Tom Calloway, nonexecutive chairman of Astar Enterprises, put the phone back in its cradle as gently as he could, given the circumstances. He had just finished yet another difficult and unsatisfactory conversation with Edward Bennett, Astar’s CEO, about succession planning. Calloway wheeled his chair around and looked out over the stunning view of Boston Harbor. His 25th-floor office at Pedigree Investment Partners was smaller than the one he’d had at Puritan Bancorp before retiring as CEO four years ago, but he’d brought his impressive mahogany desk with him, and the table in the corner displayed a career’s worth of “tombstones” from major deals he’d done during his career at Puritan.
Calloway had joined the board of Astar, a highly profitable consumer products company, eight years ago and had taken over as chairman shortly after his retirement from Puritan. He enjoyed a strong working relationship with Bennett. Although they didn’t always see eye to eye, they had always been able to work out their differences. Regarding Astar’s strategy and financial matters, Bennett was invariably open and transparent. The CEO held the reins a little tighter on management and organizational issues, but as he continued to deliver results, the board was inclined to let Bennett follow his instincts. The topic of succession planning, though, was another matter.
“What does he think he is, immortal?” Calloway thought to himself. After 18 months and several conversations, Bennett had grudgingly agreed to prepare a presentation and lead a discussion on succession planning at the upcoming board meeting. But in today’s conversation, like several that had preceded it, the CEO had still been reluctant, if not downright resistant to the whole idea.
“What does he think he is, immortal?” Calloway thought to himself.
Until now, Bennett had strongly (and effectively) argued that the board should be focusing on more immediate priorities. Astar had recently initiated a major global expansion, and as the public face of the company and a dynamic speaker, Bennett had been centrally involved in the road shows required to secure equity funding from the investment banks. The effort had been successful, the company had now reached the level of funding required to support the expansion, and yet Bennett continued to maintain that his attention was better focused on implementing the new strategy than on succession planning.
It was true, Calloway thought, that this was a critical moment for Astar. It was just beginning to draw the attention of the industry’s two dominant multinational players, and the company had taken on significant financial commitments. Several board members had suggested they begin succession-planning discussions among themselves if Bennett continued to beg off. However, Calloway understood that Bennett knew more about Astar and its employees than anyone else, and he still hoped to entice the CEO to participate.
Calloway’s longtime assistant interrupted his thoughts by knocking softly at the door to alert him to a scheduled conference call on another matter. As he turned, she saw him nervously spinning the embossed “brass rat” on his MIT class ring round and round his finger. Normally, Calloway was composed in virtually any situation, but his assistant knew from their years of working together that something was deeply troubling him.
For decades, Astar Enterprises, headquartered in northern New Jersey, had been a relatively small but respected niche player in the consumer products industry, distributing a few well-known brands regionally in New England and the mid-Atlantic states. Under Bennett’s leadership during the past 15 years, the company had more than tripled in size and begun nationwide distribution. This growth had been accomplished through product line extension as well as a disciplined acquisition strategy. Astar’s current-year revenue forecast was $3 billion, and the company boasted a strong product portfolio encompassing home-cleaning and laundry care goods (notably Nature Pure detergent), as well as personal hygiene and skin care products (such as the Canterbury line of toiletries). The bulk of its products were distributed through major retailers, especially those in the supermarket, discount, and chain pharmacy channels. Astar also did private label manufacturing and had a line of professional products targeted primarily at the health care and hospitality industries.
Edward Bennett, now 64, had joined Astar 25 years ago, after a few years with a well-regarded consumer products company and a stint with an advertising agency. Since taking over as CEO, Bennett had become known as a charismatic and entrepreneurial leader. His background allowed him to develop strong personal relationships with advertising firms and key customers—relationships that were said to be hugely beneficial to Astar. In the words of an investment analyst from Pratt & Morrow: “He’s been able to get a level of attention and service from the agencies far beyond what you’d expect for a company Astar’s size.”
Bennett was also highly active and visible in industry groups and was often featured in trade publications. The personal relationships he’d developed through these associations had been central to several of Astar’s successful acquisitions.
