Originally published in SmartCEO magazine.
In the annals of business folklore, there is an oft-used quote from the revered former CEO of GE, Jack Welch: “From now on, [choosing my successor] is the most important decision I’ll make. It occupies a considerable amount of thought almost every day.” The clincher here is that he said this in 1991, a full nine years before his anticipated retirement.
Regrettably, most are not as forward-thinking about succession planning. In fact, Jack Welch and GE are known for their leadership in this arena. What they and companies like them understand is that planning for succession at the top of an organization is not only sound strategy but an important part of risk management.
If Jack Welch and GE’s endorsement of the value of succession planning is not enough, consider the fact that a lack of this premeditation can be enormously expensive for an organization. Expensive not only in terms of the cost of higher compensation that CEOs recruited from the outside tend to receive, but in terms of lost productivity and the instability that a gap in leadership inevitably causes.
To better understand the significance and implications of succession planning or the lack thereof, let’s look at a recent situation where planning for a CEO change was not as it should have been, and analyze what transpired as a result.
Leadership crisis at United Airlines
United Airlines has captured its fair share of news these past few years, and much of it is related to what has regularly been referred to as a “leadership crisis.”
In 2010, United merged with Continental, creating the world’s largest airline. But, as the old saying goes, bigger is not necessarily better. There have been major problems with the integration, and operational issues abound. For example, in 2011, thousands of travelers were stranded after United’s computer systems shut down. In 2012, over one weekend, three United Airlines flights had to make emergency landings. Thankfully, no injuries ensued, but chaos and fear certainly did. Then 2013 and 2014 brought additional and significant computer problems as well as labor relations issues with flight attendants, mechanics and pilots. And the list goes on.
When an organization is experiencing repeated turmoil, one must inevitably ask an important question about leadership …where is it?
At the helm throughout this time was president and CEO Jeff Smisek. Smisek had been chairman, president and CEO of Continental Airlines when it merged with United, and took over leadership of the joint entity. At the outset, Smisek was seen as a star because of the wonderful job he had done at Continental. But as the mistakes and missteps mounted, his leadership credentials gradually eroded.
As Smisek’s reputation wore down, there should have been concern, and then planning for who would take his place if things did not improve. Even the best and brightest are not given inexhaustible chances.
Ultimately, a corruption probe proved to be the final straw for Smisek at United. Earlier this fall, he stepped down in connection with a federal investigation surrounding dealings with the Port Authority of New York and New Jersey. This investigation had being going on for about a year, and Smisek and United’s role was somewhat peripheral to the main story. But ultimately, it proved to be his undoing.
It is unclear whether, in spite of the red flags, a full-blown succession planning process took place at United. To its credit, United lost little time in naming a successor after Smisek’s resignation: board member Oscar Munoz. Munoz had been president of CSX Corp., a transportation company. With Munoz came a new chapter for the company and he declared that he would work on righting what was wrong and focus on innovation.
Undoubtedly, United’s various stakeholders breathed a sigh of relief. This seemed to be a smooth transition, and hopefully a sign of progress. Munoz did not bring airline industry experience to the job, but is a strong leader with expertise in a variety of financial, technology and strategic planning roles. The key to this story — and the important lesson to be learned about succession planning — was still to come.
Why you need a Plan C
Just a few weeks after stepping into the CEO role, at the youthful age of 56, Munoz suffered a debilitating heart attack. United faced yet another leadership crisis. It’s important to note that even when succession planning does take place, and even when it’s done well, it rare for a company to have a second-in-command ready to step into the top job so soon after just having completed the process. Nevertheless, after some consternation, Brett Hart, United’s executive vice president and general counsel, was appointed acting CEO and continues in this role today. Munoz is expected back in early 2016.
This type of story is fortunately uncommon. Nevertheless, it does highlight the absolute necessity of not only a Plan B, but also a Plan C and even more. Here are some additional takeaways for CEOs:
- Past achievement is (unfortunately) not a guarantee of future success. Leaders need to be monitored and managed, no matter their prior performance. While Smisek did turn around Continental, seeds of his devolution began to appear shortly after the merger with United in 2010.
- Succession planning should be a continuous process, and not only for the CEO position. United had three CEOs in two months. Clearly, at this level of an organization, it is essential to plan for the unexpected. But what’s more, at the time of Smisek’s resignation, United’s EVP of communications and government affairs as well as its SVP of corporate and government affairs also stepped down. Ideally, you will have a bench of successors ready for such positions as well.
No matter the seeming capacity and constitution of the executive, we are all vulnerable. Part and parcel of every leader’s responsibility is knowing they will eventually leave the role. This is the very simple truth, and planning for this inevitability should also be part of the simple truth in each and every company.