Grooming the future executive

By Douglas Wood
CNN

(CNN) -- When the big boss quits, many companies lack direction as they sort through the imposing task of filling the all-important seat.

A survey by the National Association of Corporate Directors found that 45 percent of boards of directors at companies with more than $500 million in sales had no meaningful CEO succession process.

Unless someone is specifically tasked with creating and maintaining a succession plan, it is often overlooked, said Eric Bolesh, senior analyst at Cutting Edge Information, a North Carolina-based business research firm.

"It's one of those things that slips through the cracks," he said.

Cutting Edge Information recently released a study titled "Succession Planning For Results" that examined the succession plans of a number of major corporations. The study found that organizations that do not develop future leaders will pay for good leaders from outside, and know where to go when looking for managers and executives.

Those companies that groom successful leaders often have long-term succession plans and programs in place to promote and nurture potential executives, including employee reviews and tools to monitor potential candidates.

Bolesh said most companies prefer to promote from within, even for senior executive slots, because of the time and money invested in key personnel. In-house candidates also know the company, individuals and product, and have experience with both the successes and failures of the company.

"They don't want to see these individuals jump ship and go elsewhere," he said.

Candidates for a top-level job are expected to have experience, preferably in the same industry, and a vision of where they think the company should be going.

Outside candidates are a consideration, especially if a company board is seeking a new direction or if the company is experiencing a major industry change.

However, there may be more political or legal issues involved in outside candidates. In-house candidates aren't going to experience the same "formulaic objections" that outside candidates might, Bolesh said.

But companies seeking the widest pool of candidates may be missing some key candidates. Women are often passed over for top-level jobs, said Victoria Medvec, a business professor at Northwestern University's Kellogg School of Management and director of the school's Center for Executive Women.

"The key problem is that they are often not considered," she said.

Medvec said women tend to be in staff jobs, such as marketing or human resources. These positions often involve interaction with top-level management, but are very narrowly focused, unlike operational positions that entail lots of responsibility, such as the head of a division.

Companies are usually interested in candidates who have experience running the entire business, so Medvec advises women interested in advancing to senior-level positions to seek positions with financial responsibility.

Medvec cited Avon and Kraft -- both of which have female CEOs -- as having excellent programs in place for identifying potential candidates for leadership positions.

Once a CEO position is open, however, unless a formal process is in place, an executive search can become political, depending on the board, the outgoing CEO and the company.

In that case, an executive's skill in navigating company politics and ability to work with the board of director's may be a valued asset.

"These people are savvy. They didn't get to their position without knowing what's going on," Bolesh said.

The Cutting Edge Information study identified Xerox and General Electric as two companies that have built their entire leadership structures around succession. Company culture and procedures support this approach, and company leaders are constantly thinking about employee development.