The new global strategy was expected to increase revenues to $5 billion within three years, primarily through organic growth, although the company hadn’t ruled out a few additional niche acquisitions. Astar had maintained a relatively small presence in northern Europe and Japan for some time; now the new strategy called for a significant increase in international marketing and distribution. Accordingly, the firm had begun setting up regional sales and service units around the world and was quietly shopping for production facilities in Europe. It had also established supply sources in the Far East and Australia. Other steps taken to fuel growth included a significantly higher level of media spending and new investment in costly slotting allowances in Europe, some outsourcing of operations, and an aggressive hiring effort both to build Astar’s international units and to create a greater depth of talent in several essential functional areas at headquarters.
The global strategy wasn’t without risk. Astar was carrying a much higher level of debt than in the past, and the amount of capital raised through the equity markets had heightened institutional investors’ earnings expectations. In addition, several of Astar’s products were beginning to come under regulatory scrutiny in both the United States and Europe. Its Untamed hair color, for instance, had provoked a debate about the accuracy of its labeling, and a few consumer groups had questioned the company’s disposal of certain manufacturing waste. Although media coverage had been relatively minor, these concerns had been highlighted in both the trade and New York press.
Overshadowing the media buzz, however, was concern over competitive pressures. Bennett knew that Astar would have to move quickly to secure distribution in Europe and Asia and build its regional sales, service, and manufacturing capabilities before its much larger and better-established competitors could preempt the company’s strategy.
A Restless Board
Over the years, Bennett had handpicked the majority of Astar’s board members, and they felt a strong allegiance to him. However, two members, both of whom had just recently joined, had begun to push Calloway to more forcefully raise the issue of succession planning. Ann Rinaldi, a powerful senior executive from Radient Corporation, had taken over as head of the compensation committee last year. From the beginning, she had called attention to Bennett’s age and tenure, arguing that Astar’s stock price and bond ratings would take a major hit if Bennett were to leave or be incapacitated unexpectedly—especially now that the new strategy was in place. Her passion on the subject was reinforced by her own experience. When she was a young woman, her uncle, the head of a large privately held company, had died suddenly without an internal successor. She could vividly recall the resulting business problems that befell the company.
Fred Henderson, the other new member, had been assigned to the nominating committee, which also served as the board’s governance committee. Henderson was a longtime senior executive at Luton Industries, an enormously successful global manufacturing company with a rich tradition of succession planning and executive development. Other board members were familiar with Luton’s reputation for producing world-class senior executives. They had been intrigued to learn of the extent to which Luton’s board had been involved in a highly publicized series of promotions among the company’s senior management ranks. Henderson argued that the lack of attention to CEO succession at Astar was a major lapse in the board’s fiduciary responsibilities, as well as a possible violation of SEC regulations and the rules governing listings on the New York Stock Exchange. In short, Astar’s board, long passive on the subject of succession planning, was showing an increased desire to join with Bennett in a more-detailed discussion of the topic—although some members counseled caution for fear of signaling displeasure with Bennett’s performance.
Preparation, at Last
That same day, Gail Thompson, Astar’s veteran senior vice president of human resources, seeing the door open, walked into Bennett’s office for their 11:00 am meeting. Normally, she enjoyed rolling up her sleeves to work with Bennett. He was an engaging manager, and Thompson loved the light, tasteful look of his office: the sweeping view of the Astar campus, the Andy Warhol silk screen print, the blond 1960s Danish furniture, and the framed cover of AdAge that featured Bennett. Even the inscribed baseball bat leaning in the corner, a present from the New York Yankees for a joint promotion a few years ago involving the Modern Man line of deodorants and body washes. That last project had been a labor of love for Bennett, a die-hard Yankees fan who regularly held senior executive events at Yankee Stadium. Thompson fondly recalled sitting in the Astar box at several games and the chance these outings provided to develop a real rapport with her normally hard-charging boss.
Today’s issue, however, was volatile. While Bennett typically approached issues in a focused, businesslike way, succession planning, Thompson had found, was likely to set off a tirade. After many requests on her part, the two had met the previous week, along with Astar’s former vice chairman, Vincent Dalton, to put together a list of potential CEO candidates. Bennett had included Dalton in the discussion to tap into his deep knowledge of the company, especially since Dalton was retired and had no particular loyalties or axes to grind. Thompson and Bennett were meeting again today so that the CEO could review the materials Thompson had put together following that conversation. But before she could hand him the folder, Bennett exploded. “When will these guys back off? I’ve told them who the candidates are. Why do we need to talk about it? Why do they need to ‘get to know’ them better? If, God forbid, something happens to me, Tom Terrell could step into my shoes tomorrow.”
