their CEOs, concluded a 2015 study by Strategy&, a consulting firm. Median relative total shareholder return drops to -13% at those companies in the year leading up to the forced exit, compared with -0.5% in the year leading up to planned successions, the study found.

“CEO succession planning isn’t rocket science,” says Noel Tichy, author of the 2014 book, “Succession,’’ and a professor at the University of Michigan’s Ross School of Business. “Yet 80% of the biggest U.S. companies get it wrong because they fail to focus on the political and cultural fundamentals.’’

Disney lacks a No. 2 executive nearly 11 years into CEO Bob Iger’s tenure following the surprise exit of his expected heir apparent Thomas Staggs earlier this month. With few internal candidates, the board must find an executive ready to take command of the media giant in two years when the 65-year-old Mr. Iger plans to retire. Disney declined to comment.

Boards frequently don’t prepare to select a new chief until a year or two before the incumbent is slated to exit, when “it’s too late to develop someone,’’ says Deborah Rubin, a senior partner at RHR International, the leadership-development firm that has advised McCormick for decades.

Boards increasingly are recognizing that risk.

Only 48% of 783 board members polled last year by PwC LLP said their boards spend sufficient time on CEO succession—a sharp drop from 62% in 2014.

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At Abercrombie, “there was no serious talent development in the organization. There were no strong leaders” below longtime CEO Mike Jeffries, says Arthur Martinez, who joined as chairman in 2014. “We set the train in motion on succession.”

With sales slumping, the company hired two executives to lead its biggest brands that year, and in late 2014 asked the then 70-year-old Mr. Jeffries to leave. But neither new brand president was ready to be CEO. Mr. Jeffries couldn’t be reached for comment.

More than 500 days later, the company still has no CEO and is managed by a group of executives headed by Mr. Martinez. One brand president left unexpectedly in December and the other, Fran Horowitz, was promoted. She reports to Mr. Martinez, now executive chairman. “I’m pleased with the progress we’ve made,’’ he says.

Many CEOs “can’t handle the fact that they may have to retire at some time and not have all the trappings and perks,’’ says Robert Lawless, who was 61 when he stepped down in 2008 as McCormick’s CEO after 11 years. While in charge, he insisted that fellow directors tie his annual bonus partly to succession planning.

Mr. Lawless set his target departure date five years in advance. “I better have succession candidates ready or I am not going anywhere,’’ he recalls telling board members.

That same year, McCormick bought Zatarain’s, a small spice company led by Mr. Kurzius. Mr. Lawless told him he could be a long-shot candidate for CEO, the younger man recalls. “That encouraged me to stay.’’

Mr. Lawless says he pushed Mr. Kurzius to broaden his management experience and gave higher-ranked executives challenging assignments, such as working abroad. Directors chose Mr. Wilson, one of those executives, as the company’s next leader in January 2008.

Among the written tips Mr. Lawless gave him: “You have to start thinking about a succession plan.’’ Mr. Lawless says he brought up such planning every time he met with the new CEO during his year as nonexecutive chairman.

Mr. Wilson heeded him. He briefed board members that first year about how he hoped to plug experience gaps for colleagues who might fill his shoes after eight to 10 years. In late 2012, he and the board narrowed the field to Mr. Kurzius and two others.

RHR identified their strengths and weaknesses through psychological tests and interviews. RHR coaches advised each executive about how to correct critical shortcomings and compared them with outside talent.

Mr. Kurzius says he discovered he was less familiar to the board than he realized because he had spent so much time working on international operations. During the next year, he met with every director at least once.

McCormick directors liked that Mr. Kurzius “was really open with the feedback he was getting,’’ according to Mr. Wilson. He says he preferred a successor who was savvy about emerging markets. The company made Mr. Kurzius president in January 2015, and in December announced he would become CEO.

Mr. Kurzius, who hopes to shake up McCormick’s consensus culture, isn’t concerned about being second guessed by his former boss, now executive chairman. “He’s aware of the hover factor more than anyone,’’ the new CEO observes.

Mr. Wilson agrees. Remaining full-time chairman “much beyond a year,’’ he says, “is too long.’’

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Joann S. Lublin at joann.lublin@wsj.com and Theo Francis at theo.francis@wsj.com



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