|MANAGEMENT SUCCESSION: “Let it go, Joe”|
How to make sure the departing CEO really departs
By Steve Cocheo, executive editor and digital content manager
As seen in the original “Godfather” movie, Don Vito Corleone, played by Marlon Brando, is sitting in the background while his son, Michael (Al Pacino), issues orders to the Corleone crime family’s chief lieutenants, Tessio and Clemenza. The subordinates clearly don’t like the way things are going. They address the old man, almost as if the new, young Godfather isn’t in the room.
The old don has all but retired. He sees that the lieutenants need to accept the new order.
Mind you, by that point, the old boss is more than happy to hand off. He’s just barely survived a hit, and is not in great health.
Even in law-abiding companies like banks, management succession doesn’t always go smoothly. Departing leaders may not really want to go, in spite of factors like “regulatory fatigue.” Or they may have trouble watching someone else revise, or even trash, their strategies.
Management succession can be found on nearly every conference program, and examiners have been asking for succession plans for years. But having plans and carrying them out well can be very different.
Reality versus theory
“I’ve never seen any bank score past a five or six, on a scale of ten, in carrying out succession,” says Jeff Gerrish of Gerrish McCreary Smith Consultants and ababj.com blogger.
“There’s always going to be some friction. But how that friction’s going to be managed starts with the board,” says Don Musso, FinPro, Inc., chief. “And it takes a little grace from the departing CEO to let go.”
Consultant John Szold at Planning for Succession says many banks have “a person, but not a program.” He says he’s seen “departing” CEOs plan to have management succession fail, producing what he calls the “boomerang effect”—they keep coming back.
And Musso adds that sometimes even having the successor is a false start, if details haven’t been thought through. He’s noticed a disturbing trend in the industry, in which CEOs wind up spending only about two years in a bank before they or the board decide it is time to part ways. That indicates “a badly arranged marriage,” says Musso.
Don’t forget, Musso adds, “management succession is a critical component of any strategic plan.” If the transition doesn’t go smoothly, strategy may suffer, too.
Who’s really in charge?
“You can prevent an old CEO’s efforts to hold on,” says Michelle Gula, succession consultant, by remembering who is in the driver’s seat. “The CEO should be part of the succession-planning process, but should not lead it,” adds Gula, head of Mrae Associates, Inc. She advocates putting much of the succession plan into writing. A key element is to commit to a memo the role the CEO is going to play in succession planning.
Even in cases where a board all but asks its examiners to apply some pressure, that rarely happens, according to David Baris, executive director of the American Association of Bank Directors. “The regulators will typically say to the board, ‘That’s your job’,” says Baris. “They tend to be reluctant about ordering a change in management. The board has the authority to make the change. It’s a matter of exercising the will to do it.”
A written timeline for transition is indispensable, according to Gula. Establishing the CEO’s role in the process and the schedule in advance, plus establishing, in writing, what the outgoing CEO’s role will be after succession settles fundamental questions, she says.
Begin with the CEO’s mindset
Something that can’t be ducked is the current CEO’s attitude toward retirement and transition. Baris notes that some institutions have solved this through mandatory retirement ages, but many organizations don’t establish these. Inevitably, how easily transition is brought up with a CEO hinges on the current leader’s attachment to the job.
Often, denial affects the situation, according to Szold. “The attitude ranges from ‘I really don’t want to go’ to ‘I’ll wait for the revelation’,” he explains. “That attitude stems from this: ‘My whole life is my job, so why would I want to leave?’”
More commonly, says Szold, incumbents are realists. “They may not like the eventuality,” he says, “but they understand the need to undertake the process.”
The CEO who will make the transition relatively smoothly is one who is capable of letting go.
“It’s a mindset,” says Szold. “It is a matter of getting job satisfaction from seeing other people do things you used to do and sharing the joy of their success—versus the person who can’t let go and whose attitude is, ‘I’m always the CEO’.”
Szold points to Apple’s Steve Jobs as an example of the right attitude. “He worked very hard to prepare Tim Cook,” named CEO in August 2011, and, in spite of the miles written about Jobs, he knew that Apple was not a one-man corporation. In Apple’s case, Cook was an insider and had served temporarily as CEO before. But in community banks, “letting go of the reins to an external person is easier,” says Gula. It’s the flip side of the greater difficulty some employees have in adjusting to a former subordinate’s moving up to the top job, and watching everyone take orders from him.
A fundamental issue that the board must be clear about early in the process is whether the CEO’s replacement will come from within or without. A subset of this is whether, in the case of a family-owned or family-dominated bank, the successor to a family CEO will be family or a hired manager.
Physical versus symbolic signals
This is both a symbolic gesture as well as a practical one: The message is sent to customers and employees who the boss now is. However, Michelle Gula says the old leader must come to terms with the change before such a physical move will become doable.
“The mindset shift is much more important than the physical shift,” explains Gula. Indeed, she says, sometimes the old CEO must help sell the change and convince staff that the new CEO is whom they should, and should want to, follow.
The day-in, day-out role of the old CEO varies. Some banks put the former leader in a business development role, or make them the bank’s “Mr. or Ms. Outside,” the person who attends industry events. Gula characterizes most of that as “pussy-footing around.” She suggests that, at times, this contributes to the bank having a split image—who is really the “face” of the bank?
There also is an element of hedging the bank’s bets to which Gula objects. Whether the new CEO is an insider or outsider, “you shouldn’t name a CEO until you trust them to run the bank. If you don’t believe in that new CEO enough to turn things over, then why did you hire them in the first place?”
In family-owned banks, sometimes the transition can be made even more difficult. This is due to the respect that directors and employees have for the outgoing CEO, where that officer is still the patriarch or matriarch, and is looked to as an authority figure—no matter whether the successor is a hired gun or a son, daughter, cousin, or other relative.
Board’s heightened role
Though boards by design don’t manage, experts say that during the transition, boards, or at least a non-executive chairman or lead director, have to be more managerial and in the bank much more frequently. It will fall to the top board member, at times, to referee transition issues and simply tell the outgoing CEO to “butt out.” In other cases, a succession consultant or other third party becomes the “go-between” between staff and the board, when there are conflicts over orders and preferences of the outgoing and incoming leaders.
A tricky issue is whether the outgoing CEO currently serves on the bank’s board, or is even the chairman. Related to this is whether the CEO should have a seat on the board after retiring.
Leaving the CEO on as chairman makes transition more difficult because this typically puts the new CEO in the continuing role of working for the old CEO. Gerrish points out that the CEO in the boardroom brings institutional knowledge and memory. However, if directors continue to look to the familiar face for answers, then transition isn’t happening. Experts tend to agree that having the chairman and CEO step down to an ordinary board seat makes for a better transition. Otherwise, says Don Musso, “the shackles are still there.”
Gerrish says he’s sometimes helped clients work out the leadership shift by devising a written job description for the departing CEO who is going to maintain a formal role. This helps set up boundaries.
Sometimes, continuing CEO energy can be harnessed. Szold suggests that some ex-CEOs can become trainers or mentors to up-and-coming bankers, keeping their hands in banking while taking them out of leadership.
[This article was posted on February 10, 2012, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2012 by the American Bankers Association.]
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