This week Ginni Rometty was announced as the new CEO of IBM, marking a significant transition at IBM and celebrating the company's first female top executive. This transition shows an example of world-class succession management. It was predictable (IBM CEO's leave their jobs at the age of 60) and shows the results of years of development planning. Ms. Rometty is an IBM veteran (she joined the company in 1981 as a Systems Engineer, the same year I joined IBM actually), worked her way up to managing the integration of Pricewaterhouse Coopers, and most recently ran sales and marketing. Investors, customers, and IBM employees will see this as a well-planned, safe transition.
Unfortunately, most companies do not invest the time, energy, and money to build such a disciplined process. IBM's talent management process (which is detailed in our case study of IBM's talent strategy) is very mature, integrated, and global. At the executive level the company takes development planning and succession very seriously. In general, however, our research shows that only 19% of the large organizations we surveyed (upcoming High Potential Leader research coming next month) have a business-integrated strategy to identify and develop high-potentials. Almost half the companies we surveyed have an ad-hoc or locally managed approach – or no approach at all.
Contrast IBM's succession with two other recent succession stories: Apple and HP. Apple ex-CEO and founder Steve Jobs planned his succession for years, and built a large library of instructional and multi-media materials to help continue his legacy. Tim Cook, his successor, was also groomed for many years. In this case there were likely other candidates, but it was clear to the outside world for quite some time that Tim Cook was Jobs' replacement. But unlike IBM, where Palmisano stood aside calmly at the peak of his career, Mr. Jobs chose to work right up until his death. This is an admirable and inspirational approach, but it does not calm shareholders, customers, and employees. Apple stock has dropped about 6% since this transition took place, and most Apple watchers are nervous about what will happen next.
Our research shows that deep and serious succession plans for top executives are critical to business continuity. The research we will publish next month will put statistics behind this finding.
A final example I want to mention is HP. Here is an iconic company, one of the pioneers of technology in the world, which has had a whole series of unplanned CEO changes. From Carly Fiorina to Mark Hurd to Leon Apotheker and now to Meg Whitman. In each case the new CEO seemed radically different from the previous, and it appeared that the board was unable to build successors internally. While there are many good reasons that these transitions took place, this is a company that does not have a process for internal CEO succession and the results have wreaked havoc on the company. HP's stock is down 32% over the last few months, and much of this shift is due to uncertainty in leadership and strategy.
CEOs play a vitally important and very difficult role. They must lead the organization forward, drive internal execution and operating success, and communicate strategy to outside stakeholders. In some cases and outside CEO brings important new skills and perspective to the company (Lou Gerstner was one of the most successful CEO's in decades, and he came into an IBM in the 1980s which was insular and struggling). But in most cases companies benefit greatly from building leadership internally – this develops candidates who have deep understanding of the business, know the company culture, and can calm investors and customers.
IBM's announcement this week looks simple, but behind the scenes are many millions of dollars of investment in high-potential identification, succession planning, developmental activities, and executive assessment. I think we can use IBM's announcement as an example for other companies to follow.
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