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Confusion in the corporate sectorConfusion in the corporate sectorSo, does a planned baton change that includes cultural continuity, GE style, satisfy the market and bring a better chance of success?
Interestingly, one of Jack Welch's basic objectives for GE's succession planning was to minimise dysfunctional competition[20] having experienced it himself when he was a contender for the CEO position. And did I mention that James Strong is currently the Chairman of the Board of Directors of Woolworths? Interestingly, Strong is developing a sound record in succession planning. He left Qantas with two powerful internal candidates as his successor-Geoff Dixon and Gary Toomey. Dixon subsequently became CEO of Qantas and Toomey left and became CEO of the now-failed Ansett. What does this tell us? Even the best succession planning does not guarantee a smooth transition. The market is fickle. Some institutions prefer ‘home-grown' candidates, while others ‘reward' companies that make external appointments by increasing the stock price on announcement of the new CEO. Whatever the market says at the time, recognise it for what it is-a short-term and immediate reaction that will just as quickly change as positive results begin to emerge. The key message is to plan for succession rather than make the appointment ‘on the run'; potentially a far more expensive and disastrous scenario as the CEO churn might show. Taking the long-term viewDo you think it is appropriate that market reaction should have any influence on an organisation's approach to succession planning? Further, given that the average CEO tenure is only 2.75 years, is it worth the board's or the CEO's time to even attempt to turn around a culture that is not change-ready or adaptable? Maybe if organisations paid more attention to succession planning and culture, then average tenure and performance would improve. It is almost hackneyed now to say that workplace cultures take a long time to change and adjust. Welch took over 15 years to change the GE culture to one with an ongoing ability to learn and adapt. Because he had spent so much time embedding and continuously reinforcing this culture, Welch was not worried about the impact of his successor on the GE culture-each of the contenders brought the same cultural approach with them. In any event, the culture itself ensured that the company could withstand the changes. Other examples also demonstrate that it takes at least 5 years (often longer) and much pain and determination to embed cultural changes in an organisation. Think of the torrid battle to change the culture of the Australian waterfront in the late 1990s. Patrick Stevedoring incurred significant losses during the reform process. Chief Executive Chris Corrigan was under immense personal and professional pressure to deliver change. Under the current ‘short-term' view of corporate success, with impatient shareholders and markets, would Corrigan have had the support to take the short-term financial losses and push through for longer-term reforms if not for government backing?[21] Would you have had the appetite to sustain those losses if you were a board member then? In the Hunter Valley in 1997, when the Chief Executive of Coal and Allied, Kim Tronson, pushed though changes to the deeply embedded workplace culture of the coal-mining industry, the share price initially dropped dramatically to $6. It eventually rose to $31 in 2002. In June 2003, it was around $22. It was fortunate for Coal and Allied that its major shareholder, Rio Tinto, was prepared to stay the course. Without Rio's deep pockets and its clear strategic commitment to the long-term result, what would have been the enthusiasm for Tronson to keep challenging the powerful union culture? Intolerance for slow and painful change continues. As I write, the market is looking critically at John Fletcher (appointed in 2001) in his role at Coles Myer and Ziggy Switkowski (CEO since 1999) at Telstra. These CEOs, in the longer-term interests of the shareholders, are attempting to transform large organisations with deeply embedded cultures. Yet realistically, how much time will they be given to deliver results? What makes the influence of the market and the emphasis on the short-term even more curious is that, in 2001 and in 2002, the BRW most-admired business leader was Michael Chaney, Chief Executive of Wesfarmers, and the most-admired company was also Wesfarmers.[22] Known as ‘Mr Consistency', Chaney holds the view that consistent strategy and performance and a long-term focus on shareholder value are the hallmarks of chief executive success. He says the greatest challenge is to be consistent and to keep other people from deflecting you into the next new acquisition or project. Another of the 2002 most-admired business leaders, Wal King of Leighton Holdings, agrees, saying that chief executives need to distinguish between ‘fragrance cycles' and substance.[23] So, the corporate sector provides a confusing and contradictory tale about the importance of culture in CEO succession planning for boards and stock markets. Unfortunately, these challenges are not confined to private enterprise. [18]B Clegg, ‘Wavish waves Woolies goodbye', Australian Financial Review, 23 April 2003, p 64. [19]W Frew, ‘Woolworths sets up contest for chief executive job', Sydney Morning Herald, 20 May 2003, p. 22. [20]J Welch, op.cit., p. 412. [21]For more information on the waterfront dispute, see Department of Parliamentary Library of Australia, Current Issues Brief, vol. 15, 1997-1998. [22]S Washington, ‘Mr Consistency', BRW, 4 August 2002, p. 58. [23]ibid. 259
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