Prescriptions for Managing the Leadership Crisis

Replacing senior executives is something quite common. In every organization, there have
been, are, or will be situations when the boss decides to leave his or her post, either because of
age, weariness or unhappiness. There are also situations when the corporate board of directors
decides to do without the CEO's services. Even when the dismissal is announced in advance,
there is always a sense of nervousness and crisis when a new leader takes over. That's what
people sensed recently, for example, when Brazilian-born Vanderlei Luxemburgo, bid farewell to
the Real Madrid football team.

"The succession process is always a critical moment for the management of any enterprise,"
says Santiago Barba Vera, professor at the University of Deusto in Bilbao, Spain, in his new
study, "The Succession of a CEO: Managing the Crisis," published in the Universia-Business
Review. In that article, Barba Vera makes a series of recommendations for creating a
succession process that has the least possible impact on the corporate bottom line and on the
motivation of the management team. One of the first steps a company must take is to analyze
why the changein leadership is going to create a crisis. The company needs to accept that the
crisis exists and that it is necessary to find an appropriate way to handle it.

According to Barba Vera, if the replacement is planned in advance, the

transition process is quite different than if it is unplanned. "You have different assumptions
when you fire a managing director and when here tires. It's one process when he decides to
move on to another company after making an agreement to that effect, or when his dismissal
results from a merger or an acquisition by another company," he notes.

Managing a departure covered by an agreement [with the previous CEO] is not a complicated
process, but it helps to plan for any departure. Companies need to establish a succession plan,
put it in place in advance and execute it over specified periods of time. "You have to
count on the possibility that there will be internal candidates who aspire to the position. The
managing board and the CEO must decide if they are interested in considering an internal
candidate." Companies such as General Electric believe it is critical to guarantee that there
is at least one internal replacement for their chief executive. So when it was time for Jack
Welch to retire, GE had already decided on an internal replacement -- the current president,
Jeffrey Immelt.

Unplanned replacements are more commonplace, and they can occur in several different ways.
The CEO can decide to move in a different direction, or the board of directors can decide to
remove the CEO and change the direction of the company. It can happen because of pressure
by shareholders or as a result of a merger. In any case, notes Barba Vera, "when a departure is
not planned for, managing the crisis is more complex than when the departure has previously
been planned for."

Are you going to promote an internal candidate? Or are you going to bring in new blood? What
transition process do you want to set up? How are you going to integrate the new chief
executive into the leadership team? The board of directors must immediately address these
questions as soon as it has been decided that the CEO is going to leave the company.

If the board decides to promote an internal candidate, the transition will be quiet, easy and
orderly. There could be a problem, however, if there are several internal candidates for the post
within the company but the board decides to choose an outsider. The transition will be more
complex. Barba Vera identifies a series of key considerations: Companies must avoid de-
motivating those internal candidates who don't wind up getting the top job. They must
guarantee that collaboration continues during the transition period, and they must guarantee
that the managing team is preserved until the new chief executive takes the reins of power.
"Tact, communication, economics, and motivation are also fundamental considerations," adds
Barba Vera.

If a company decides to pick an outsider as its new CEO, Barba Vera recommends that the
companies designates one member of its management team or board and make him or her
responsible for leading the transition until the new CEO arrives. This should be someone who is
highly regarded-- someone who can channel decisions and support the transition process.

The Transition Plan

"When you manage the process of replacing a chief executive, you have to
be agile in your communications and decision-making. It is important to avoid a power vacuum.
You need to avoid dead time and rumors," says Barba Vera. He provides the following steps for
managing the crisis:

Before departure, companies must agree to communicate the departure of the chief executive
to their corporate board of directors. They must decide to whom they will communicate the
news. Who will be in charge of communication, and what support they will get? If you decide to
promote someone within the organization to the vacant post, announce the name of that
person at the same time that you announce the departure of the former chief executive. That
way, you can dispel any doubts within the organization. If no one has the skills to manage the
transition within the managerial team, the company should designate a "succession committee"
that will operate until the new chief executive is brought in.

At the moment of departure, companies must communicate that news, and tell everyone how
they are going to carry out the transition. They must also explain what the situation will be like
inside the company.

The days immediately after the departure are also critical. The crisis succession committee
should meet to define the key things that must be managed during the transition. In addition,
members must identify the key personnel that they do not want to lose during this period. They
must design a plan for guaranteeing that the team stays together and begin taking measures
that communicate a sense of normalcy.

During the transition period, the company should generate both confidence and calm. However,
senior executives must also plan for the day when the new CEO will join the team and, of
course, for what happens later on. How will they manage the integration process? How will they
prepare the transfer of documents and knowledge, while making people feel that the
organization is on a solid footing and that they are in full control?

After the company has overcome the emotional impact of the CEO's departure, a new stage
begins involving a sense of uneasiness. That sense of anxiety will not be fully dispelled for quite
some time.

Every process of organizational change provides an open door toward new opportunities.
However, as Barba Vera notes, "It also frustrates expectations and provokes a break in the
psychological contract with the previous boss. That, in turn, makes it easier for key people in
the organization to reorient their careers toward other companies."
The crisis will not end abruptly after the new chief executive comes aboard. Instead, there must
be time provided to transmit knowledge to the new boss, and integrate him or her into the
company.

How any organization resolves these problems says a great deal about its corporate culture,
says Barba Vera. "In managing the leadership crisis, there is much more at stake than the
transition from one chief executive to another CEO. The entire managerial team and the
company's social prestige are also at stake."