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Midwestern Companies Get CEO Succession Right

September 19, 2014

By Ted Dysart, Vice Chairman, Heidrick & Struggles

After Illinois Tool Work’s CEO David Speer lost his battle with cancer earlier this month not only did the Chicago community lose a vital member, but ITW also found itself at a critical leadership juncture. At a time when many companies waste crucial money and resources scrambling for a replacement – and in the process become press fodder – ITW had a plan.

Over his 30+ year career with ITW, Speer left a lasting impression. After joining in 1978, he advanced through sales and marketing positions before becoming CEO in 2005 and, the following year added the title of Chairman. Speer championed and led a strong acquisition program that, before the 2008 downturn, led to $1 billion in increased revenue each year.

When Speer stepped down in October to focus on the treatment of his medical condition, the company had already implemented its succession plan, shifting Vice Chairman Scott Santi to President, COO and Acting CEO. Efficient planning, like that of ITW, often goes unnoticed. However, attention is frequently paid to the theatrics of finding a new leader.

Why all the drama? Data has shown that companies can be ill prepared to find a CEO replacement. A 2010 survey of 140 CEOs and directors of North American companies revealed that 39 percent of respondents believed they had no viable internal candidates to succeed their current CEO.

But, many companies are prepared for transition or loss.

McDonald’s is just one recent example. When Jim Skinner retired after his eight-year run as CEO in June 2012, President and COO Don Thompson took over. Thompson’s 22-year history with the company reflects McDonald’s talent retention and focus on grooming its bench strength.

Along with ITW and McDonald’s, an array of formidable Midwestern companies has cultivated CEO successors through a thoughtful process. Organizations like Walgreens, Caterpillar, Deere, Grainger, United Continental, CDW and Northern Trust have recently found their CEOs from within – illustrating the deep talent pool they have developed for leadership.

Furthermore, many of these companies have maintained a forward view for leadership. Instead of cloning the incumbent CEO, these organizations have sought a new direction in leadership to stay ahead of industry trends and avoid perpetuating problems. Cardinal Health, the $102 billion Ohio-based pharmaceutical and medical supply company, promoted its Vice Chairman and division CEO George Barrett in 2009. After taking the helm, he revitalized the company’s primary drug distribution business, leading to a more competitive position in the market.

A similar internal transition occurred earlier this year with Exelon, the $18 billion electric utility. When John Rowe stepped down as CEO, Christopher Crane was promoted from President and COO.

Transition at the top can certainly devolve into tabloid scandal, but there are many examples of getting it right. And unfortunately, we seem to focus on those that get it wrong. Along with internal vetting, best practices for succession also means considering an external pool of candidates. A thorough market scan ensures that external and internal candidates are equally evaluated so that a company truly finds the best candidate. Even in the face of tragedy, a well-executed, thoughtful strategy can guide a company through a potential storm and away from the drama.

What makes these Midwestern players so successful? I’d say it is a board that forces the tough questions, looks to the future and puts the organization above any one individual. And, if I’m a shareholder, I’ll put my money with these time tested enterprises any day.

About the Author

Ted Dysart is Vice Chairman of executive search firm Heidrick & Struggles.