Bennett exploded. “When will these guys back off? I’ve told them who the candidates are. Why do we need to talk about it?”
He went on to sing the praises of the four managers who had made the list they’d prepared. Terrell, his number two, had a strong sales and marketing background and a long history with the company, not to mention great people and financial management skills. The other three candidates were nearly as strong and would only need, as Bennett put it, “time to grow into the job.”
Who’s on Deck?
Astar had just made two key hires, Bennett continued—potential superstars, just one level down—who added bench strength to the current list of possible successors. The headhunter who’d brought in the new players had told Bennett that Astar had a great reputation on the street, so the company could easily recruit an outsider for the top job, if need be. In Bennett’s mind, the board’s “sudden interest” in succession planning would merely distract his team from the strategic tasks at hand—to outmaneuver the industry behemoths and satisfy investors. “The last thing I need is for the board to trigger a horse race or for Terrell and the rest to focus on building their visibility with the board,” he rumbled. “Don’t they trust my judgment? They know I’m not going anywhere soon. I’m as healthy as a 50-year-old! What are they trying to do—run me off?”
As she had learned to do from previous conversations on the topic, Thompson let this particular storm blow over. After a while, Bennett calmed down, and she was able to engage him in reviewing the draft succession-planning materials for next week’s board meeting. But as she left his office, Thompson had the feeling she was watching an impending train wreck, one she could do nothing to avert.
Over the past six months, she had fielded several concerned calls from board members on the subject of succession planning, and she had been collared by two after the last board meeting. She also knew that the board was unlikely to consider Tom Terrell, the current vice chairman, as a bona fide successor for anything beyond a brief transition phase in an emergency situation. Although Calloway and the others respected Terrell for his knowledge of and loyalty to the company and for his implementation ability, he was seen as Bennett’s perennial lieutenant, and there were concerns about his strategic ability. Only one of the other three candidates was familiar to the board—Marianne Klein, executive vice president of corporate services, who presented to them regularly on investor relations issues. Robert Glenn, head of Astar’s Consumer Products Group, North America, had met with the board only for a few tightly controlled presentations, and board members had barely even heard of Brian Jacobs, the vice president of sales and marketing reporting to Glenn. As for Dalton, Thompson questioned his objectivity: He had done little to challenge his former boss’s view of the candidates when they had met last week.
Thompson knew from talking with other executives at Consortium 50, a networking group of corporate HR heads, that succession planning could be the toughest personnel-related issue for CEOs to deal with, given the highly personal nature of the topic. Still, she was surprised by how hard she had had to work to get Bennett to agree to last week’s meeting. Planning for the global growth strategy had included staffing needs from day one, and she and Bennett had met regularly to pinpoint recruiting requirements. On several occasions, she had tried to play off of Bennett’s respect for the Yankees’ vaunted minor league farm team in hopes of making the point that developing talent for the long term helped make a championship organization. But she had never been successful in drawing the analogy to succession planning for Astar’s own team.
Normally, Thompson looked forward to the chance to interact with the directors at Astar’s board meetings. But this upcoming session was sure to be difficult, and she dreaded the prospect of being caught in the middle.
Still Twisting the Rat
Later that day, after his conference call and a luncheon on behalf of Charles River Community Boating, one of his favorite causes, Calloway returned to his office and reflected on his morning conversation with Bennett. Although Bennett had agreed to a discussion of succession planning at the next board meeting, Calloway still had doubts about how open and constructive the CEO would be, given his seeming aversion to the topic. As he unconsciously twisted his college ring, Calloway truly hoped that the packet of succession-planning materials Bennett had promised to send along would be thoughtful and indicate a willingness to work with the board on the subject. If not? Calloway still struggled with devising a game plan if Bennett continued to refuse to play ball.
How should Calloway and the board approach the issue of succession at Astar Enterprises?
John W. Rowe is the executive chairman of Aetna, which is based in Hartford, Connecticut.
