In The Lead: Commentary / Companies struggle when it comes time to replace the CEO

Only about half of companies surveyed indicated they had CEO succession plans in place



Legend has it that well-oiled Corporate America understands the importance of replacing the CEO and has a well conceived plan for doing that efficiently when the time comes.

Fact is, only 54 percent of companies say they are grooming someone specific for the position, according to a recent study by Stanford University and the Institute of Executive Development.

Their researchers got some illuminating answers when they interviewed executives and directors at 20 companies last fall: 39 percent said they had no viable internal candidates ready if the CEO had to be replaced immediately; 40 percent did not have a formal talent development program for senior executives below the CEO; and 75 percent either disagreed or were noncommittal when asked to respond to this statement: "There is an adequate pool of ready successor candidates for the CEO position."

"The board agonized for two years over whether to fire the CEO, but we didn't have a successor in place," one corporate leader told them.

Succession planning is an important issue for investors, who foot the bills to put an underperforming CEO out to pasture and lure his or her replacement. It's all the more important because, according to a 2010 study by Stanford and executive search firm Heidrick & Struggles, about 10 to 15 percent of companies replace their chief executives each year, whether it's because they retire, perform poorly, experience health problems or depart for greener pastures.

Executive search firm Spencer Stuart said more than 10 percent of the CEOs at S&P 500 companies departed last year. Of the 518 companies that were in the S&P 500 for all or part of 2013, 53 of their CEOs departed.

Spencer Stuart said the average age of the departing CEO was 63, while the average age of the replacement was 53. Retirement was the explanation for 70 percent of the transitions followed by the CEO's voluntary decision to step down, the search firm said.

Pittsburgh experienced its share of executive comings and goings in 2013.

There were CEO changes at: U.S. Steel, which has been burdened by a streak of five losing years; H.J. Heinz, where a $28 billion buyout triggered the change; and PNC Financial Services Group, where the longtime CEO retired and was replaced by an experienced internal candidate.

Additionally, Lawrence-based digital communications company Black Box got a new CEO, Michael McAndrew, when R. Terry Blakemore resigned. This January, American Eagle Outfitters CEO Robert Hanson exited after the South Side teen clothier turned in a lackluster performance.

Locally, 2013's biggest housecleanings came at U.S. Steel and Heinz.

Gone from U.S. Steel is John P. Surma, who had been president since 2003, CEO since 2004, and chairman since 2006. Mr. Surma, 59, lost the title of president to former Alcoa executive Mario Longhi, also 59, last June. Mr. Longhi joined the steel producer in July 2012 as chief operating officer.

Last September, Mr. Surma relinquished the CEO title to Mr. Longhi as part of what the company said was "a careful succession planning process." Mr. Surma served out the year as executive chairman before retiring. Investors endorsed the makeover: through late April, U.S. Steel shares were up about 48 percent since Mr. Longhi became CEO Sept. 1.

Several key members of Mr. Surma's team also departed, including Gretchen R. Haggerty, who had been chief financial officer since 2003. The region's second highest paid female executive was replaced by David Burritt, former CFO for heavy equipment producer Caterpillar.

U.S. Steel general counsel James Garraux and senior vice president David Lohr also retired.

More than a dozen top executives left Heinz after the sale to Warren Buffett's Berkshire Hathaway and 3G Capital was completed June 7. They included chairman, president and CEO William Johnson, the CEO since 1998. He was replaced by Bernardo Hees, former CEO of Burger King. 3G Capital acquired the burger maker in 2010 and put it on a strict low-cost diet, excellent practice for what's happened since Mr. Hees assumed command at Heinz.

The ketchup maker also lost CFO Arthur Winkleblack, general counsel Ted Bobby and four senior vice presidents.

Mr. Johnson picked up an assignment in October when Education Management Corp. appointed him to its board of directors. The Downtown for-profit educator hired a permanent CFO in April and filled the new position of chief legal and compliance officer in March. That's about the time the company disclosed it is the target of a Securities and Exchange Commission investigation related to the way it accounted for goodwill and allowances made for bad debt.

At PNC, CEO James Rohr, 65, stepped down after nearly 13 years in the position, but remained chairman until last month. His replacement was William Demchak, 51, who joined the bank in 2002 as chief financial officer. Mr. Demchak was long considered to be Mr. Rohr's heir apparent. CFO Richard Johnson retired in August and was replaced by Robert Q. Reilly, a 27-year PNC veteran who had been head of the bank's asset management group.

— Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


First Published May 13, 2014 11:26 AM

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