The odds in favour of chief executives leaving their jobs, and being replaced by an outsider, have definitely shortened in the nineties. Indeed, one commentator was moved to report that chief executives 'with the outside edge [are] in, as never before' - and even a casual glance tends to confirm the diagnosis.
The man striving to move W.H.Smith from its first loss in 204 years to decent profit is Bill Cockburn, late of the Post Office. For lack of internal succession in two giant companies, George Simpson has moved from Rover Group to Lucas and then to GEC: while John Towers, his Rover successor, has given way to a German from BMW, the new owners - and so on, and on.
The diagnosis is somewhat superficial, though. Companies that hunt new leaders from outside are heavily outnumbered by boards that promote insiders. Some of these will be relative nonentities, who have merely been waiting their turn: others will be men (rarely women, alas) who will galvanise the company into both different and better performance.
The second category surely indicates the right way. The external replacement of a chief executive, if it follows failure and ouster, is a double indictment of the organisation. First, the system has neither produced the right top management, nor ensured that the occupants achieve the right results. In any event, the lack of internal successors represents failure to mine the company's human gold - its executive talent.
The talent's top opportunities are closely linked to tenure. Chief executive may only average around eight years - so thinking about replacement should start soon after anointment. The longer a chief executive stays in place, of course, the less frequently the succession problem arises. Lord Weinstock started very young as GEC's managing director, and retired later than the norm: so the issue only arose (or only arose compellingly) once in three decades.
But in reality the issue is continuous: after all, every chief executive is mortal (even those whose underlings refer to them as God). The temptation is to say that a boss's first job is to locate and develop a successor management. It's certainly true that every well-managed company will have a system for identifying, promoting and developing its best executive talent.
In consequence, the top team will contain several people capable of stepping into the leader's shoes, be they never so large. It's also true that very few companies have such a system. Even if they do, the leader may not welcome the close presence of a crown prince, let alone several, who threaten to do the job as well or (perish the thought) better. Corporate annals are replete with tales of powerful chief executives who devoted extreme energy to dispatching heirs presumptives as soon as they dared to presume.
Better still (from their point of view), tyrants don't let the possibility arise in the first place. They promote yes-men. Leslie Lazell, the genius who built Beecham, observed that when its dominant financier, Philip Hill, died 'all the performing seals got down from their barrels and began to fight.' Yet Lazell felt obliged to turn outside for his own successor: and the company only developed new global momentum when the fourth inheritor, the imported Bob Baumann, took the helm.
The fault doesn't lie only with the departing hero: it's natural (though sinful) for Churchills to choose Edens, because few men truly and deeply want to be outshone by a successor. The fault lies with the board. One of its prime duties is to ensure that a successor management is in place for the time when change is required - either through retirement of the sitting tenant or his failure.
All experience shows, however, that boards are as reluctant to admit the absence of good succession as they are to react to poor results - two defects that tend to run hand-in-hand. In both cases, the directors take refuge in denial, defined by one consultant as 'an unconscious coping mechanism to block out and not deal with major change that may have some pain associated with it.'
Hence the triple whammy when the profits nosedives into loss, the chief executive exits and the head-hunters lick their chops. Sometimes new blood is certainly by far the best answer: the organisation needs an outsider who can unite the outside view with new energy. By and large, though, the outside top appointment counts as an accident - and it's no excuse to say that many companies are accidents waiting to happen.
Nor is it necessarily true that only outsiders can bring fresh minds to bear. Internal mavericks can rethink the company just as well, possibly better - they know where all the bodies are buried. ICI's Sir John Harvey-Jones is one outstanding example, selected internally (rather like Gorbachev in the USSR) because everybody knew he would radically reshape the leviathan.
ICI's strength, though, lay in its ability to tolerate and even promote so outspoken a critic. In the same way, Weinstock's open contempt for GEC's management performance prompted the board to hand him the crown (with some alacrity - he spoke for large investors). Niall Fitzgerald, the new man at Unilever, has also been chosen specifically to engender radical change.
Effective succession is thus an expression of the whole culture of the company - whether younger managers are encouraged to speak their minds, whether results matter more than politics, whether people move early into jobs where their powers can be exercised and developed, whether decision-making is shared or hugged to the chief executive's bosom, whether initiative is stimulated and welcomed.
These characteristics are vital for all corporate purposes, not only management succession. Witness Marks & Spencer, a model in these respects, despite domination by the autocratic Lord Marks. The great man had powerful allies in the Sieffs, and the culture ensured that, when the family supply ran out, admirable hired hands were ready in the wings. To succeed, develop people at all levels who can succeed - in both senses of the word.
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