The board certainly needs to engage Edward Bennett in a discussion. Even though the CEO has no immediate intention to retire, he has to give the board some rough outline of his plans—specifically his timing—especially considering his age. Then he and the board need to establish the selection criteria for his successor, which they should use to inform the development process for Robert Glenn, Marianne Klein, and Brian Jacobs. It’s pretty clear, at least from HR head Gail Thompson’s perspective, that while Bennett’s number two, Tom Terrell, might be able to step in during an emergency, he’s very unlikely to become CEO on a permanent basis. What the board should do is involve Terrell in the process and be straight with him about his prospects of becoming CEO. He deserves a clear view of his chances of stepping up, in the event that another opportunity outside the company arises. Of course, the board would be risking an adverse reaction, but where’s he going to go at 62? He’s got a great job, he’s well compensated, and he’s not going to go become CEO at another company. Why not get him to help?
Given that there’s been no discussion of CEO succession at Astar, one of the rumors going around among the executive team must be, “He [Bennett] is so old. We’re so young. They never invite us to board meetings. So they must be looking outside.” That’s of more concern to me than Bennett’s notion that a horse race will distract his team from its goals. It’s not intrinsically distracting so long as team members don’t believe a decision will be made in the next six to 12 months, unless the succession process becomes intensely political and erodes their cooperative spirit. (It’s the CEO’s job to prevent that.) If anything, a horse race might encourage them to work harder and deliver on their plans.
The rumor among the executive team must be, “Bennett’s so old. We’re so young. They never invite us to board meetings. So they must be looking outside.”
At Aetna, the board reviews succession management plans for the top 200 executives—both the immediate successor for each position, should the incumbent fall ill or leave, and the possible longer-term successors. For the top 40 (the five or six top positions in each function), we go into more detail. As for my job, I became executive chairman in February after serving six years as chairman and CEO, and we were fortunate to have an internal candidate succeed me as CEO who will also assume the chairman role when I retire in October. Like everyone at Aetna, he had a development plan, and we had a window of a couple of years during which we could keep the requirements of the CEO job in mind in his plan. Thus, we were able to ensure that he had the opportunity to develop in any areas where he might not have been ready.
That’s what Astar should be doing with Glenn, Klein, and Jacobs. If you look at the company’s strategy, you can see that it entails a fair amount of international activity in terms of product distribution, developing new suppliers, and so forth. It seems it would be appropriate for the new CEO to have some experience outside the U.S., which none of them has to any great extent. Bennett might start giving them international assignments to ready them for that aspect of the job.
It’s also clear that these three have had very little exposure to the board. If I were Tom Calloway, I’d talk to Bennett about making sure each has a chance to present to the board three or four times in the next 18 months and also have them attend dinners with its members. Over the course of a year or two, board members will get a reasonable exposure to the candidates in a number of settings. My experience has been that executives always appreciate visibility with the board, and its members certainly benefit from getting to know business leaders in informal or social settings.
This is a story about leadership—or the apparent lack thereof on the part of the board. Calloway may be frustrated, but he needs to take a more active role as chairman, rather than sit there fuming about Bennett’s lack of cooperation.
Astar is fortunate in several ways. It has Tom Terrell, who can step in as a stopgap if Bennett gets hit by the proverbial truck. It has experienced board members. It has a couple of talented people coming up in the company—Glenn and Klein. Both are fairly unidimensional at this point, but their skills are complementary. And Astar has a hidden treasure in Thompson, a wise HR person who understands the need to get a succession management process in place.
What Bennett’s put together for the board is not a succession plan. It doesn’t say anything about development of the candidates. The transition to CEO is an order of magnitude more dramatic a change in responsibility than any other promotion, and it’s the board’s and the CEO’s responsibility to shareholders, customers, and employees to ensure that the people who are in line for the job will be ready when the time comes.
Astar has just launched a strategy to increase the size of the company by more than 60%, mostly through international growth, but the candidates don’t have the experience to execute that plan. I’m not even sure Glenn has a passport. Klein has good interpersonal skills but little operational experience. Jacobs seems like a candidate to replace Glenn.
Glenn is 48. He’s been with the company for eight years. If he’s as good as he looks on paper, he’s going to want to be CEO of some company before long. I’m not in favor of a clear–heir apparent strategy, where you secretly promise the job to one person, but if he doesn’t get an indication that some progress is being made in the succession plan, Astar may lose him. Same with the others.
