Succession planning should be a priority for any business. We’ve written numerous articles on the topic and feel passionately about helping people understand the importance of not disregarding succession planning until it becomes urgent. To further impress this conviction, we’ll turn to some past succession planning examples.
Hearing succession stories from other companies offers great learnings – both of what to model and what to avoid. We’ve compiled stories and data about succession planning to draw out some key lessons. These succession planning examples are a good reminder of the complexity of creating an effective succession plan.
In this article we’ll look at the succession stories within the history of McDonald’s and Coca-Cola. We’ll also extract key data from a research paper that is based on the interviews of 22 board members (on various boards) who have collectively been involved in 97 successions. Additionally, we’ll address The Peter Principle which is a sly saboteur of a seemingly well-prepared successor.
McDonald’s Succession 2002-2004: A Favorable Succession Planning Example
McDonald’s experienced a tragic and tumultuous leadership shift in the early 2000’s. In 2004 the CEO, James R. Cantalupo, died suddenly of a heart attack. Six months later his successor, Charles H. Bell, resigned after becoming terminally ill. Despite the untimely death of one CEO and the cancer diagnosis of his successor 6 months later, McDonald’s was able to insert yet another CEO (the 3rd within one year) who brought about a new age of profitability.
How did McDonald’s manage that much unexpected leadership change with such success? According to a case study by Sigma Assessment, “the answer lies in the company’s exemplary succession planning.”
The third CEO during the year of quick and unexpected leadership turnover was James Skinner. Skinner had already been identified as a potential successor and was being groomed right alongside Charles Bell. After Bell’s cancer diagnosis and subsequent resignation, McDonald’s was poised to name Skinner as CEO within a short amount of time due to leadership’s forethought and preparation.
Coca-Cola Succession 1997: An Unfavorable Succession Planning Example
Doug Ivester was a very successful CFO at Coca-Cola when he assumed the role of CEO. His predecessor, Roberto Goizueta, had grown the company 34-fold during his 16-year tenure and had mentored Ivester for over ten years before handing off the top leadership role. Shockingly, despite this intentional development, Ivester failed to succeed as CEO.
Doug Ivestor was CEO for only two years before retiring and had very unfavorable results. “During his short time in office, Coca-Cola’s return on shareholder equity dropped from 56% to 35%, and overall earnings declined for two years on-end. Experts point to ‘The Peter Principle’ as the culprit of this failure.” (Source)
The Peter Principle: An Enemy of Succession Planning
Are you familiar with the Peter Principle? Considering the failed succession story of Doug Ivester, with the Peter Principle being blamed, it seems important to visit this concept.
The Peter Principle states that successful employees will be promoted and steadily rise through the organization’s hierarchy until they assume a position for which they are incompetent. “This happens because we mistakenly assume that employees who excel at one level ought to be promoted and to find success at the next. In the case of Coca-Cola, Doug Ivester was a remarkable CFO, so rather than promoting him to CEO the board would have done well to keep him where he worked best.” (Source)
To avoid the Peter Principle, it is highly important that a candidates’ skills are measured against the skills necessary to succeed in a role they are slated to take on, not the one they are currently excelling in. Use objective measures as well as feedback from others to help overcome personal biases when evaluating potential candidates for promotion.
Data from Succession Planning Examples
What else can we learn from people who have gone through a succession plan? We are fortunate to have research compiled by the Department of Management Darla Moore School of Business University of South Carolina which examined how boards define success in CEO succession and what factors led to a successful transition.
The researchers interviewed 22 board members who represented 135 boards – most of the interviewees served on multiple boards. Roughly half of the participants were either current or former CEOs and the rest held positions of senior leadership positions. When totaling this group’s participation in CEO successions, they had a combined total of 97 successions.
Here are six fascinating takeaways from their findings:
- Unplanned successions were more likely to fail than planned ones.
- Internal candidates were just as likely to fail as external candidates.
- Starting the process early made a significant difference in the success.
- Clearly defining the role’s specifications was a key factor in success.
- Gathering as much data as possible about the candidates led to more favorable outcomes.
- An inflated ego of the successor, often demonstrated by an unwillingness to listen to feedback, was a regular characteristic of a failed succession.
Representing 97 CEO successions, the data on successes versus failures is as follows:
- 67% were considered successful
- 28% were considered a failure
- 5% were too early in the transition to tell
What We Can Conclude from These Succession Planning Examples
This data, coupled with the succession planning examples of McDonald’s and Coca Cola point us to this clear conclusion: effective succession planning is not an afterthought but a proactive, strategic initiative. It is more than filling vacancies but rather, cultivating leaders who have the skills to navigate complexities, drive innovation and uphold core values.
It is good to remember that succession planning might not let companies control when a leader leaves, but it allows management to prepare for how the transition will occur. If you’re ready to be proactive in your succession planning strategies, we can be a reliable partner to come alongside of you. Just let us know how we can reach you for a conversation.