CorpComms Magazine

Succession scandals used to be largely restricted to royalty and politicians. In these days of celebrity chief executives, however, the snakes and ladders are almost as fierce in business as in football management, where tenure can be counted in days rather than years.

Take the last few months. In America, the favourite candidate to succeed the world's third richest man at the helm of the nation's pre-eminent investment group quit suddenly amid news that he had bought shares in a company he recommended that his boss acquire.

In Britain, a 7.5 per cent share price fall wiped £2 billion from the value of one of the nation's most successful companies as it shocked the market with the news that a relatively unknown insider was to replace its chief executive of the past 16 years.

Then a bungled selection of chairman for a commodities company steering Britain's biggest ever flotation was followed swiftly by a newspaper interview in which the successful candidate held forth with decidedly politically incorrect views about women and immigration.

There's no shortage of other succession woe to rival these tales of Warren Buffett and David Sokol at Berkshire Hathaway, Bart Becht and Rakesh Kapoor at household products group Reckitt Benckiser and former foreign legionnaire Simon Murray at Glencore.

Yet, why is chief executive and chairman succession such a perennially tricky business? It's not as if the powers at the top don't recognise the problem. Surveys of chief executives and chairman regularly show that many operate under no pretences. 'Old men - and I am one of them - have a huge belief in their own importance,' one chairman told headhunters Heidrick & Struggles.

'The longer they've been on the board, the longer they want to go on.'

Another raised an 'emperor's new clothes' scenario, saying: 'As chairman, you are felt to be at the top of your profession. Nobody knows how to take authority for starting the conversation about your departure,' while others said they would be seen as 'lame ducks' if people knew their leaving dates.

'As soon as somebody owns the...succession discussion, they are perceived as a contender,' one chairman complained.

As communication directors are not normally in that position and are tasked with protecting corporate reputations, dealing with the collateral of succession crises often falls to them but it's a tricky business.

Andy Berry, head of City and investor communications at public relations agency Fishburn Hedges, states: 'You've got so many business celebrities at the helm who are deemed to be so important to the reputations, brands and public faces of companies that shareholders are readily rattled if the succession is not handled in the right way.

'Reckitt Benckiser is a good example of what I call an unholy trinity of factors. The appointment was a surprise, which the market never likes.

'The company had also not done very much to prevent a star culture developing around Becht, who had become synonymous with its success, and the third factor is that the successor was relatively unknown. The combination of all three was the reason why the share price reaction was as severe as it was.'

Another communicator believes the truth is more to do with human weakness. 'Companies get it wrong because chairmen and chief executives actually believe that the world is full of red carpets,' she says. 'They think they are invincible and will go on forever and that their companies cannot go on without them so their companies find it very difficult to plan around that. And everyone knows that power corrupts.'

The importance of succession planning to a company's share price and reputation with investors, governments, customers and employees means it is hugely important to get the organisation and communications right but where should communicators start?

Right from the beginning, says Geraldine Davies, the former Prudential corporate relations director who now leads the senior corporate communications practice of recruitment firm Ellwood & Atfield.

'It's absolutely essential that the communications director is brought in to the heart of succession thought and planning so they can think their way around the implications when something happens,' she says.

'It's also absolutely essential that communications directors are in at the beginning of any succession crisis or disquiet or even the first inkling that the chief executive needs to move on because the communications director needs to be part of that debate.'

That often puts communications directors in a terrible position, because, while they report to the chief executive, their duty is to represent the whole board and they also have to manage internal communications so employees are fully engaged with the organisation and its leadership.

Be bold with the board

Claire Tuffin, managing director of specialist communications executive search and direction firm VMA Group, says companies recruiting corporate communications personnel are now just as interested in how they operate internally as how they relate to the media.

Having worked at financial public relations agency Brunswick and as head of communications for Dairy Crest before moving into recruitment, she believes communicators have to be brave enough to tackle the situation head on.