It would also not be unreasonable to cast about for external candidates, though internal successors tend to perform better. It might actually make sense to add a couple of new executives, ideally with international experience. A $5 billion company could stand to have a fuller executive team.
Contrast Astar’s lack of preparedness with the recent news at Microsoft. Time will tell what will happen, but on the face of it, Bill Gates’s June announcement of his succession plans was the result of a carefully crafted process. He’s developed Steve Ballmer for a long time, and he’s brought in Ray Ozzie as his new chief of technology. He’s announced his ultimate retirement two years in advance. He’s also reassured shareholders by communicating his confidence in his team’s ability to run the business without him. What’s more, Gates can walk away because he has somewhere to go, as he assumes the role of head of the Gates foundation. You get the sense that he’s not going to reappear in two years and grab back his old position.
That does happen. A CEO reluctantly relinquishes the job and waits in the wings for the newcomer to stumble, whereupon the hero returns to take back the reins. That’s why in Calloway’s place I wouldn’t put Bennett into the chairmanship, now or when he retires as CEO. We don’t know why Astar has taken the somewhat unusual step of separating these roles, but under the circumstances it’s a clear advantage. The risk is that employees, investors, and customers would continue to look to Bennett, and given his history he would probably have difficulty ceding control.
I wouldn’t put Bennett into the chairmanship, now or when he retires as CEO.
Calloway himself is a retired CEO. He’s made a successful transition, and he more than anyone can demonstrate to Bennett that there is indeed a life after Astar Enterprises. To be persuaded to release the reins, Bennett needs a clear line of sight into what will happen to him in the future. He is hugely valuable at this risky crossroads. But in the end, board members must remember that with or without Bennett’s enthusiastic support, they are responsible for the long-term well-being of their company.
Jay A. Conger (firstname.lastname@example.org) is the Henry Kravis Research Professor of Leadership at Claremont McKenna College and a visiting professor of organizational behavior at the London Business School. His most recent article for Harvard Business Review is “Developing Your Leadership Pipeline,” with Robert M. Fulmer (December 2003).
Douglas A. Ready (email@example.com) is a visiting professor of organizational behavior at London Business School. He is the author of the Harvard Business Review article “How to Grow Great Leaders” (December 2004).
Paradoxically, if Bennett were to die suddenly without a qualified successor, it might be good news for shareholders in the short term. When L-3 Communications’ charismatic and entrepreneurial CEO Frank Lanza (a man much like Bennett) died unexpectedly in June without a successor, the share price actually went up. That happens again and again: The lack of bench strength makes the company seem ripe for a takeover, so investors buy up shares. They scramble when the company is most vulnerable.
But that’s not a good strategy for the longer term. And when you lose a strong CEO for other reasons, including retirement, the stock price suffers if you don’t have a solid succession plan in hand. Xerox’s share price has yet to recover after outsider Richard Thoman took over from Paul Allaire and was then ousted in 2000. Even a strong outsider like Bob Nardelli at Home Depot hasn’t been able to do much for the company’s stock price.
Astar’s list of possible successors is woefully inadequate. Bennett’s “ready now” candidate is only two years younger than he is. If the CEO retires in, say, three years, Terrell will be 65, which isn’t ideal for a company with an aggressive global growth strategy on its plate, even if he were a more strategic thinker. This is not an unusual scenario. CEOs often consider their number two as heir apparent, and that person tends to have complementary strengths—frequently financial or operational skills as opposed to vision and charisma—so he or she doesn’t necessarily have what it takes to be a CEO. This is what happened at Coke after Roberto Goizueta died and left the company in the hands of his number two, Douglas Ivester, who proved unqualified for the job.
As for the other three, Glenn is the only one who’s remotely ready—and he’s probably a good five years away. He has P&L experience, but he’s weak on external stakeholder management. A counterintuitive next placement for him might be senior vice president of governance and regulatory affairs. Then he needs an international role. Klein hasn’t had one day of P&L experience; she’s at least seven to eight years out. And Jacobs is a successor for Glenn’s job—in three or four years—but not Bennett’s.
