The touchy task of grooming a CEO successor without losing the incumbent

The touchy task of grooming a CEO successor without losing the incumbent

Published 23 October 2013 09:55, Updated 24 October 2013 08:48

Michael Smith

Chief executive succession planning is a tricky balancing act for many boards. Leave it too late, and there is a leadership vacuum if a top executive quits or is sacked unexpectedly. But grooming internal candidates for the boss’s job too early can also backfire, as they may get impatient and leave to become top dog elsewhere. Paul Zahra’s abrupt resignation from David Jones on Monday highlights the challenges companies face in an era when the average tenure of a chief executive has fallen to just over four years.“It is terribly important boards spend time on succession planning, and most of them do, but you can still get caught by surprise every now and again,” former David Jones chairman Dick Warburton said.

The retailer has said it could take up to 18 months to find a replacement. While Mr Zahra has agreed to stay on during the transition, it is not an ideal situation for a company struggling to get back on its feet in some of the worst conditions the industry has seen for decades.

Despite this, not everyone is complaining about David Jones’s succession planning. “What do you do? You can’t keep another CEO warm and not give him the job,” says major shareholder, Allan Gray chief executive Simon Marais.

Mr Warburton said it was important to keep top candidates in the organisation happy. “You certainly do try to keep good executives on the boil because you don’t want to lose good people, but you aren’t necessarily going to get rid of your current CEO just to keep the next one,” he said.

Boards have a number of options if a chief executive leaves earlier than expected. One is appointing an interim chief executive from its internal ranks until a successor is found. Treasury Wine Estates appointed Warwick ­Every-Burns interim chief executive last month after sacking David Dearie due to the company’s under-performing US operations.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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