Connor Teskey, the 36-year-old president of Brookfield Asset Management and the designated successor at the global investment firm, is also known as “the next Bruce” (Bruce Flatt is the chief executive officer). In 2022 Teskey was elevated to a senior post alongside two others, with the view that one would take the helm.
Two years on, a decision has been made and Flatt is priming himself to be the executive chair. So far, smooth sailing.
Recruiters love talking about the merits of a well-planned chief executive succession process that takes place over years. After all, macroeconomic challenges, geopolitical upheavals, corporate missteps and personal conduct issues have been derailing bosses prematurely. But are there steps a company can take to increase the probability of success? And does a years-long process always avert failure?
The short answers are yes and, unfortunately, no.
The investment world has characteristics that make long-term succession planning more likely. Limited partners put up cash for investments over indefinite periods of time, so need more leadership visibility. Jonathan Gray at Blackstone has been waiting in the wings to take over from Stephen Schwarzman for years.
But beyond this sector, more companies are choosing – or being forced – to think about the next in line earlier than they once would as shareholders demand greater insight. Rather than one or two years before a planned exit, boards are under pressure to provide guidance five years ahead of time, headhunters say.
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Just as it has become normal to stress-test corporate strategies and plan for different scenarios, they are now doing the same with succession. Do they need someone to maintain the status quo, pursue growth or shift strategy altogether? This could mean prepping three different people in case there is an abrupt change of context.
“It’s about risk management and business continuity in today’s environment. They need a plan B and a plan C,” says Patricia Lenkov, an expert on corporate governance and succession.
No company wants to deal with the ramifications of disaster successions such as Microsoft’s in 2013 – when Steve Ballmer abruptly announced his departure – or Howard Schultz’s repeated return to the helm of Starbucks.
One often-cited study shows 40 per cent of chief executive transitions end in failure within 18 months. Tenure in the post is also declining.
Yet starting the hunt early is just the beginning. It allows companies to build the talent pipeline to avoid the disruption and cost of an external hire. But how chief executives are groomed and the execution of the succession process are just as important.
For large corporations, candidates need to be developed in roles that give them the breadth of experience – geographically and across different business lines. They also need time to see projects through so boards can assess performance and vet them appropriately.
How internal and external communication about successors is managed matters. If publicised too early, employees often align themselves behind a particular candidate, creating divisions in the workforce and intensifying tensions between executives fighting for the top job. Once decided, a fixed time frame is needed to ensure the successful candidate stays motivated and to keep frustrations at bay.
Often the internal candidate will have been mentored by the current chief. “It can often be difficult for this person to make strategic choices without their predecessor hanging over them”
Gordon Brown was left to stew endlessly before he got to take over as UK prime minister from Tony Blair. In the corporate world, too long a wait might encourage candidates to take up offers from elsewhere.
Boards must then deal appropriately with the losers – either find incentives to prevent them from leaving or ensure they exit without animosity. Last year, Morgan Stanley chose to award the same bonus to three candidates even though only one took the top job. The bank also gave senior roles to the two that lost out, creating a more distributed leadership model.
In some ways, once an individual is in the hot seat, things only get harder. “Sometimes you can do the planning properly and it can still be a disaster,” says Navid Nazemian, an executive coach. “Past performance unfortunately does not always dictate future performance.”
The longer an incumbent’s tenure, the trickier the transition, says Seonaid Charlesworth, a consultant at executive search firm Spencer Stuart. Often the internal candidate will have been mentored by the current chief. “It can often be difficult for this person to make strategic choices without their predecessor hanging over them.”
This is particularly tough if they lack the support of the board or the executive chairperson whose vision they might be trying to shift. The drama between Bob Iger and his successor Bob Chapek at Disney is a classic example. New bosses may also have to work at developing relationships across divisions they previously had little connection to, while winning loyalty from individuals who were once peers, as well as wider staff.
Getting succession right, in some ways, is always a fraught exercise. But boards can take steps to make sure failure isn’t guaranteed. – Copyright The Financial Times Limited 2024
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