To understand how not to handle CEO succession planning, one need look no further than the recent financial crisis. After finally persuading its longtime CEO Hank Greenberg to retire in 2005, AIG experienced four CEO resignations over the next four years—along with a liquidity crisis that required two federal government bailouts. Citigroup, without a CEO when Charles Prince resigned for the second time in two years, sought in November 2009 to calm a jittery public by appointing former Treasury Secretary Robert Rubin interim CEO. And after Ken Lewis announced his decision to leave Bank of America, board members scrambled for three months to find a successor, during which time the company’s stock fell 10%—while the Dow rose 7.5%.
For these institutions, being caught short-handed and thrust into a public laundry-airing did more than create internal turmoil and rattle shareholders’ confidence. It amplified the inordinate difficulty of leading during an unprecedented crisis that jolted the public trust and threatened the very foundation of the global financial markets.
As banks face new challenges—from stiff new regulations and lawsuits to a bailout-weary public—succession planning remains a persistent challenge. For example, with the CEO’s contract due to expire in 2013, Deutsche Bank shareholders had been asking for a succession plan. Yet the CEO and board dragged their heels—a delay that may cause the most promising candidate to bolt elsewhere.
The financial sector, of course, holds no monopoly on getting succession planning wrong. There are examples from all industries where missteps have had significant consequences for performance and reputation.