Leadership Succession Planning

????Q: There are 42 mainland Chinese companies on the FORTUNE Global 500 list today, as compared with only 10 in 2001. Many of these companies are still fairly young, so the question of succession planning is very top-of-mind and timely. Based on your research, how much time, and how far in advance, should a good CEO be thinking about succession planning? How much effort should they put into it, and how transparent should the process be?

????A: I'll get to your question about succession in a moment, but first let me say that the fascinating thing is that entrepreneurs and company builders are different people. There are people like Gordon Moore of Intel, Bill Gates and David Packard, Akio Morita of Sony, all of whom were entrepreneurs and then became company builders. So the first task for those that are young, for those that are building a company, for those that are entrepreneurial, the first thing they need to do is make the shift, to say "I am shifting from being an entrepreneur into being a company builder ", and the greatest ones do that.

????They make that shift from what Jerry Porras and I called being a time teller and being a clock builder, and that is a conscious shift. It's not about their temperament; it's a decision.

????You look at Sam Walton. He was an entrepreneur. He started with a single dime store and built Wal-Mart into a gigantic success over the course of his very long career. He was meeting with his store managers on his deathbed at the end. He spent his whole life doing this. He liked to say " I have the personality of a promoter, but the soul of an operator." He really had the clock builder mentality, and so as he became more of a company builder, he really got this great machine going.

????So he grows it to, at that time, somewhere between US$30 or $40 billion dollars in revenue, but the whole time he's worried about the next generation, because he knows he won't be there forever. He's watching people from within the company and he's starting to identify a few people, not all of whom proved to be the right one to succeed him. And then he made a very smooth handoff to David Glass, who was a very different personality from Sam Walton, which gets back to our previous discussion about Level 5 leaders. I think what Sam was doing was deliberately demonstrating that the success of the company was not about personality.

????It was about someone who could build and lead a company. You give the company to David Glass. What happened? We look at Wal-Mart today and it has over US$400 billion in revenues. When Sam Walton, one of the greatest entrepreneurs in American business history, died, it was less than $100 billion.

????So it keeps on going. Why?

????Because he did really great succession planning. He went from entrepreneur to company builder, to somebody who passed the company on to somebody else.

????He started worrying about that not months before, not years before, but decades before the change, because he was building a company and wanted it to be successful beyond him.

????So, to your original question, I would say good succession planning is absolutely essential, and I would add one more thing about it.

????First, your report card as a company builder, or entrepreneur, or as a CEO, doesn't come in until your successor succeeds you. Your report card is not in when you're done with the job. So, if you haven't set your successor in place as carefully as Sam Walton did, then if your successor fails, so do you.

????This is an important point: if your successor fails, so do you.

????Q: In those examples which you cite as having very successful leadership transitions, to what extent was the process of succession transparent, or was it generally more of a closed-loop process in which the company builder announced the decision at the end of the search?

????A: There was actually quite a range of different scenarios.

????Sometimes it's a growing range of responsibility for a chosen successor, and you can see who is coming up. For example, by the time David Glass became CEO of Wal-Mart, it wouldn't have been a surprise to anyone.

????Then there are well-known cases like General Electric's. Jack Welch was kind of a surprise when he was chosen. Surprise or not, his predecessor Greg Jones had made a lot of effort in testing different people before Welch was chosen; and while the process may have been somewhat transparent, it wasn't clear who would be the winner.

????I think the critical thing, however it is done, is picking the right person and ensuring the transition of power is smooth.

????In "How the Mighty Fall" we looked at great companies that fell. If you recall, I started out as a leadership skeptic, but I grudgingly came around to see how important these Level 5 leaders are. When we started looking at the decline side, we came to see something more.

????I still don't believe a single leader makes a great company -- the evidence doesn't support that -- but I do believe that the wrong leader vested with power can bring a company down. There are very few mistakes you cannot afford to make. You can recover from most mistakes; but getting your successor wrong is one mistake you cannot afford to make.

CEO Communication Skills

????Q: You mentioned that many of the great CEOs were not charismatic personalities. What if anything does that tell us about the importance of the CEO's communication skills? Can a good CEO become a great CEO without being a great communicator?

????A: I think it depends on what you mean by communication. There's a big difference between charisma and effective communication, and I believe that every one of the great CEOs that we studied were enormously effective communicators, despite most of them not being charismatic personalities.

????What were the ways in which they communicate? Part of it might be the way they articulate something, but this wasn't always their strength. It was mainly by their decisions, and by being able to connect the dots of those decisions; and most important, by their people decisions.

????Let me briefly tell a story about communication, direction, and clarity.

????There was a great debate within Gillette some years ago, back in the good to great era of that company. Coleman Mockler, the CEO, faced a big dilemma as to whether the company was going to go with steel products or plastic products. In other words, going the high end, with more sophisticated razors like the Mach III, costing enormously large amounts of money to develop and manufacture, which they called the steel strategy; or going the lower end with plastic, commodity-type disposable product, which they called the plastic strategy.

????Mockler didn't know the right answer, because you could argue the pros and cons of both strategies. What he did was bring together both sides of the argument, with a pro-steel camp and a pro-plastic camp, to study and debate the merits of both. He would listen to the debate, the arguments, and review the evidence on both sides, until he finally reached a point of clarity. His conclusion was that the steel strategy would be the best choice.

????How did he communicate this? He took the proven champion of the pro-steel camp and put him in charge of the razor business. At that point, there was no ambiguity about where they were going, what the strategy was, which strategy made more sense, or which side won the argument. In one simple people decision reflecting a strategic direction, he communicated more effectively than if he had been able to give ten great speeches or write all kinds of things about that decision.

????So you stand back and ask "Was Coleman Mockler a great communicator?" If you look at his speeches, the answer is no. He wasn't a great communicator in that sense. But if you ask whether or not he communicated effectively, the answer is yes; he communicated with great effectiveness through his decisions.