Bennett is a classic workaholic. There’s no indication that, other than his interest in baseball, he has any life outside Astar. The company is his family, and he doesn’t want to leave. His concern about distracting his team and having other priorities is a complete smoke screen. A fundamental part of his job as CEO is to make sure he has a cadre of suitable executives to continue the legacy. That said, Bennett needs to be approached with a soft touch. You only go behind his back as a last resort, because if the relationship between Bennett and the board becomes confrontational, the media will get wind of it, and all the great things Bennett’s done for the company will be overshadowed by his end-of-career derailment.
Bennett needs to be approached with a soft touch. You only go behind his back as a last resort.
One idea, since he’s a maniacal Yankees fan, would be for Thompson to try to engineer a once-in-a-lifetime opportunity to sit down with Yankees manager Joe Torre, who’s known for his farm teams. Fred Henderson could also arrange for Bennett to meet the CEO of Luton, which is known for succession management. CEOs greatly value off-line discussions with peers. And Calloway himself could help Bennett see that there can be life beyond Astar, or a different life with Astar, having made the transition from Puritan to Pedigree.
One final thought: This is not just a Bennett problem. Calloway has been on the board for eight years, chairman for four. When he became chairman, Bennett was 60. Bennett is anxious about the process and he’s pouting, but the board is letting him get away with it. In this, it has shrunk from one of its most important fiduciary responsibilities.
Michael Jordan is the CEO of Electronic Data Systems Corporation in Plano, Texas.
This is not an unfamiliar problem. If Bennett is 64, then he could be one year away from his company’s nominal retirement age. That’s what’s really bugging the guy. He doesn’t want to talk about succession because he doesn’t want to leave. He doesn’t want to get pushed out at a time when he thinks he’s indispensable to the company. Nor, if I were on the board, would I want him to leave: Clearly, execution of the new strategy would suffer if Astar were to lose him.
Assuming that’s the case, assuming that the board doesn’t want him out in a year, the first thing I would do in Calloway’s position is to make it clear that this is a three- or four-year process, because if Bennett thinks a successor will be named in only a year, he’s going to subvert every attempt to come up with a transition plan.
If Bennett thinks a successor will be named in only a year, he’s going to subvert every attempt to come up with a transition plan.
If he wants to stay longer than four years, though, Calloway has to say, “That’s not good governance for us.” That doesn’t mean Bennett couldn’t stay on as chairman, but at some point enough’s enough, and you need a new leader.
If Bennett still drags his feet, I’d ask him the beer truck question: “What happens to this company if you get hit by a beer truck?” If he says his number two can step in—which is exactly what Bennett will say—I’d reply, “No, he can’t. Under no circumstances are we putting your buddy in the job. And if we have to go through an unplanned transition, all the hard work you’ve done could go out the window. The stock could crash. Terrell isn’t the guy—if we had to put him in, he wouldn’t last nine months—and we don’t want to make two transitions in a year.” I’d paint a pretty bad picture.
Bennett’s sort of a one-man band, a dominant leader who enjoys being in control. So even after Calloway deals with the CEO’s personal anxieties about how long he can stay and emphasizes the consequences of an unplanned transition, Bennett may continue to resist. Then I’d get tough and say, “I, as chairman, am going to meet and spend time with the company’s top 20 people—not just to inform the succession management process but also because the chairman should understand the talent. I want to get to know them because that’s my job.”
You would be surprised by what you learn. For instance, you may have some idea of who the candidates are, and one may seem like the obvious front-runner, but over time as you get to know them all, others may emerge who have better strategic skills or better insights. Bennett may dismiss Calloway’s wish to spend time with the potential successors, but every board should at the very least become familiar with the CEO’s direct reports. I’d look at the very high-potential people at the next level, too. After all, Reginald Jones selected Jack Welch from the second level of General Electric’s executive ranks.
The board needs to do more than just develop a succession plan; it needs to revisit that plan with some frequency. Twice a year, it should meet to talk about high-potential people: what skills they need to develop and how much progress they’re making. The plan may change over time because the company’s needs may change. Sometimes, you want a strategic leader, a boat rocker who will make lots of changes. Sometimes, you want a stable administrator who will lead along the established track. It depends on the board’s assessment of the leadership style that the particular situation calls for. There is no such thing as a universal CEO.