Heidrick & Struggles: Succesful Succession -Stephen Langton and John Wood

Executive search firm Heidrick & Struggles offers a unique service sourcing CEOs for prospective positions. Phin Foster talks to Stephen Langton and John Wood about how they ensure a company's next leader succeeds on all fronts.

Boards are under the microscope like never before. Decisions and processes, once undertaken with the faith of shareholders against a backdrop of media indifference, are now seized upon by a vociferous array of stakeholders demanding answers. It is no longer enough for a chairman to say he is right; he has to prove it.

There is no better example of this than CEO succession. What has always appeared to be a subjective decision must now be backed up by facts, figures and clear indicators of why this appointee is right for the role. While most boards were taking this responsibility seriously prior to the economic crisis, they now find themselves performing the task in front of a far larger audience.

‘I used to attend AGMs where the chairman would announce his decision, shareholders would applaud the wisdom of the board and that was that,’ Stephen Langton of executive search firm Heidrick & Struggles says. ‘Shareholders are demanding to know exactly why these people will succeed. Our clients require services that provide extensive arguments and proof that successful candidates have been properly monitored. Previously, we did not have the science or due diligence to make that happen; now we do.’

Langton believes his firm offers a unique service that addresses a demand that is only set to grow. While his leadership consulting division takes responsibility for assessing and guiding internal candidates in any succession programme, its activities have been combined with the firm’s CEO and board practice unit, which specialises in sourcing external contenders.

‘We’re proud of having the best executive search capability on the market,’ Langton explains, ‘and we’ve also developed a proven leadership consultancy capability. It’s the market that has led us to connect the two and we’ve seen extraordinary growth in these services,’ Langton says.

‘CEO succession planning was traditionally undertaken by the incumbent and all the board had to do was rubberstamp the decision,’ explains John Wood, global managing partner for CEO and board practice. ‘Director selection processes rarely went beyond old boy networks. Shareholders came to realise that their interests might not be being best served and there has been an evolution in the level of engagement by boards as a result. They’re far more involved than ever before and need experts to serve them. We’ve become a good fit for that.’

Fine detail

The Heidrick & Struggles approach to succession planning is certainly exhaustive and Langton uses a word that does not readily associate with executive level manoeuvrings: intimacy. His team will typically spend 40-45 hours with each internal candidate, assessing credentials and offering guidance to those looking to gain the skills that will help them become the perfect fit for the role. Such an in-depth approach breeds a sense of egalitarianism, but Langton fully appreciates the need to tread carefully.

‘The performance of the top team is the vital component of a business operating successfully and nothing destabilises that performance more than the news the CEO is moving on,’ he says. ‘The most important relationship in this is between us and the participants. We need to break their need to compete by demonstrating that they’re not being compared to one another. We will have already created a profile of the CEO we’re looking for and that is the yardstick by which they’ll be measured. It makes the whole process far more transparent.’

In order to create that profile, an exhaustive interview process is undertaken involving board members, institutional investors, major suppliers, clients and other key stakeholders. ‘We need to paint a picture of what success will look like throughout the tenure and these people are ultimately the jury that will decide upon what those standards are and whether they’re being met. The last major succession we oversaw involved 17 main criteria for the ideal candidate. We can then assess exactly how each potential successor has demonstrated these abilities and what skills they might need to attain in order to become a better fit,’ Langton says.

But the profile of the ideal candidate can change during the course of a search. Langton cites the work his firm carried out on behalf of Quantas as an example of why this process must always be flexible. ‘Halfway through that succession the economy collapsed,’ he explains. ‘It went from being one of the world’s fastest-growing airlines to a "Mayday" situation. One must have the courage to see this process as an evolving thing, not a transaction where all terms are set up front.

When priorities change, the right individual for the role may start to look somewhat different.’ Clients are beginning to recognise this. Langton has witnessed an increasing number of companies using his services soon after a CEO is appointed. ‘Those boards see this as a rolling thing,’ he says. ‘For our main succession clients we’re reassessing the top team every six months. In the future, this process won’t be an isolated event; it will be like an accountancy firm looking after your finances. The relationship will be ongoing.’

The right fit

Acquiring the relevant data on internal executives should be relatively straightforward, but Wood and his team are forced to assess potential appointees who may not even be aware that they are being considered for the role.

‘Internal information is useful not just for evaluation, but because it offers a clear indication of what someone needs to add to their repertoire in order to be a better CEO,’ he says. ‘When I look outside, it’s about looking for someone you could simply drop in. CEOs should never require too much on-the-job training.

‘We need to get a clear idea of the company's strategies, skills and competencies that will be required to execute them. Are your supply chain requirements shifting internationally? Do you need to start sourcing more products in Asia? We’ll find someone with a proven track record in this area, but the client needs to articulate exactly where these priorities lie.

‘There needs to be an open exchange of information. We’re not able to do our job unless we have unlimited access to the key stakeholders. We have the same desire to get this right as they do.’

The focus is on themes rather than industry specifics. ‘We’re finding CEOs much more agnostic to industry,’ Langton explains. ‘The issues facing the top people in the airline industry are similar to those challenges in banking or resources; whether you’re in London, Beijing or Sydney, the role is the same.’

Langton and Wood stress that it is their job to bring the best candidates to market, but the board makes the final decision. ‘While we try and put internal candidates on the inside lane, we would not be doing our job if we failed to look outside as well,’ Langton says. ‘When we went through this process with BHP, we used a full search and saw an extremely impressive list of candidates. Proven CEOs in globally recognised companies put their names forward. What we then did was stand the best of what the outside world had to offer alongside the leading internal candidates and equipped the board with all the data and analysis required to make that call. From there it is down to them.’

For an organisation of that size to place so much faith in the guidance of an external partner demonstrates just how much stock boards are putting in the added value Heidrick & Struggles can bring. ‘It’s quite an unusual for a board to seek guidance on making such a seemingly objective decision,’ Wood acknowledges.

‘What we have seen, however, are boards acknowledging that they’ve not been as good at this as they might have been and that they need help.

‘When we walk into a boardroom and say we’re not just here to have a successful search, we want a successful CEO, they’re attuned to that message. The data we can put in their hands and our ability to reduce uncertainty seems right to them. The new generation is interested in this topic and multi-year succession plans are becoming more common. They’re getting better, but we’re here to help.’