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What Directors Think About Leadership

First Quarter 2013
Corporate Board Member
by John R. Engen

There are few things that make board members quake in their boots like the prospect of the sudden loss of a CEO. Peter Browning has witnessed firsthand the evolution of how smart boards plan for this unexpected—but not entirely unrealistic—eventuality.

“It used to be the CEO would say, ‘Look, I’ve written a name on a piece of paper, and it’s locked in my desk drawer. If something happens to me, open it up,’” says Browning, 70, managing director of Peter C. Browning & Associates, a board consulting firm.

Today, each of Browning’s four boards, including Lowe’s Cos., the Mooresville, North Carolina, retailer, and Charlotte-based steelmaker Nucor, has a comprehensive plan for what happens if the boss gets hit by the proverbial bus.

“It’s considered an obligation for all of the directors—not just the ones on the compensation or governance committees— to know what the plan is if something happens to the CEO,” he explains.

Grappling with an emergency succession— the kind that happens abruptly due to unforeseen circumstances—emerged in our survey as one of the chief worries for board members, with 74% of respondents classifying it as either a moderate or very high concern.

Daum says boards are doing a better, “more methodical” job of preparing for the worst case than they did a decade ago. “It’s on the agenda, being discussed regularly… In the past, the CEO drove succession planning—now boards do it.”

Getting the CEO’s input on succession remains crucial to doing it right. No one knows the company’s personnel and business better. Yet, a big stumbling block is often just having the conversation. Who wants to talk with the company’s leader about his or her potential demise?

James Kelly, 59, a director at A.M. Castle & Co. and Wabash National Corp., says his boards have made the conversation easier by changing the terminology. “Instead of using ‘getting hit by a bus,’ we say, ‘winning the lottery’” to discuss the possibility of the CEO’s sudden departure.

“The context is the same: What happens if that person who is there today isn’t there tomorrow?” Kelly adds. “But [framing it that way] makes having the discussion easier.”

There’s no “right” person to temporarily take the helm in a disaster scenario. Oftentimes, the outside chairman or lead director is designated for the role; sometimes it’s the chief operating or financial officer. These are not long-term solutions, merely stopgaps to allow a board time to find the right, long-term solution.

In June 2008, the board of Wachovia Corp., the big Charlotte banking company, ousted CEO Ken Thompson after the company reported massive losses on bad real estate loans.

Directors had internal candidates in mind to replace the 58-year-old leader, but “because it happened so quickly—and because of the circumstances—we felt we had to go outside the company,” says Browning, who was on Wachovia’s board at the time.

The search led a month later to Robert Steel, the former Treasury undersecretary. In the interim, directors went with one of their own, Chairman Lanty Smith, an investor with a diverse business background, to run the show. “Having a short-term successor for an emergency gave us time,” Browning says. As it turned out, it was time enough to determine Wachovia’s next strategic turn, as later that year, the board sold Wachovia to Wells Fargo & Co.

Topic tags: board of directors, corporate governance, leadership, What Directors Think

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