Investors pay dearly for lack of CEO succession planning

By Nicholas Bryant

Friday 4th August 2000

Investors are anxious about a spate of chief executive departures from key listed companies, revealing a lack of succession planning in some of our biggest organisations.

The most recent was the leaked news that long-time Dairy Board chief executive Warren Larsen was leaving.

Its handling was criticised by dairy lobby groups, which said it was untimely as it came when the industry faces upheaval.

Air New Zealand's nine-year boss Jim McCrea made a surprise announcement last month he was stepping down.

Having pulled away from a dismal two-month period, in which it hit $1.95, Air NZ shares have fallen since to $1.79.

And last week Contact Energy's Paul Anthony, whose high salary has been controversial, said he was leaving for a job in the UK - an announcement that caused the company's share price to plunge 30c from $2.95 to $2.65.

Investors were also taken aback when Metlifecare's Mark Russell said he was leaving in early July.

Already on a downward spiral the company's shares also plummeted 30c, from $1.70 to $1.40. Cedenco chairman and former Institute of Directors president Basil Logan said investors had good reason to be anxious.

"Investors look at the total management team to see there is depth, but would be concerned if there is any gap in the management process because of the loss of a chief executive," Mr Logan said.

But in this country there is a limited pool of chief executive level talent and many local companies are not fostering potential chief executives from within their own ranks.

The ideal situation is the development of "superleaders" who become role models for subordinates and give a strong sense of direction to the organisation.

"Essentially, superleaders work themselves out of a job, but not an organisation. Their roles change from controlling individuals to ones where they set objectives and offer overall guidance," said Rose Trevelyan of the Australian Graduate School of Management.

Telecom chairman Roderick Deane is an example of a local superleader.

He handed over the reins of the country's largest company to Theresa Gattung last year.

Sir Ron Trotter is another.

A big believer in fostering talent from within and "giving them a chance young," Sir Ron said that was not only a key to great results but one of the few chances New Zealand had of keeping its brightest in the country.

"While more often than not succession planning never works out the way you plan, you have to develop people by giving them responsibility, management and testing ... I have been surprised by how young people will grow and flourish with responsibility," Sir Ron said.

Meanwhile, Dennis Carey and Dayton Ogden, authors of the just-published CEO Succession, said succession planning was not often taken seriously enough by corporates but could work if done so.

Over the past four years the two men have helped place more than 50 CEOs in some of the world's largest companies.

"The book offers a long overdue antidote to what shareholders, the financial sector and the media have decried as a lack of board leadership in carrying out its fundamental fiduciary responsibility: ensuring the steady flow of effective leadership," Mr Carey said.

One chief executive heeding the expert's message is Lion Nathan chief executive Gordon Cairns.

"The CEO's priority must be to find a potential successor," he said. "That goes hand in glove with the company's success because in developing your top team you develop success," he said.

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