Sunday, May 17, 2009

The Art of CEO Succession

This is not an easy time to nurture a new generation of corporate leaders. Training budgets are being slashed while a depressed housing market has made it harder to move around for better job opportunities. And yet the need for top talent is growing. A record 1,484 U.S.-based chief executives left their jobs in 2008, according to outplacement firm Challenger, Gray & Christmas. Many more could step down this year as losses mount and executive angst runs high. "The CEO job today is more stressful and draining than at any time in history," says Tom Stemberg, the founder and former CEO of Staples (SPLS). "People have just run out of gas."

At a time when corporations worldwide are crying out for new thinking, BusinessWeek (MHP) decided to take a look at some of the CEOs of tomorrow. These are senior executives who are not yet in the corner office but who have won the attention of headhunters, peers, and their own bosses. Some of the 20 leaders profiled in the next few pages are company veterans. Others have eclectic rsums that cite experience in different industries and jobs. What unites them is an understanding of the global marketplace as well as a knack for sensing and seizing new opportunities.

What's striking about many of these candidates is that they were identified as promising early on and given opportunities to prove themselves. Their careers highlight the critical importance of an oft-ignored management priority: succession. While the median CEO tenure today is just six years, according to Booz & Co., few boards and managers carefully nurture a stable of successors. Last year, the National Association of Corporate Directors found that 42.4% of companies had no succession plan at all.

The economic crisis has exacerbated this problem as resources have diminished. Guy Beaudin, an executive coach at RHR International in Toronto, has seen a 25% reduction over the past year in work helping clients groom future leaders. Veteran coach Marshall Goldsmith, who just wrote a book on succession, compares such moves to cutting back on research and development: "There's a short-term benefit but a long-term cost."

For a sense of how to do it well, look at the seamless CEO transition at DuPont (DD) earlier this year. Chief Executive Charles O. Holliday Jr. had spotted top lieutenant Ellen J. Kullman as a potential successor more than a decade ago. Holliday, a gregarious Tennessean and DuPont lifer who became CEO in early 1998, had mentored Kullman since they met in the early 1990s in Tokyo. He was running the Asia-Pacific operations, and she was visiting as a senior manager in the electronic imaging unit. He was impressed with Kullman's willingness to learn. "There goes a future leader," Holliday recalls saying to himself. Kullman remembers being peppered with questions. "He scared me," she says.

Kullman joined DuPont as a marketing manager in 1988 and was quickly promoted, distinguishing herself by improving troubled units. She was tapped in 1995 to run DuPont's $2 billion titanium technologies business and later turned a newly formed safety-products division into what became the company's highest-earning segment during the time she ran it. "We had to change our business model three times before we found the right one," Kullman recalls. "There were times when I questioned whether we could get there or not."

Kullman was executive vice-president when Holliday told her last September that she would soon replace him in running DuPont. While her appointment came a bit sooner than Wall Street analysts expected, no one was surprised to see her taking over as CEO at the start of this year. (Holliday, 60, has stayed on as chairman.)

Within DuPont, a 206-year-old Wilmington (Del.) conglomerate, executives appreciate the importance of cultivating the next generation of leaders.

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