'My advice to communicators is: do not be afraid to get involved with the board about succession planning,' she says. 'It is part of their role to see what is coming and help the company to prepare for it.

'Succession is always the elephant in the room because people at the top don't like to talk about moving on and the people underneath them don't like to talk about how ambitious they are.

'But it's not a surprise. If people are on a board and of a certain age, the market will expect some communications at some stage about what's going to happen.

'Succession planning is sometimes a case of putting away the egos on the board and saying that the company has the responsibility to communicate succession issues effectively internally as well as externally and it has to arrive at a way of forward planning for the future.

'It has to be put on the table and agreement made over processes and time frames. It is just about being brave. This issue does not go away. It just gets swept under the carpet and then it pops out again at the worst possible time.'

Of course, in-house communicators do not have to do this alone and Davies points out the effective role that external public relations advisers can often play in succession planning situations because they are able to advise without ceding impartiality.

Even they normally need all their silver-tongued skills for this role, however. As one seasoned head of a well-known City public relations firm, puts it: 'In situations other than well-flagged retirements or illnesses, if you're telling a chief executive that their company needs to think about succession of the leadership, you're sending a signal that you don't think the market likes the one it's got.'

There are some positive case studies, however. Berry cites Tesco and Barclays, saying both started early by building awareness among both investors and journalists about the in-depth strength of their management teams.

'It needs a robustness in the chief executive's mindset so that the credit for the company's success is shared, rather than allowing a star culture to build,' he says. 'There could be as many as a dozen people who need to develop strong relationships across the media but it also requires the chief executive to step back more often than not.' Tesco is a particularly good example, as Sir Terry Leahy was widely regarded to be Britain's most respected chief executive.

However, Berry points out that he was also famously understated, with a low ego and a passionate commitment to seeing everything through the eyes of consumers.

'Tesco managed its succession handover to new chief executive Phil Clarke really well,' says Berry. 'But when you look at how Sir Terry Leahy communicated, it was always about the consumer benefits of everything the company did so it was much easier to pass that on to another member of the team. He had built a strong team and everyone expected the succession to come from within.

'Barclays also handled its chief executive succession well because Barclays Capital's chief executive Bob Diamond had been allowed latitude to build his own profile and so the City already had a relationship with him when John Varley moved on as chief executive of the group.'

Barclays' achievement is noteworthy, given the battle of personalities that the business media had built around the relationship between Varley and Diamond and their previous contest against each other to succeed former Barclays' chief executive Matt Barrett in 2004.

However, it ties in with the advice of Rod Cartwright, managing director of corporate and public affairs at Ketchum Pleon London, who says that the best companies see succession planning as a continuum.

Cartwright says: 'One of the reasons companies get this wrong is they view succession planning as an event that the chairman or chief executive has to manage at a particular point in time, rather than as a continuing process. Companies try to manage that specific time period rather than the whole journey.'

Progression not succession

Succession planning often fails because it can be a backward looking phenomenon in which boards dust down and reuse the profiles of old chief executives and, as a result, compare potential candidates against those who have previously held the position, claims Stephen Miles, vice chairman at Heidrick & Struggles.

He says: 'At a time when leadership needs to be the most forward-looking, strategic and expansive, the vast majority of companies are using outdated, off-the-shelf and narrowly focused materials as their foundational documents for the succession process. Their efforts start off on the wrong foot... and go downhill from there.' Progression planning of which there are several elements is, he argues, the answer.

1) Conducting 'progression analysis'

Companies need to take a 360 degree view of what is needed in a chief executive going forward, considering everything from the competitive situation to the internal talent bench, regulatory environment and strategic plan.

2) Building the entire leadership pipeline

Progression involves progressing the whole team around the leader, not just the leader.

3) Expecting the unexpected

Succession events can, and do, happen suddenly. Succession's static approach can catch a company off guard while a dynamic progression plan accounts for unexpected transitions.

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